Logistics Real Estate: Why Warehousing Keeps Compressing

If there is one asset class that has rewritten its own valuation rules over the past five years, it is logistics. Cap rates on prime distribution warehousing have compressed faster than any other commercial category, and the structural drivers behind that move show little sign of reversing.

The arithmetic is straightforward. E-commerce penetration continues to climb, retailers are re-engineering supply chains for resilience rather than pure cost, and modern logistics specifications — high eaves, heavy floor loading, ample yard depth — are in genuinely short supply. Demand is structural; quality supply is constrained.

For investors, the implication is that headline yields on prime logistics now look thin relative to the rest of the commercial spectrum. But the income security underpinning those yields is exceptional: long leases, blue-chip covenants and built-in escalations that comfortably outpace the secondary office market.

The smarter play is increasingly in well-located older industrial stock that can be modernised to current logistics specification. The gap between what tenants will pay for grade-A space and what tired industrial assets trade at remains the most reliable value-add opportunity in the sector.