The Premium for Logistics Development Has Strengthened
Mentioned in this quick take:
Logistics has moved from the fringe to the core of U.S. institutional real estate. It held a mid-teens share of the MSCI U.S. Quarterly Property Index from 1999 through 2017, but quickly grew to 36% by value as of June 2026. With such a strong tilt in institutional portfolios, one may ask whether logistics became a crowded trade and perhaps whether development may be a better entry method.
We analyzed 595 U.S. logistics developments completed from Q1 2013 to Q2 2024, measuring each project's direct alpha as its annualized return relative to logistics standing investments over the development phase and two years post-completion.
Developments completed in 2020 and 2021 absorbed the 2022 pricing correction in the sector. Although 57% delivered positive direct alpha, average performance broadly matched standing investments. There was a pronounced downside tail at the 25th percentile, with developments underperforming by 3.7% per year. Those completed during 2022–2024 performed more strongly and consistently: Even at the 25th percentile, direct alpha was positive at 1.2% per year. Spanning the market trough and early recovery, these projects outperformed standing investments by 6.6% per year on average, with 80% delivering positive direct alpha.
Outcomes vary widely — no single development project is assured of beating standing assets. But the development premium has held up, even as the sector has scaled.
Analysis based on logistics assets in the MSCI U.S. Quarterly Property Index. Direct alpha measures annualized excess return by discounting development project cash flows and valuations using the indexed return series of standing investments and calculating the internal rate of return of the resulting cash flows.
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