Which asset class typically experiences the most compressed exit cap rates?

Logistics/industrial properties typically experience the most compressed exit cap rates due to several factors that enhance their attractiveness to investors. First, the growth of e-commerce has markedly increased demand for logistics and industrial spaces, as businesses require efficient warehousing and distribution centers to meet consumer demands. This burgeoning need translates into higher occupancy rates and stable income streams, prompting investors to accept lower cap rates in exchange for perceived lower risk and higher potential returns.

Additionally, logistics/industrial properties often benefit from longer lease terms compared to other asset classes. This longevity, combined with the assets' resilient nature during economic fluctuations, leads to a preference among investors who are looking for stability. The reduced risk associated with these properties further contributes to the compression of exit cap rates.

In contrast, other asset classes like retail or office spaces may face challenges such as changing consumer behavior or the rise of remote work, which can lead to higher cap rates due to perceived risk. Multi-family housing, while also popular, typically does not experience the same level of cap rate compression as logistics and industrial due to varying demand trends and market saturation in certain areas.