Which asset class typically has the lowest target IRR?

Logistics/Industrial assets generally have the lowest target Internal Rate of Return (IRR) among the mentioned asset classes. This is primarily due to the characteristics of the logistics and industrial sectors, which often present lower risk profiles compared to other real estate sectors.

Investments in logistics and industrial assets, such as warehouses and distribution centers, usually benefit from consistent demand driven by factors like e-commerce growth and supply chain efficiencies. These properties are often leased to tenants on long-term agreements, providing stable cash flow and lower volatility in rental income. As a result, the expected returns, in terms of IRR, tend to be lower because investors prioritize the reliability and stability of cash flows over higher risk and potentially higher returns that are often associated with sectors like alternatives, office, and retail.

In contrast, alternatives, office, and retail sectors might require higher target IRRs due to their associated risks, including economic cycles, changes in consumer behavior, and market demand fluctuations. Retail, for instance, has faced challenges from online shopping, impacting its return expectations. Overall, the stable nature of logistics/industrial assets makes them more attractive for conservative investors seeking dependable returns, leading to a typically lower target IRR.