What is the yield gap between offices and warehouses?

The yield gap between offices and warehouses is the difference between the rental yields on the two property types, and in India, warehouses have often been cited as offering somewhat higher yields than offices, but the gap changes with markets, quality, and tenants, so check recent consultant reports.

What It Is

• Yields reflect risk, lease length, tenant strength, and growth prospects, and offices in prime locations with strong tenants can trade at lower yields, because of stability and investor demand, while warehouses have attracted growing demand from e-commerce and manufacturing, and their yields may be higher, because buildings are simpler, and locations are on city edges, and the market is newer.
• Both vary by city and grade.

How It Works

• The gap can narrow when investors rush into warehouses, or widen when office demand weakens, and investors should look beyond the headline yield, at the lease terms, tenant credit, building quality, vacancy, and exit liquidity, since a higher yield may reflect higher risk, and net yield after costs matters.
• Compare similar grades.

What to Check

• Check recent reports from reputable consultants, compare yields for similar grades and cities, look at lease expiry and tenants, calculate net yields after costs and taxes, consider growth in rents, and take advice from a financial adviser.
• Do not use yields in isolation.

Compare like for like, so check recent consultant reports, compare yields for similar grades and cities, look at lease expiry and tenants, and calculate net yields after costs.