Why Industrial Real Estate Outperforms Office and Retail

Industrial real estate has delivered a total return roughly 300–500 basis points ahead of office and retail annually over the past decade. The outperformance is structural: e-commerce demand keeps growing, supply of new logistics land is contracting, leases are longer and more indexed, and obsolescence risk is lower than for office. The gap is likely to persist through the second half of the 2020s.

The performance gap in numbers

Over the ten years to end-2025, European industrial real estate delivered an annualised total return of roughly 11%–13%, compared with 4%–6% for office and 3%–5% for retail. Even after the 2022–2024 industrial correction, the ten-year outperformance held.

Why the gap exists

• Demand: e-commerce penetration has grown from ~10% to ~25% of retail sales in a decade
• Supply: land near cities is contracting as residential and mixed-use displace industrial
• Leases: 10–15 year FRI/NNN leases with CPI indexation are the industrial norm
• Obsolescence: warehouse specification changes slowly; office specification changes fast
• Capex: industrial capex intensity is a fraction of office (roughly 5%–10% of income vs 25%+)

Why office and retail have struggled

Office demand fragmented after 2020 as hybrid working reduced footprint per employee by 20%–40% in most Western markets. Retail has been in structural decline as e-commerce absorbed share. Both sectors face material capex to modernise stock, at the same time as leases are shortening and covenant risk is rising.

Will the outperformance persist?

Probably, but with a narrower spread. E-commerce growth will slow from a percentage basis but continues in absolute terms. Nearshoring of manufacturing and defence-driven supply chain redesign add fresh demand vectors. On the supply side, urban land pressure is only getting worse. The realistic expectation is 200–350 basis points of annual outperformance versus office and retail through 2030 — smaller than the last decade, but still material.

Frequently asked questions

By how much has industrial outperformed office over the past decade?

European industrial real estate has delivered roughly 500–700 basis points of annual total return above office over the ten years to end-2025, driven by yield compression, rental growth and lower capex intensity.

Is industrial real estate less risky than office?

Yes, on most measures. Industrial leases are longer, more indexed, and more likely to be FRI/NNN. Building obsolescence risk is lower, and demand drivers (e-commerce, nearshoring) are structural rather than cyclical.

Will industrial continue to outperform through 2030?

The consensus is yes, but with a narrower spread than 2015–2025. Base-case outperformance versus office and retail is 200–350 basis points annually, supported by contracting urban supply and continued e-commerce demand.