What market comparables reflect cap rate premiums for build-to-suit assets?

Build-to-suit (BTS) assets generally trade at premium valuations and lower capitalization (cap) rates compared to speculative or multi-tenant industrial properties. Market comparables reveal that investors are willing to pay more for BTS assets due to their predictable income, long-term leases, and tenant-specific infrastructure.

Below are the key factors and patterns that comparables typically show regarding cap rate premiums:

1. Lease Tenure and Credit Quality Influence Lower Cap Rates

• BTS assets with 9–15 year leases and high-credit tenants consistently reflect cap rates 75–150 basis points lower than multi-let or short-term assets.
  
• Cap rate compression is most evident when:
  
  • There’s a long lock-in period.
    
  • Rental escalations are contractually defined.d
    
  • The tenant’s operations are strategically tied to the location.

2. Asset Customization and Single-User Occupancy Stability

• Market data shows that single-tenant, purpose-built facilities command a pricing premium due to:
  
  • Minimal vacancy risk
    
  • Reduced leasing downtime
    
  • Lower operating costs per square foot
    
• This premium is reflected in cap rates that are closer to institutional yield benchmarks, particularly in high-demand corridors or near infrastructure hubs.

3. Build Quality and Compliance-Level Enhancements

• Cap rate premiums are sustained when:
  
  • Assets meet or exceed national fire, safety, and environmental codes.
    
  • There is provision for modular expansion or compliance with international standards (e.g., FM Global, IGBC)
    
• Higher build quality enhances resale and REIT suitability, thus compressing cap rates in line with institutional asset criteria.

4. Location and Asset Scalability Impact Cap Rate Differentiation

• BTS properties in strategic logistics or industrial corridors (with highway, port, or SEZ access) consistently trade at lower cap rates than assets in interior or non-core locations.
  
• Market comparables also show that cap rate premiums are more pronounced where:
  
  • The land is freehold.d
    
  • Infrastructure is developer-maintained
    
  • The asset offers future expansion or consolidation flexibility.

5. Exit Liquidity and Investor Demand Shape Comparable Pricing

• Cap rate premiums are sustained by:
  
  • Strong institutional demand for income-producing BTS assets
    
  • Limited supply of high-credit, long-lease single-user properties
    
  • Buy-and-hold investor strategies focusing on low-volatility, inflation-indexed returns
    
• This demand-supply mismatch leads to comparable sales at lower yield expectations, reinforcing the value premium over general industrial assets.