Industrial Real Estate Sector: A New Standard for Key Metrics
On April 1, 2025, Boston – The industrial real estate sector took a significant step forward in enhancing transparency and comparability with the announcement of an updated standardized methodology for calculating key non-GAAP property metrics by a coalition of leading industrial real estate investment trusts (REITs). The coalition, comprised of STAG Industrial, Inc., EastGroup Properties, Inc., First Industrial Realty Trust, Inc., and Prologis, Inc. (collectively, the “Industrial REIT Group”), aims to provide a more consistent and clear approach to reporting property performance data.
Background: The 2018 Harmonization Initiative
The 2025 update builds upon the 2018 harmonization initiative, which saw the Industrial REIT Group adopt a common definition for certain key performance indicators. This latest development further strengthens the sector’s commitment to transparency and standardization.
The Updated Methodology: Property Stabilization, Occupancy, Rent Change, and Customer Retention
The Industrial REIT Group’s updated methodology includes the following components:
- Property Stabilization: Defined as the period during which a property is considered to be fully leased and operating at market rents. The Industrial REIT Group will calculate this metric based on physical occupancy of at least 95% and contractual rents being at or above market rates for at least one year.
- Occupancy: Measured as the total rentable square footage of a property that is leased to tenants. The Industrial REIT Group will report occupancy on a rolling twelve-month basis.
- Rent Change: Calculated as the percentage change in base rent from the previous period for properties that have been stabilized for at least one year. This metric excludes the impact of lease incentives and tenant improvement allowances.
- Customer Retention: Determined by calculating the percentage of revenue from tenants that have renewed their leases or signed new leases within the same property.
Impact on Individual Investors
For individual investors, this new standardization effort should make it easier to compare the performance of different industrial REITs. By having a consistent framework for calculating key property metrics, investors can make more informed decisions based on apples-to-apples comparisons. Additionally, this increased transparency could lead to a more efficient market, as investors can quickly identify which REITs are outperforming their peers.
Impact on the World
On a larger scale, this commitment to standardization within the industrial real estate sector could have far-reaching implications. By setting a clear and consistent benchmark for reporting property performance data, the Industrial REIT Group is helping to create a more efficient and transparent market. This, in turn, could lead to increased investment in the sector, as potential investors are better equipped to assess the relative merits of different REITs. Furthermore, as more sectors adopt similar standardization initiatives, we could see a trend towards increased transparency and comparability across the entire real estate industry.
Conclusion
The April 1, 2025, announcement by the Industrial REIT Group is a significant step forward for the industrial real estate sector. By updating their standardized methodology for calculating key non-GAAP property metrics, these leading REITs are enhancing transparency and comparability within the sector. This commitment to standardization should benefit individual investors by making it easier to compare the performance of different REITs. Moreover, it could have far-reaching implications for the real estate industry as a whole, potentially leading to increased investment and a more efficient market.
As we move forward, it will be interesting to see how other sectors within the real estate industry respond to this trend towards standardization. One thing is for certain: the drive for transparency and comparability is here to stay, and it will continue to shape the way we invest in and understand the real estate market.
