Terreno Realty's Strategic Acquisition in Queens: A High-Yield Opportunity in Industrial Real Estate?

The industrial real estate market in Queens, New York, has long been a magnet for investors seeking exposure to high-demand coastal markets. Terreno Realty Corporation's recent acquisition of a property in Long Island City-priced at $4.7 million with an estimated stabilized cap rate of 6.4%-has reignited debates about the sector's potential in this strategic submarket. To assess whether this acquisition represents a compelling high-yield opportunity, one must dissect the interplay of market fundamentals, policy tailwinds, and supply-side constraints shaping Queens' industrial landscape.

Market Recovery and Policy Tailwinds

Queens' industrial real estate market experienced a sharp contraction in 2023, with dollar volume plummeting 42% year-over-year to $473.6 million, the lowest level since 2016 according to Ariel Property Advisors. However, the first half of 2025 marked a robust rebound, as industrial sales contributed over $200 million to the submarket's total $1.72 billion in investment sales. This recovery has been fueled by policy incentives such as the "Big Beautiful Bill," which reinstated 100% bonus depreciation for "Qualified Production Property" and streamlined development approvals. These measures have lowered barriers to entry for developers and landlords, spurring a wave of repositioning and new construction.

The strategic location of Queens-adjacent to Manhattan and served by major transportation corridors like the Queensboro Bridge-further amplifies its appeal. Terreno's acquisition at 4-28 33rd Street, situated near Route 25 (Queens Boulevard), exemplifies the company's focus on "last-mile" logistics hubs, a critical asset class as e-commerce demand continues to outpace traditional retail.

Supply Constraints and Demand Drivers

Despite the market's resurgence, supply-side challenges persist. Nationally, industrial real estate faces a tightening capital market, with rising interest rates and reduced lender appetite slowing new construction. In Queens, this dynamic has been compounded by limited available land and zoning restrictions, creating a supply-demand imbalance. According to CBRE's U.S. Cap Rate Survey for H1 2025, nearly a quarter of industrial sector respondents anticipate cap rates peaking and declining in the next six months. However, the 6.4% cap rate on Terreno's Queens acquisition-well above the national average for industrial assets-suggests strong investor confidence in the property's cash-flow potential, even amid macroeconomic uncertainties.

The demand drivers underpinning this optimism are multifaceted. Nearshoring trends, driven by U.S. manufacturing resurgence and geopolitical risks, have intensified the need for strategically located fulfillment centers. Additionally, the e-commerce boom continues to strain existing industrial infrastructure, pushing tenants to seek modern, logistics-friendly properties. Terreno's acquisition, with its proximity to Manhattan and existing 35% occupancy, positions the company to capitalize on these trends while leveraging the "Big Beautiful Bill" incentives to accelerate redevelopment.

Risks and Considerations

While the 6.4% cap rate appears attractive, investors must weigh it against broader market risks. The CBRE survey notes that over half of professionals expect CRE sales volume to decline in 2025 due to trade policy uncertainties. Furthermore, the property's current 35% occupancy rate implies a reliance on future leasing success to achieve stabilization. If e-commerce growth moderates or nearshoring momentum wanes, Terreno's returns could be pressured.

Another concern is the potential for cap rate compression. As the CBRE data suggests, yields may peak in the near term, which could reduce the property's valuation headroom if sold before stabilization. However, Terreno's long-term strategy focuses on holding industrial assets for appreciation and rental growth, mitigating this risk by prioritizing cash flow over short-term capital gains.

Conclusion: A Calculated Bet in a High-Value Submarket

Terreno's Queens acquisition reflects a calculated bet on a submarket poised for sustained demand. The 6.4% cap rate, while elevated, is justified by the property's strategic location, policy tailwinds, and alignment with e-commerce and nearshoring trends. While supply constraints and macroeconomic headwinds pose risks, the company's disciplined approach to coastal market expansion-coupled with the "Big Beautiful Bill" incentives-positions it to navigate these challenges. For investors, this acquisition underscores the enduring appeal of industrial real estate in high-demand coastal corridors, where scarcity and location premiums continue to drive value.