It seems counter-intuitive that office developments do not require a higher rate of return than industrial. The lease structure for industrial offloads all of the operating risk on the tenant through a net lease, whereas with office leases it is typically gross and the owner retains all of the risk of increasing operating expenses. Also, everything I've read on the topic states that office vacancy rates are much more volatile during downturns than industrial. Lastly, the construction of an office project seems significantly more costly and time consuming than an industrial asset. Maybe I'm missing something, but from a risk/return perspective why would someone put money in office rather than industrial (or another less risky asset class) if the expected rate of return is similar?
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