Is it time to invest in industrial real estate?


Investing in real estate is a great way to diversify your portfolio and prepare it for long-term growth. But there are different approaches you can take in this regard and different real estate sectors to consider.

If you don’t have the courage to invest in real properties, it is better to turn to REITs or real estate investment trusts. REITs are companies that operate different properties and can be a major source of portfolio growth in two ways.

First, there is stock price appreciation. Over time, the value of the REIT shares you own may increase. Then there are the dividends. REITs are required to pay out at least 90% of their net income to investors. As such, they often pay higher dividends than your average stock.

Image source: Getty Images.

In the world of REITs, there are different sectors that are worth discussing. But now is the perfect time to focus on industrial real estate.

Take advantage of this boom

The pandemic has changed the way many people shop. During the crisis, many consumers have turned to e-commerce to avoid having to set foot in a real store. During the second quarter of 2020, e-commerce sales increased by 16.2% compared to the previous quarter, according to CBRE. And at the end of 2021, digital sales remained well above pre-pandemic levels.

This change has led to an increase in demand for industrial space. With more and more consumers buying goods online, retailers need more options to store and distribute goods. This is where warehouses and distribution centers come in – and companies operating these facilities are now poised to make big bucks.

In fact, JLL reports that since the fourth quarter of 2020, industrial rents have increased by 11.3%. Meanwhile, last year the vacancy rate for industrial properties fell below the 4% threshold for the first time, to just 3.8%.

All of this paints a solid picture for industrial real estate as consumers show no signs of abandoning e-commerce. In fact, in the years to come, the need for industrial space is likely to increase even more, putting warehouse operators in a strong position to demand more rent and paving the way for expansion.

Rising gas prices could be a boon for e-commerce

While COVID fears won’t stop consumers from hitting stores in the near term, soaring gasoline prices might. Drivers have been caught at the pump since the start of the conflict in Ukraine. And in the coming months, we could see exceptionally strong e-commerce growth as consumers clamor to take advantage of free or low-cost shipping. This too is likely to benefit industrial REITs.

But to be clear, industrial REITs aren’t just a source of short-term income. The shift we have seen towards e-commerce is likely to be permanent due to the convenience factor alone. And that makes industrial REITs an investment worth picking up because of their long-term growth potential.

While there are various options you can look into in this regard, one company worth looking into is Prologis (PLD -1.11%). As the biggest player in the industrial space, Prologis operates an impressive portfolio of properties and has done a great job of growing revenue in recent years.

Now, one of the downsides of buying Prologis is that the company’s dividend yield isn’t very attractive compared to other REITs. But dividends are just one way to make money from industrial real estate. And if you’re looking for a way to capitalize on the industrial boom, it’s worth considering adding Prologis to your portfolio.


Comments are closed.