Is Now the Time to Invest in Industrial Real Estate?


Investing in real estate is a great way to diversify your portfolio and set it up for long-term growth. But there are different approaches you can take in that regard, and different real estate sectors to look at.

If you do not have the stomach for investing in actual properties, it pays to look at REITs, or real estate investment trusts, instead. REITs are companies that operate different properties, and they can be a major source of portfolio growth in two ways.

First, there’s share price appreciation. Over time, the value of the REIT shares you own could rise. Then there are dividends. REITs are required to pay at least 90% of their net income to investors. As such, they frequently pay higher dividends than your average stock.

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Within the world of REITs, there are different sectors worth dabbling in. But here’s what now’s a great time to focus on industrial real estate.

Take advantage of that boom

The pandemic changed the way a lot of people shopped. During the crisis, many consumers shifted over to e-commerce to avoid having to set foot in an actual store. During the second quarter of 2020, e-commerce sales rose 16.2% from the previous quarter, as per CBRE. And as of late 2021, digital sales remained well above pre-pandemic levels.

That shift has resulted in increased demand for industrial space. With more consumers purchasing goods online, retailers need more options for storing and distributing goods. That’s where warehouses and fulfillment centers come into play – and the companies that operate those facilities are now poised to make a lot of money.

In fact, JLL reports that since the fourth quarter of 2020, industrial rents have grown by 11.3%. Meanwhile, last year, vacancy rates at industrial properties dropped below the 4% threshold for the first time, coming in at just 3.8%.

All of this paints a strong picture for industrial real estate as consumers show no signs of abandoning e-commerce. In fact, in the coming years, the need for industrial space is apt to increase even more, putting warehouse operators in a strong position to command more in rent and setting the stage for expansion.

Rising gas costs could be a boon to e-commerce

While COVID-related fears may not keep consumers out of stores in the near term, soaring gas prices might. Drivers have been getting squeezed at the pump since the start of the Ukraine conflict. 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. That, too, is apt to work to the benefit of industrial REITs.

But to be clear, industrial REITs aren’t just a short-term money-maker. The shift we’ve seen to e-commerce is likely to be a permanent one due to the convenience factor alone. And that makes industrial REITs an investment worth scooping up due to long-term growth potential.

While there are different options you can look at in that regard, one company worth digging into is Prologue (PLD -0.59% ). As the largest player within the industrial space, Prologis operates an impressive portfolio of properties and has done a great job of increasing its revenue in recent years.

Now one drawback to buying Prologis is that the company’s dividend yield is not much to write home about compared to other REITs. But dividends are only one way to make money within the context of industrial real estate. And if you’re looking for a way to capitalize on the industrial boom, it pays to consider adding Prologis to your portfolio.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.



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