Are you interested in real estate investment trusts, or REITs, but concerned about commercial office properties suffering from a continued remote-work trend? A viable alternative may be industrial REITs, which are seeing steady demand due to the continued popularity of e-commerce.
“Industrial is just one of the many REIT sectors that give investors access to key sectors of our modern-day economy,” says Edward Pierzak, senior vice president of research at Nareit. “Industrial REITs own and manage warehouses and distribution centers that play a critical role in helping fulfill e-commerce orders and meeting demand for rapid delivery.”
[Sign up for stock news with our Invested newsletter.]
These types of properties have become increasingly important in the interconnected global economy. Companies in the logistics and delivery sectors need large storage spaces for their inventories, often in strategic locations near transport hubs. According to Nareit, demand for industrial REIT properties has outpaced supply for the past seven quarters, leading to a high occupancy rate of 96.1% and annual rent growth of 11%.
Beyond demand from e-commerce, industrial REITs also possess other fundamental characteristics that may make them attractive investments. For example, Nareit also found that on average, industrial REITs possess low levels of leverage, with sustainable loan maturity terms and interest rates.
“What also sets industrial REITs apart from other REIT sectors is the average term on industrial leases and the resilient demand we are seeing from the industrial tenant base,” says Bob Thomas, co-head of real estate securities, Americas, at DWS Group. “Industrial leases typically run in the five-to-seven-year range, offering an ideal balance between security from a multiyear lease, but also a short enough term where the landlord can mark leases to current market rates, so owners get cash flow stability plus a realistic sightline to future growth.”
Here’s a look at seven of the best industrial REITs to buy in 2023:
| REIT | Dividend yield |
| Prologis Inc. (ticker: PLD) | 2.7% |
| Stag Industrial Inc. (STAG) | 3.9% |
| EastGroup Properties Inc. (EGP) | 2.7% |
| Rexford Industrial Realty Inc. (REXR) | 2.8% |
| Public Storage (PSA) | 4% |
| Americold Realty Trust Inc. (COLD) | 2.7% |
| Innovative Industrial Properties Inc. (IIPR) | 9.5% |
Prologis Inc. (PLD)
“The rise in e-commerce was a structural shift in the market that started well before the COVID-19 pandemic and was further accelerated by changing consumer and corporate behavior during the pandemic that drove further investment into logistics networks,” Thomas says. An industrial REIT pick that allows investors to capitalize on demand from e-commerce is PLD.
Currently, PLD owns and leases logistics facilities to customers involved in the business to business, or B2B, and retail online fulfillment industries. Some of the REIT’s biggest tenants include the likes of Amazon.com Inc. (AMZN), FedEx Corp. (FDX) and Home Depot Inc. (HD). The REIT currently pays a dividend yield of 2.7%.
Stag Industrial Inc. (STAG)
“E-commerce in general requires three times the logistics space as brick-and-mortar retail, with market penetration still showing a healthy increase and currently sitting around 17% of total retail sales,” Thomas says. “These factors have driven national industrial vacancy rates to historically low levels and have supported robust market rent growth.”
STAG offers another investment opportunity in the industrial REIT sector, focusing on the acquisition and operation of 561 industrial properties totaling 11.6 million square feet across 41 states, with a focus on single-tenant properties. Companies involved in e-commerce and distribution are amongst STAG’s major tenants, including behemoths such as Amazon and FedEx. The REIT pays a 3.9% dividend yield.
EastGroup Properties Inc. (EGP)
For a mid-cap industrial REIT pick, investors can consider EGP, a member of both the S&P Mid-Cap 400 and Russell 1000 indexes. This REIT focuses primarily on properties in the states of Florida, Texas, Arizona, California and North Carolina, catering primarily to clients in the distribution industry. These strategic location choices may help it capitalize on robust market growth and demographic shifts.
“We like EGP because they tend to focus on ‘shallow bay’ industrial assets which tend to be smaller assets when compared to the larger distribution facilities,” Thomas says. “These smaller assets tend to see significantly less new supply, so we view demand for these assets as more stable.” Right now, EGP is paying a dividend yield of 2.7%.
[SEE: 7 of the Best High-Dividend ETFs.]
Rexford Industrial Realty Inc. (REXR)
Based in Southern California, mid-cap REIT REXR specializes in owning and operating industrial properties in “infill” markets. Infill markets are typically located in densely populated, mature metropolitan areas. They often have a high demand for industrial space but can face significant restrictions on new construction due to limited land, stringent zoning laws, or high development costs.
As a result, this artificial scarcity can lead to higher rental rates and property values, making infill markets attractive for REITs like REXR with its portfolio of 358 properties totaling some 43.6 million square feet. For investors keen on taking part in Southern California’s sky-high and still-rising property prices, an investment in REXR could be a way to capitalize. The REIT pays a 2.8% dividend yield.
Public Storage (PSA)
As one of the largest providers of storage units in the U.S., PSA has over 2,900 locations across the country, offering spaces that cater to personal, business and vehicle storage needs. The company is known for its distinctive, orange-colored facilities and has a wide array of customers, from individuals needing temporary storage during a move to businesses requiring space for excess inventory.
The public’s insatiable appetite for long-term storage solutions has created some great tailwinds for PSA’s stock price. From Jan. 1, 2008, to June 30 of this year, PSA returned an annualized 13.3% with dividends reinvested. In contrast, the broader iShares Core U.S. REIT ETF (USRT) only returned an annualized 5.9%. Right now, the REIT is paying a 4% dividend yield.
Americold Realty Trust Inc. (COLD)
As its ticker name suggests, COLD offers a unique investment opportunity in the industrial REIT sector with its focus on temperature-controlled warehouses. This REIT caters to food producers, distributors and retailers, among other customers, providing essential infrastructure. With over 240 facilities around the world, the global food chain relies on COLD and its facilities. COLD pays a 2.7% dividend yield.
What really sets COLD apart is its defensive moat, referring to an enduring competitive advantage. Currently, the company operates in a niche market with high barriers to entry due to the significant capital investment required to build and maintain cold storage facilities. The complexity of managing temperature-controlled supply chains also adds to COLD’s unique competitive advantage.
Innovative Industrial Properties Inc. (IIPR)
For a riskier, but potentially high-growth industrial REIT pick, consider IIPR. This unique REIT focuses primarily on acquiring and managing specialized properties leased to state-licensed operators and distributors for regulated cannabis facilities. Currently, IIPR’s portfolio includes 108 greenhouses, indoor growing facilities and warehouses across 19 states totaling 8.8 million square feet.
IIPR stands out for its pioneering approach to the cannabis industry, a volatile sector that is still in its early stages of development. The company’s distinct positioning in this nascent market presents a unique investment opportunity with considerable potential for future growth, and a decent moat as there are high barriers to entry due to regulatory hurdles. IIPR currently pays a 9.5% yield.
[SEE: 9 Highest Dividend-Paying Stocks in the S&P 500]
More from U.S. News
8 Best Warren Buffett Stocks to Buy in 2023
10 of the Best Stocks to Buy for 2023
Artificial Intelligence Stocks: The 10 Best AI Companies
7 Industrial REITs to Buy Now originally appeared on usnews.com
Update 07/18/23: This story was previously published at an earlier date and has been updated with new information.
