Industrial retail is almost as hot as residential real estate
Experienced investors know that the real estate industry is large and encompasses a wide variety of property types. They also know that real estate investment trusts (REITs) in one industry don’t necessarily operate at the same pace as their counterparts in other groups.
While index and exchange-traded funds often do the trick when it comes to diversified real estate exposure, investors may find more attractive opportunities by taking a tactical approach. On this front, an important ETF idea to consider is the ETF Pacer Benchmark Industrial Real Estate SCTR (NYSEArca: INDS).
As the name suggests, INDS is an ETF that focuses on industrial REITs or warehouse owners. It may seem like a boring corner of the REIT universe to allocate. Yet warehouse REITs, thanks to strong demand from online retailers, are almost as hot as the residential real estate market.
“Competition is driving up industrial rents as retailers and logistics providers rush to bring goods closer to population centers, with some fighting bidding wars for the most coveted sites. Businesses are working to get online orders delivered faster to the homes of digital buyers and to respond to rising consumer spending that is helping drive an economic rebound, ”Jennifer Smith reports for The Wall Street Journal.
The proof in the INDS pudding
Pure performance confirms the validity of zeroing on a specific REIT segment. Over the past year, the INDS has risen 35.60%, an advantage of over 640 basis points over the MSCI US Investable Market Real Estate 25/50 Diversified Index.
The INDS, which turned three last month and tracks the SCTR industrial real estate benchmark, is also a relevant consideration in the current inflationary environment. As has been widely noted, REITs have long been a strong asset class for fighting inflation. Much of that status is derived from pricing power – a concept that industrial REITs are taking to the next level.
“Industrial rents rose 9.7% in the first five months of 2021 compared to the same period last year, while industrial asking rents rose 7.1%, according to CBRE, which tracks 58 US markets, ”according to the Journal.
The supply and demand dynamics at play in the world of industrial REITs add to the long-term arguments for INDS. Online retail sales are skyrocketing, meaning the Amazons and Walmarts of the world need more hubs from which to ship goods to consumers.
Yet in the current context, the amount of viable land available for warehouse construction is declining, which means that the INDS could further improve its pricing power due to scarcity.
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The opinions and forecasts expressed herein are solely those of Tom Lydon and may not come to fruition. The information on this site should not be used or interpreted as an offer to sell, a solicitation of an offer to buy or a recommendation for any product.