Alex Pettee, CFA
Industrial REITs: Don't Bite The Hand That Feeds You
Industrial REITs remain the unstoppable force in the real estate sector, delivering another stellar second quarter. Investors have systematically under-owned this sector, waiting for the pull-back that never came.
Industrial REITs are a case-study in why an investor’s time should be allocated to understanding supply and demand dynamics and long-term macroeconomic trends ahead of static valuation metrics.
Powered by the “need for speed”, fundamentals remain stellar. Market rents are poised to grow by roughly 6% in 2019 after rising 8% in 2018 and 9% in 2017.
What trade war? Industrial REITs have seen minimal impact from the elevating tensions between the US and China. Ironically the more worrying trends are related to a Retail Apocalypse 2.0.
A concern we raised last quarter, while the sector has benefited more than any from e-commerce, an intensification of retailer bankruptcies would concentrate more power in their largest tenant: Amazon.
Within the Hoya Capital Industrial REIT Index, we track the thirteen largest industrial REITs, which account for roughly $105 billion in market value: Prologis (PLD), Duke Realty (DRE), Liberty Property (LPT), Americold (COLD), First Industrial (FR), PS Business Parks (PSB), EastGroup (EGP), Rexford ( REXR), STAG Industrial (STAG), Terreno (TRNO), Monmouth (MNR), Industrial Logistics (ILPT), and Innovative Industrials (IIPR). Industrial REITs comprise roughly 10% of the broad-based Real Estate ETFs (VNQ and IYR).
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