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  • Alex Pettee, CFA

Industrial REITs: Supply Chains At Breaking Point

  • On the front-lines of the historic supply-chain shortages, Industrial REITs outperformed the broad-based REIT Index for the sixth consecutive year in 2021, but have uncharacteristically lagged in early 2022.

  • Industrial occupancy rates declined to record-lows below 4% despite robust levels of new development, driving rent growth of nearly 20% in North America with some markets seeing 50% year-over-year increases.

  • Development can't keep up robust demand as businesses scramble to build out supply resiliency and next-day delivery speeds. Permitted land remains ultra-scarce, driving a 50% increase in land values.

  • Supply chain disruptions came as inventory levels were already historically lean amid a shift towards "just-in-time" inventory management. More resilient supply chains will require substantial investments in the logistics space.

  • Industrial REITs are never "cheap" but much like the residential sector, supply-demand fundamentals are likely to remain favorable into the late 2020s and should continue delivering robust earnings and dividend growth.

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