Industrial REITs Are Supported by Solid Economic Fundamentals



Industrial REITs

Industrial REITs mainly include assets like warehousing facilities, distribution centers, manufacturing facilities, R&D (research and development) centers, administrative functions, and flex office space for sale. These industrial assets are often large. They generally range from 50,000 square feet to over 1 million square feet. To increase the occupancy rates, landlords often subdivide these properties into smaller units for multiple tenant use. The lease period for an industrial REIT is normally in the range of 3–5 years, although most of the tenants tend to continue with the facility as long as they’re needed.

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Main drivers

The main driver of an industrial warehouse is rising global and domestic consumption. This led to higher demand for inventory storage. The process of bringing raw material to the factory and sending the finish goods to the end customer through several channels of distribution requires warehouse space to maintain adequate inventory levels. Therefore, factors like consumer spending, manufacturing, and import-export activity create demand for industrial REITs.

Major companies

There are eight REITs in the industrial sector with a combined market capitalization of $29.6 billion. They account for 3.32% of the total REITs market capitalization. ProLogis (PLD) is the largest with a market capitalization of $19.4 billion. It’s followed by DCT Industrial Trust (DCT) with $2.7 billion and First Industrial Realty Trust (FR) with $2 billion. The average dividend yield of the industrial REITs was 4.21% as of June 2015. STAG Industrial (STAG) provided the highest dividend yield in the sector at 6.75%.

Investors looking for diversification in the REIT sector can get exposure to REIT ETFs like the Vanguard REIT ETF (VNQ), the iShares U.S. Real Estate ETF (IYR), and the iShares Cohen & Steers REIT ETF (ICF).


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