All around the world, e-commerce is growing faster than traditional retail sales. In fact, forecasters say e-commerce will account for 30% of all retail sales in the United States by 2030.
Yet most people don’t give a second thought to what happens once they click the “buy†button online.
In reality, the items they purchase go through real brick-and-mortar warehouses and fulfillment centers before arriving at their front door. And therein lies an opportunity for income investors.
The E-Commerce Opportunity
Many of these warehouses are owned by so-called industrial REITs that pay nice dividends.
Now, industrial REITs have underperformed other REITs for nearly two decades – but e-commerce has awoken this once-sleepy sector. You see, e-commerce companies require up to 300% more logistics space compared to brick-and-mortar counterparts.
It’s not surprising, therefore, that demand for industrial space has more than doubled recently. Today, e-commerce companies are using as much as 30% of industrial space and, according to industry observers, that percentage is likely to climb even higher in the years ahead.
By the end of 2014, the industrial REIT occupancy rate had risen to an impressive 94.3%. Meanwhile, industrial REITs are projected to have excellent funds from operation (FFO) growth in 2015. SNL Financial forecast FFO growth of 7.8% for industrial REITs this year versus 7.2% for all equity REITs.
With demand increasing, SNL also believes industrial REITs will be able to raise their rents, leading to increased same store net operating income (SSNOI) and greater revenue growth.
Industrial REITs: A Small Universe
For investors, the industrial REIT group is an easy one to get a hold on. It comprises just eight publicly traded companies, and their total market capitalization is less than $30 billion.
The largest industrial REIT, by far, is Prologis (PLD), which has a market cap of about $19.6 billion. The others, in order of descending market cap, are: DCT Industrial Trust (DCT), First Industrial Realty Trust (FR), EastGroup Properties (EGP), STAG Industrial (STAG), Terreno Realty (TRNO), Rexford Industrial Realty (REXR), and Monmouth Real Estate (MNR).
