By Catherine Yoshimoto, director, product management
Over the past decade, e-commerce has evolved to accommodate an increasingly on-demand economy. While it was once adequate to wait 5-7 business days after ordering an item online, a growing number of consumers are placing a premium on shorter delivery times. This has put competitive pressure on retailers to have smoothly running logistics centers—and Industrial REITs have been a noteworthy beneficiary of this trend.
The ongoing hunt for yield has benefited virtually all income-producing asset classes, and equity REITs have been no exception. But the industrial sector has been a particular bright spot within equity REITs, most notably year-to-date. As shown below, Industrial REIT performance has outpaced that of the broad FTSE Nareit Equity REITs Index for both the year-to-date and one-year periods, and has been the top performing equity REIT sector in 2019.
Industrial REITs own—and in many cases operate—a wide range of property types, including warehouses, light manufacturing, R&D facilities, office buildings and logistics centers. While all of these types of real estate can be income-producing, logistics centers in particular have recently been a standout. These types of properties are designed to help purchases get from seller to buyer as quickly as possible—and are increasingly benefitting from an evolving e-commerce industry.
How consumers shop and receive purchases has changed considerably over the past several years. This has been a direct result of the growing on-demand economy, where overnight—and in some cases same-day—delivery is increasingly becoming the norm. The trend has presented the need for space close to densely populated areas where consumers are more concentrated, prompting REITs to introduce logistics facilities in urban centers. This has been a key area of growth for Industrial REITs, largely supporting the sector’s recent rally.
If we look at the broad US equity REIT market, the Industrial REITs sector has grown to represent a significant component of the FTSE Nareit Equity REITs Index. As shown below, as of the end of April, Industrial REITs comprised 10% of the total index.
As e-commerce continues to grow and evolve, it’s possible that logistics centers will see even more demand as companies increasingly seek solutions in response to the on-demand economy. However, it’s equally possible that the next disruptive consumer trend could make them obsolete, or require that they evolve in a way that is yet unseen. Whatever the way forward, we’ll continue to keep an eye on Industrial REITs as they appear to be reaping the benefits of the growing on-demand economy.
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