Top 5 Industrial REITs in 2023: How to Invest

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Contributor, Benzinga
July 23, 2023

Stock investors can benefit from diversifying their portfolios across several sectors. Instead of having a few stocks or concentrating on one industry, spreading your money across assets and sectors can minimize risk. Industrial real estate investment trusts (REITs) are useful assets because of their dividends, growth and resilience during recessions. This guide will walk you through some of the reasons investors buy industrial REITs and five top industrial REITs to consider.

What Are Industrial REITs?

Industrial REITs are trusts that give investors exposure to real estate. Every REIT must distribute 90% of its taxable income to investors as dividends, which allows them to command high dividend yields. Industrial real estate covers several verticals and is essential for businesses that need to store inventory.

Warehouses, distribution centers and manufacturing facilities are some of the types of industrial REITs. These properties tend to get large customers like Amazon who need warehouses to deliver products and achieve last-mile delivery, depending on e-commerce growth and supply chain restructuring as some of the catalysts that can drive more demand for industrial REITs.

Industrial REITs may include properties such as:

  • Warehouses
  • Manufacturing Facilities
  • Storage Facilities
  • Distribution Centers
  • E-commerce Fulfillment Centers

Benefits of Industrial REITs

Investing in industrial REITs gives investors several advantages. Here are some of the perks you can receive if you add industrial REITs to your portfolio.

Stable and Consistent Cash Flow

Industrial REITs attract long-term tenants who sign lengthy leases. Many of these tenants also have solid financials and rely on these industrial properties to store inventory. The reliability of the tenants helps industrial REITs deliver stable and consistent cash flow.

Diversification of Investment Portfolio

Buying industrial REITs gives your portfolio exposure to another sector. While portfolio diversification can minimize risk, industrial REITs have an extra layer of diversification. These REITs invest in several industrial properties, so your returns are not tied to a single property. Since industrial REITs are affordable, and you can buy fractional shares if necessary, it is easy to use these assets to diversify your portfolio.

Potential for Long-Term Capital Appreciation

Industrial REITs don’t just deliver on cash flow. Some of these REITs reward investors with long-term capital gains. Those gains can grow even more if you reinvest the dividends you receive from your shares. Many corporations need industrial real estate, and the REITs in the industry stand to benefit.

Resilience During Economic Downturns

If Amazon’s sales decline, the company may have to make cuts. However, it is unlikely to make adjustments to its industrial real estate footprint. These properties are vital for e-commerce giants who need storage space, and they also help other corporations. The long-term leases industrial REITs sign with top corporations make them more resilient during economic downturns than the average stock.

Risks of Industrial REITs

Interest Rates: As with any investment, interest rates have a major influence. They are wildly unpredictable, making risk go up. Though relatively short term, an increase in rates can weaken REIT growth.

The Economy: When the economy is good and people are making purchases, the need for these manufacturing companies and spaces is at a high. New, bigger and better facilities are built. However, when the economy turns and people can’t afford to make so many purchases, these warehouses and production centers are not needed as much. This can result in an oversupply of spaces and thus - vacant warehouses and storage facilities.

The demand for these types of companies with such a heightened on-line shopping presence can prove to be a promising investment. Industrial REITs have great potential for long term rewards, with major possibilities for a steady stream of income.

Top 5 Industrial REITs in 2023

If you are interested in industrial REITs, it’s a good idea to start with some of the top picks. These are the top five industrial REITs that are worth considering.

1. Stag Industrial Inc. (NYSE: STAG)

Stag Industrial is a REIT that acquires industrial properties across the United States to achieve a healthy balance of growth and income.  The company has 561 properties spread across 41 states and over 11.6 million square feet in total. Stag Industrial pays a monthly dividend that has an annual yield of roughly 4%. Shares are up by 16% year-to-date.

2. Public Storage (NYSE: PSA)

Public Storage is the largest industrial REIT for self-storage. This industry attracts individuals and businesses that need extra space to store goods. There is less that can go wrong with a public storage property compared to a rental property, and income is stable. The company has multiple consecutive quarters of double-digit top-line revenue growth and has rewarded shareholders with a 5% gain year-to-date. The dividend yield currently sits a little above 4%.

3. Prologis Inc. (NYSE: PLD)

Prologis is a San Francisco-based REIT that has a portfolio of logistics facilities spread across the United States. The firm has over $200 billion in assets under management, and its properties exceed 1.2 billion square feet on four continents. The company currently owns almost 5,000 buildings in the United States and Europe. Prologis’ top three customers are Amazon, FedEx and DHL. Shares have almost doubled over the past five years. The dividend yield is currently 2.80%.

4. EastGroup Properties (NYSE: EGP)

EastGroup Properties has been a top-performing REIT that is up by 24% year-to-date and has almost doubled over the past five years. The company has been enjoying roughly 20% revenue growth for several quarters from its focus on industrial properties in the major Sunbelt markets. The REIT targets business distribution spaces for location-sensitive customers that range from 20,000 square feet to 100,000 square feet. The company has approximately 57.1 million square feet in its portfolio. The current dividend yield is roughly 2.75%.

5. Terreno Realty Corp. (NYSE: TRNO)

Terreno Realty enjoys healthy profit margins above 30% and has reported double-digit revenue and earnings growth. The REIT invests in industrial properties in locations in six major U.S. coastal markets: Los Angeles, New York City, San Francisco Bay Area, Seattle, Miami and Washington, D.C. The company’s properties exceed 13 million square feet.  

REIT Alternatives

REITs provide a low-cost and simple way to invest in real estate. However, they aren't the only option available to generate passive income through real estate with a low minimum investment.

Real estate crowdfunding offers investors the ability to decide which properties they want to invest while still enjoying passive income at a fraction of the cost of traditional methods of investing in real estate. Here are some of our favorite real estate crowdfunding platforms:

  • securely through CrowdStreet's website
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  • securely through CityVest's website
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    Must be accredited investing a minimum of $25,000.

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Diversify Your Portfolio with Industrial REITs

Industrial REITs can deliver stable cash flow and long-term appreciation. These assets may not outperform growth stocks, but they tend to be more resilient during economic downturns. These top industrial REIT picks can act as starting points, but it is important to assess your portfolio goals before making new investments.

Frequently Asked Questions

Q

What are industrial REITs?

A

Industrial REITs are trusts that invest in industrial properties, such as warehouses.

Q

What are the benefits of investing in Industrial REITs?

A

Investing in industrial REITs tends to result in stable income, appreciation and resilience during economic slowdowns.

Q

How do industrial REITs differ from other types of REITs?

A

Industrial REITs focus on industrial properties, while other REITs may target different asset classes, such as residential or commercial real estate.

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