Best Industrial REITs

Industrial real estate investment trusts (REITs) have gained significant attention in recent years due to the growth of e-commerce and the increasing demand for logistics and warehousing space. Investing in industrial REITs can provide investors with exposure to this booming sector while also offering the potential for income through dividends. This article will take you through some of the best industrial REITs you might consider adding to your portfolio.

What is an Industrial REIT?

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 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 often attract long-term tenants with solid financials who rely on these properties for inventory storage. This tenant reliability supports stable and consistent cash flow for industrial REITs.
• Diversification of Investment Portfolio: Investing in industrial REITs provides portfolio exposure to the industrial sector. These REITs invest in multiple properties, adding an extra layer of diversification. Industrial REITs are also affordable, and fractional shares make it easy to diversify.
• Potential for Long-Term Capital Appreciation: In addition to steady cash flow, industrial REITs offer potential for long-term capital gains. Reinvesting dividends can enhance these returns, benefiting from the demand for industrial real estate among corporations.
• Resilience During Economic Downturns: Industrial properties are essential for e-commerce and corporate storage needs. Long-term leases with major companies give industrial REITs added resilience during economic downturns, making them potentially more stable than other stocks.

Risks of Industrial REITs

Investing in industrial REITs does come with certain risks that investors should consider:

• Economic Sensitivity: Industrial REITs are influenced by the overall economic climate. In a recession or economic slowdown, demand for industrial space may decline as businesses reduce inventory levels or limit expansion. This can lead to increased vacancy rates and impact rental income.
• Tenant Concentration Risk: Some industrial REITs may have a significant portion of their income tied to a few large tenants. If these tenants face financial difficulties or choose to relocate, the REIT could experience a sudden drop in income, affecting dividends and cash flow.
• Interest Rate Fluctuations: Like all REITs, industrial REITs are sensitive to changes in interest rates. When rates rise, the cost of borrowing increases, which can affect the REIT’s ability to finance property acquisitions or development projects. Higher rates may also make REIT dividend yields less attractive compared to other income investments.

Top 5 Industrial REITs

If you are interested in industrial REITs, it’s a good idea to start with some of the top picks. Here 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 573 properties spread across 41 states and around 114.1 million square feet of rentable space. Stag Industrial pays a monthly dividend that has an annual yield of roughly 3.9%. Shares are up by 16.1% over the one-year period.

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 7.5% gain year-to-date. The dividend yield currently sits at 3.58%.

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 in 20 nations. 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 climbed over 30% in the past five years. The dividend yield is currently 3.3%.

4. Eastgroup Properties (NYSE: EGP)

Eastgroup Properties has been a top-performing REIT that is up by 12.5% over the past six months and over 30% in the past five years. The company has been enjoying more than 10% 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 3.21%.

5. Terreno Realty Corp. (NYSE: TRNO)

Terreno Realty's shares have gained more than 18% and almost 10% in the last one-year and five-year reporting periods, respectively. 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 to minimum investment.

Real estate crowdfunding offers investors the ability to decide which properties they want to invest in 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:

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.

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