E-commerce fuels industrial REIT growth

Demand for space rises as more and more people shop online

TRD New York /
Jun.June 16, 2016 11:58 AM

From the Los Angeles website: Online shopping addiction seems to have an upside for industrial real estate investment trusts.

Thanks to the rapid growth of e-commerce, industrial REITs have been performing exceptionally well. Shares rose 17.3 percent this year — compared to 6 percent for all equity REITs and 1.7 percent for the S&P 500, according to Green Street Advisors.

The growth is driven by online retailers’ rising demand for distribution centers, the Wall Street Journal reported.

Tenants in the top 47 markets occupied about 102 million more square feet by the end of 2015 than in the beginning of that year, up from 93 million in 2014. 

In the first quarter of 2016, industrial REITs like Prologis and Duke Realty have posted strong earnings.

But beyond the numbers, investors are beginning to realize that online retail will be an irrevocable driver for industrial square footage demand, as online distribution usually requires more inventory space and logistics coordination than brick-and-mortar stores.

“If you look at major retailers like Wal-Mart, warehouses are set up to send truckloads of goods to individual stores,” James Connor, chief executive of Duke Realty, told the Journal. Online distribution centers, however, “are set up exactly the opposite,” he added. “Everything goes out in onesies and twosies.”

But it won’t always be smooth sailing for industrial property owners, analysts warn. Dimmed consumer spending would raise the vacancy and lower rents, and things may fluctuate as online distribution processes grow more sophisticated.  

On the other hand, retail REITs are also doing pretty well as modern mall operators such as Simon Properties thrive. In the past five years, as The Real Deal reported in the retail special market report, retail REITs have outperformed eight of the nine other types of REITs, including industrial, office, residential and mortgage. [WSJ]Cathaleen Chen

Related Articles

Prologis CEO Hamid Moghadam and Liberty Property Trust CEO Bill Hankowsky (Credit: Prologis, B.PHL, iStock)

Prologis to buy rival logistics firm for $13B

Blackstone's Jonathan Gray (Credit: Getty Images and iStock)

Here’s a look at Blackstone’s industrial plays after its record-breaking portfolio purchase

Blackstone's Jonathan Gray (Credit: Getty Images and Wikipedia)

Blackstone buys Colony Capital’s warehouse portfolio for $6B

Clutter CEO and co-founder Ari Mir, and clockwise from left: 280 Fullerton Avenue, 1 Holland Avenue, 3046 Northern Boulevard and 5601 Foster Avenue (Credit: Linkedin, Google Maps)

Self-storage startup Clutter makes its first real estate play with $152M deal

From left: 2785 Broadway, 521 Bergen Avenue in the Bronx, and 1685 First Avenue (Credit: Google Maps)

Here’s what the $10M-$30M NYC investment sales market looked like last week

Amazon CEO Jeff Bezos (Credit: Getty Images)

Here are Amazon’s current office and warehouse holdings in NYC — and where it could set up shop next

Turnbridge Equities managing principal Ryan Nelson and 58-95 Maurice Avenue in Queens (Credit: Turnbridge Equities and Google Maps) 

Turnbridge scoops up another industrial site for $40M

Blackstone CEO Stephen Schwarzman (Credit: Getty Images, iStock)

Blackstone is already selling pieces of the $18B GLP industrial portfolio