This year, investors have been hearing quite a bit about the demise of brick-and-mortar retailers and the decline of U.S. malls. That doesn’t mean the case for retail real assets is dead. Quite the contrary as highlighted by a year-to-date gain of almost 17% for the Pacer Benchmark Retail Real Estate SCTR ETF (NYSEArca: RTL).
RTL tries to reflect the performance of the Benchmark Retail Real Estate SCTR Index, which is made up of shopping centers, shopping malls and similar structures that are thriving enterprises filled with retail establishments and are located in prime locations with quality tenants throughout the country.
While traditional retailers are under pressure from their e-commerce rivals and mall vacancies are on the rise, there’s still a case for high-quality retail REITs, including those found in RTL.
“However, we also believe that there is a significant bifurcation between high-quality and low-quality retail locations,” said Morningstar in a recent note. “Retailers want to place their stores in the best locations, even in a retail environment when retailers are closing stores. Many formerly online-only e-tailers are opening stores in the highest-quality locations. Meanwhile, struggling retail locations will face store closures, and increased vacancies will lead to lower sales for remaining tenants.”
Relying on RTL
REITs are comprised of companies that own office towers, hotels, shopping malls, and other commercial properties, offering investors exposure to the domestic economy and away from the uncertainty associated with the global supply chain, the Wall Street Journal reports.
Real estate investors also enjoy attractive dividend yield-generation, which provides an alternative to bonds as a source of income. The sector offers yields that exceed sovereign and corporate investment bonds. Unlike bond coupons, real estate dividends can grow over time, which is invaluable in periods of high growth and inflationary environments. Additionally, due to real estate’s long-term leases, they provide a more reliable source of dividends than other equities.
Additionally, e-commerce, though growing rapidly, doesn’t have to spell the end of the traditional retail universe.
“While we expect e-commerce to post double-digit growth through 2024, eventually the spread between e-commerce and total retail sales will approach zero,” according to Morningstar. “Given a prediction for total retail sales growth and the rate of decline for e-commerce sales, we predict that brick-and-mortar retail sales will continue to grow around 1% per year over the next decade.”
For more information on real estate investment trusts, visit our REITs category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
