Real estate investment trusts (REITs) and the traditional ETFs tracking the asset class are struggling this year, but the Pacer Benchmark Industrial Real Estate SCTR ETF (NYSEArca: INDS) remains a star in this category and that star could brighten.
INDS offers investors exposure to US companies that generate the majority of their revenue from industrial REITs that are part of the e-commerce distribution and logistics network. INDS provides exposure to the growing e-commerce space by investing in data center and distribution center REITs, along with higher quality retail real estate.
“Industrial REITs have grown rapidly as demand for logistics facilities, used in the shipment of goods bought on the internet, has exploded,” reports Nareit. “Logistics facilities account for two-thirds of all industrial space, the rest being flex and specialized space, according to data from CoStar. As eCommerce accelerated since 2015, 93.7% of the growth of all industrial space has been from logistics facilities.”
Inside the INDS Case
INDS is a play on e-commerce and the related real estate demands. Currently, e-commerce and online shopping represent about 10% of overall U.S. retail sales, a number that is expected to continue growing in the years ahead. The sudden rise of online giant retailers like Amazon has increased demand for warehouses to store inventory. Around 25% to 30% of warehouse space is currently dedicated to e-commerce.
While some analysts are speculating that industrial REITs could be confounded by weakening consumer confidence on par with retail ETFs, other data points suggest INDS is positioned to endure retail weakness. In fact, thanks to the e-commerce boom, the ETF is poised to thrive as shoppers move online.
The COVID-19 pandemic is forcing a slew of malls and retail store closures across the world. In the U.S., many non-essential retailers are temporarily closed and while traditional grocery stores remain open, many shoppers are opting to order from home and not risk contracting the coronavirus by venturing outside.
“The shutdown of broad parts of the economy during the COVID-19 pandemic has impacted nearly every aspect of American life. Shoppers avoid in-store purchases under social distancing guidelines, leading to a surge in online sales. And since commercial real estate houses the economy, industrial REITs are facing solid demand for logistics facilities to ship those goods to consumers,” according to Nareit.
For more alternative investing ideas, visit our Alternatives Channel.
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.