Real estate investment trusts (REITs) and the related ETFs have been stellar performers this year, but one of the hottest real estate segments is one that is often under-represented in traditional REIT funds—industrial REITs.
The Pacer Benchmark Industrial Real Estate SCTR ETF (NYSEArca: INDS) solves that problem and the fund is delivering this year as highlighted by a gain of 31.44%.
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 also own warehouses, light manufacturing, R&D facilities, and office buildings in the United States and in major countries around the world,” according to Nareit. “Through this diverse set of properties, the industrial REIT sector helps manufacturing, e-commerce, and corporate businesses manage the real estate they need for their production, distribution, and global supply chain networks.”
A Look Inside the INDS ETF
While INDS focuses on a growth segment of the real estate space, the ETF still offers a solid income proposition. The fund has a dividend yield of 2.32% and the potential for significant dividend growth. Dividends paid by industrial REITs surged 70% from 2013 through 2018, according to Nareit data.
Related: Exploring The Benefits of Long/Short Strategies
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.
“The industrial REIT sector has grown rapidly to keep up with e-commerce, with their total portfolio of industrial space increasing more than 35 percent over the past five years,” said Nareit. “As developable space close to consumers becomes scarce, and with the growing premium on timely, last-mile delivery, REITs have begun to introduce multistory logistics facilities in urban centers to improve the local supply chain dynamics.”
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