Dive Brief:
- Mutual funds are investing heavily in real estate investment trusts (REITs) that own warehouses, driven largely by the success of e-commerce and demand from companies like Amazon to have storage and fulfillment space closer to customers, according to the Business of Fashion.
- Amazon has been a big factor in the growth of REITs in recent years as it has focused on faster shipping programs, such as Prime two-day and Prime Now shipping.
- Analysts believe that the S&P's upcoming change to break real estate off into its own investment sector, separate from the financial sector, will drive even more investors into REITs to balance their index investments.
Dive Insight:
REITs, and in particular those that own warehouses, have been flying high of late on the backs of multiple trends, one of them being the demand driven by e-commerce businesses for warehouse space, another being the boom in datacenter buildouts to support Internet content companies.
Amazon—as both a giant e-commerce retailer with special shipping programs like Prime and Prime Now, and a giant distributor of video via Amazon Prime and Amazon Instant Video—is likely one of the single biggest drivers of the current REIT space race. Both of those aspects of its business require the company to occupy real estate that is closer to its customers: The quality of video delivery counts on that proximity as much as Amazon's ability to meet its shipping deadlines. It's still relatively early in the life of the Amazon Prime Now service, but if demand explodes, that should only mean more good things for the REITs.
The big rise in REIT space demand and value is a far cry from eight or nine years ago, when their value plunged (along with value of just about everything else). Though certain international events, such as the Brexit vote, may have some negative impact on businesses that need REIT space and on the global economy in general, all indications are that REITs will continue their run.
One of the upcoming events that suggests a sustained uptick for REITs is the planned Aug. 31 creation of a real estate sector grouping within the major stock indices, which could send index-focused investors moving their money out of the much broader financial sector and into the newly established real estate sector to seek balance in their investments. REITs represent just one portion of that new sector, and while some investors might believe that warehouses don't seem like a very exciting place to put your money, e-commerce trends are helping warehouse-owning REITs prove otherwise.
