Commercial real estate has been dramatically altered by the coronavirus pandemic. Many of those changes will be long-lasting.
As such, investors may not want to rely on traditional real estate exchange traded funds, which are often slow to react to seismic shifts. The ALPS Active REIT ETF (REIT) is an idea for investors when looking for funds with the capability of evolving with the new real estate order.
REIT, which is one of the more successful sector ETFs that debuted in the first half of this year, is actively managed, meaning it can more efficiently transition to more compelling corners of the real estate sector while avoiding those that may be laggards.
These days, one of the prime places to be in the REIT universe is industrial or warehouse REITs – a category some traditional passive real estate ETFs simply don’t provide enough exposure to.
“Vacancy rates in industrial buildings are near a record low and new warehouses can’t get built quickly enough to meet the needs of clothing makers, furniture sellers and home appliance manufacturers,” reports Ari Levy for CNBC. “Real estate firm CBRE said in its first-quarter report on the industrial and logistics market that almost 100 million square feet of space was absorbed in the period, the third-highest amount ever, and that a record 376 million square feet is under construction.”
REIT Has the Right Stuff
What makes exposure to industrial REITs compelling is that this segment was taking off prior to the coronavirus pandemic. While the health crisis rapidly accelerated adoption of online retail, many consumers are discovering they prefer that way of buying everything from essential groceries to personal electronics.
Yet it’s not just e-commerce companies that underscore the benefits of allocating to industrial real estate. An important corporate-level lesson from the pandemic is that global supply chains are vital, and when crisis strikes, relying too much on international markets is problematic. As such, more companies are shifting some production and storage space back to the U.S., boosting demand for warehouses in the process.
“Retailers responded by securing more storage space to mitigate the impact of future shocks, said James Koman, CEO of ElmTree Funds, a private equity firm focused on commercial real estate,” according to CNBC.
For more on cornerstone strategies, visit our ETF Building Blocks Channel.