There’s money to be made in warehouses.
When I was fresh out of college, my very first real estate client was a successful businessman by the name of Marty Elrad.
Mr. Elrad owned warehouses up and down the East Coast. And he happened to have a 50,000-square-foot warehouse sitting empty in my hometown of Greenville-Spartanburg.
My job was to find tenants and get the building leased out.
It took me nearly a year, but by the time I was done, that warehouse was minting money for Mr. Elrad.
Then he asked me to help him sell it.
Two months later, I landed him a contract to sell the building for $1.5 million. I walked away with $250,000 in commissions and a valuable experience.
I’ve kept an eye on the industrial real estate market ever since.
Right now, demand for warehouses is soaring. And it isn’t going to stop anytime soon.
Today I’ll show you why powerful trends in manufacturing and e-commerce are driving up demand for warehouses. Plus, I’ll give you the name of one industrial real estate company that’s on sale right now.
Increase in Demand for Warehouses
There used to be 900 acres of peach orchards along Highway 85, about halfway between Greenville and Spartanburg, South Carolina.
These days, a giant BMW manufacturing plant sits on that land, churning out SUVs and crossovers. It’s become a big part of our local economy, employing more than 11,000 workers and bringing thousands of smaller businesses that supply and support the factory.
In my days as a real estate developer, I built a facility for one of BMW’s major suppliers.
And BMW is expanding, adding a battery assembly plant in the nearby town of Woodruff to support production of electric vehicles.
Similar stories are playing out across America as more and more companies bring manufacturing jobs back to the country. It’s a trend known as “reshoring.”
Reshoring is accelerating because of large government incentive programs.
The CHIPS and Science Act provides $280 billion to boost research and manufacturing of semiconductors. And the Inflation Reduction Act offers tax credits worth $7,500 per electric vehicle – as long as it’s made in America.
More manufacturing means more warehouses are needed to store raw materials and finished products.
E-commerce has also been a growing trend for many years. And the pandemic gave it a big boost.
Right now, e-commerce represents about 20% of all retail sales. And that is expected to increase to 23% by 2027.
Warehouses for normal retail stores are packed to the roof with goods on pallets. Products are only taken out when the store needs to be restocked.
But that doesn’t work for e-commerce.
Workers and robots in the warehouse have to constantly pick out products and pack them for shipping to customers. That requires up to three times more space compared to warehouses for retail stores.
On top of that, e-commerce goods don’t just sit in one warehouse. They go from distribution buildings to sorting facilities to last-mile warehouses before getting on a truck to be delivered.
Those extra stops mean more warehouse space is needed to support an e-commerce economy.
How You Can Profit from the Demand
All this demand for warehouse space has led to soaring rents in industrial real estate.
A report from the real estate services firm Cushman & Wakefield shows that asking rents for warehouses reached $9.59 per square foot this year.
That’s a more than a 50% increase compared to rents just three years ago. And rents are expected to continue climbing to more than $10 per square foot next year.
One way to add industrial real estate to your portfolio is through Rexford Industrial Realty (REXR). Rexford owns 365 properties covering 44 million square feet of space in Southern California.
This is the country’s largest industrial market with high demand for warehouse space near the Port of Los Angeles. And since most of the land has already been developed, there is little new supply of warehouse space.
Shares of Rexford have sold off due to worries about the economy slowing down. But the trends of reshoring and e-commerce will continue playing out for many years and support increasing demand for warehouse space.
Rexford yields 2.9% and trades at 24 times cash flow. That’s a 15% discount to its historical average, making it a good opportunity to buy shares.
And for members of my Intelligent Income Investor service, there’s an even better company to play the growing demand for warehouse space. This company is a leader not just in America, but all around the world.
It’s also a company that’s making massive profits from the success of Amazon. And it can give you a reliable stream of growing income. In fact, I call it the “Amazon’s Secret Royalty Program.”
You can check it out here.
Remember, there’s money to be made in warehouses.
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily