As the 2008-2009 recession and resulting bear market struck, the industrial real estate sector was hit equally as hard. Falling manufacturing output, high unemployment and slowing growth put pressures on the sector, and equities prices slid hard. However, fundamentals for the industrial real estate segment have begun to improve. Rebounding consumer spending, restocking of business inventory and increases in both U.S. exports and manufacturing production bode well for the sector. In addition, as broad-based real estate indexes, like the iShares Dow Jones U.S. Real Estate (ARCA:IYR), have surged over the last two years, the industrial real estate investment trust (REIT) sector has remained roughly flat. For investors, this value plus the improving fundamentals could make the sector a buy. (To help you breakdown the value of REITs, see How To Analyze Real Estate Investment Trusts.)

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Big Gains in Warehouses
According to the Commercial Real Estate Development Association, the industrial real estate sector should see a gradual increase in demand throughout 2012 in the United States, as the economy grinds forward. While there is some global economic uncertainty plaguing the market place, analyst's estimate that industrial REITS offer a compelling buy based on improving basics.

Overall, 2010 was a great year for the manufacturing sector and saw a return to growth. According to Moody's Analytics, since bottoming in the second quarter of 2009, industrial production has rebounded 11.8% through the third quarter of 2011. Similarly, economic activity in the manufacturing sector expanded in September for the 26th consecutive month, and the overall economy grew for the 28th consecutive month. September's PMI showed a 1% increase versus August's numbers, and currently sits at 51.6%. A relatively weaker dollar has benefited exports, and domestic consumer spending has risen 15.3% since bottoming out in 2009.

In addition, several key markets have finally begun to show positive rental rate growth, and over the last six months, nearly a billion square feet of space has been rented by tenants. New construction projects in the sector have generally been shelved, and should help bolster rental rates on existing properties. Overall, the National Council of Real Estate Investment Fiduciaries index of industrial properties realized a total return of 4.5% during the second quarter of 2011, and outperformed the group's broad measure of real estate. Despite the recent outperformance, the industrial sector still has the potential for gains as the economy improves. (For more on commercial real estate, read Find Fortune In Commercial Real Estate.)

Gaining Exposure
With several positives facing the industrial real estate sector, investors may want to consider adding it to their REIT portfolio. While the iShares FTSE NAREIT Industrial/Office ETF (ARCA:FNIO) can be used, the fund only includes a 23% weighting to industrial REITs, and trades very infrequently. For investors, wanting to add the sector, individual REITs are best.

For investors wanting to focus on the behemoth in the sector, ProLogis (NYSE:PLD) offers a global approach with industrial properties across 22 countries. The mega REIT also boasts higher gross margins than its major competitors, PS Business Parks (NYSE:PSB) and First Industrial Realty Trust (NYSE:FR). Shares of ProLogis yield a juicy 3.3%.

However, smaller might be better. Recently IPO'd Stag Industrial (NYSE:STAG), has been snatching up single-tenant, class B properties in secondary markets throughout the United States at discounted rates. The majority of Stag's tenants are stable firms like ConAgra (NYSE:CAG) and International Paper (NYSE:IP). Shares of the Stag yield an impressive 8.4%.

Finally, for investors seeking high dividend yields in the middle of the pack, both EastGroup Properties (NYSE:EGP) and DCT Industrial (NYSE:DCT) offer a range of warehouse and industrial properties across a number of states. Shares of the firms yield 4.2 and 4.9%, respectively.

Bottom Line
As the Great Recession took hold, the industrial real estate sector saw its fortunes fade. Now with industrial production and the economy grinding forward, many analysts believe the sector is ripe for the picking. The previous REITs, along with Terreno Realty (Nasdaq:TRNO), might be ideal ways to play the sector. (To help you value REITs, check out How To Assess A Real Estate Investment Trust (REIT).)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center