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

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  2. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  10. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  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

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!