In macroeconomic news, weekly consumer confidence periodical, Morning Consult, reports that concerns over an imminent recession subsided in October, though concerns remain higher than this time last year. “All three consumer confidence indices roughly equal their values from mid-August 2019, immediately prior to the yield curve inversion on August 14.” That said, confidence has not yet completely rebounded from the August 1 announcement of tariffs on Chinese products that begin December 15. Consumers employed in the Real Estate and Property services industry reported a large increase in confidence (6.7 points) for the week ended October 27, up to 120.8 on the Index of Consumer Expectations; this is 11.4 points higher than the Weekly Index across all demographics.
In an October 28 blog, NAREIT’s vice president of research and economic analysis, Calvin Schnure, noted other reassuring signs of continued growth. “Every recession in the past 70 years,” he says, “has occurred in an economy that showed signs of overheating. One symptom of overheating is high and rising inflation. There are no signs of rising inflation,” at present, “and prices have been running below the Federal Reserve’s inflation target.” Furthermore, construction remains below its long-run average and has not outpaced GDP. Commercial vacancy rates remain low, suggesting that commercial real estate is not overly exposed to the macroeconomic risks that preceded past recessions.
Given the remarkable performance of Industrial REITs over the past year, let’s take a closer look at some REITs in this sector. On Monday, October 28, it was announced that Prologis (NYSE: PLD) was acquiring Liberty Property Trust (NYSE: LPT), both strong players in this sector and two of the three largest holdings of the Pacer Benchmark Industrial Real Estate Sector ETF (INDS)–a combined 26.57 percent of the ETF’s portfolio. INDS is composed of REITs that generate the majority of their revenue from e-commerce distribution and data centers, along with higher quality retail real estate (source: ETFdb.com).
As for Prologis, Bloombergreports that it and Blackstone Group are “locked in an Amazon-fueled acquisition battle, gobbling up U.S. warehouse space in a bid to profit from rising consumer demand for fast shipping.” Online shopping now accounts for 10% of all retail sales, which is driving demand for warehouse properties. “When the most recent transactions close,” including the Liberty Property Trust deal, “Blackstone and Prologis will own nearly 1.1 billion square feet of warehouse space in the U.S., more than the next 14 largest owners combined, according to data compiled by CBRE Group Inc. ” Other REITs in the sector, like Duke Realty Corp (NYSE: DRE), say that they are going to focus on their development pipeline, rather than compete with Blackstone and Prologis for warehouse space at the current prices.