Chris’ note: As globalization breaks down, manufacturing jobs are “reshoring” and coming back to America. It’s a theme we call America Reborn. Because it will kick off an economic renaissance that few see coming.
And today you’ll hear from Brad Thomas on a way to play it.
If you don’t already know him, Brad is a real estate developer turned income investing expert. And below he shows how reshoring is causing the price of warehouse space to soar.
You don’t have to own a warehouse to profit from this. There’s one industrial real estate stock that’s on sale right now. And it allows you to become a warehouse landlord – and profit from the boom in demand – without owning any property directly.
There’s money to be made in warehouses.
A lot of money…
Fresh out of college, my first real estate client was a successful businessman named Marty Elrad.
He owned warehouses on the East Coast. And he happened to have a 50,000-square-foot warehouse sitting empty in my hometown of Greenville-Spartanburg, South Carolina.
My job was to find tenants and get the building leased out.
It took me nearly a year. But when I was done, that warehouse was minting money.
Then Marty asked me to help him sell it.
Two months later, I landed him a contract to sell the warehouse for $1.5 million. He pocketed the money. 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. And there hasn’t been a better time to buy into this sector in my more than three decades as a real estate developer and investor.
You see, 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 responsible for the surge in demand. Plus, I’ll give you the name of one industrial real estate company that’s on sale right now.
Manufacturing Is Coming Home
There used to be 900 acres of peach orchards along Highway 85 about halfway between Greenville and Spartanburg.
These days, a BMW manufacturing plant sits on that land, churning out SUVs and crossovers.
It’s become a big part of our local economy. The plant employs more than 11,000 people. And it brings in thousands of smaller businesses that supply and support the factory.
And BMW is expanding. It’s 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 companies bring manufacturing jobs back home.
It’s a part of a trend called reshoring.
If you’ve been reading along in these pages for a while, you’ll know that the pandemic highlighted how fragile international supply chains could be.
Reshoring is the process of bringing those supply chains back to within America’s borders. The aim is often to reduce reliance on other countries, improve quality, and strengthen local economies.
And Washington is backing this trend with massive subsidies.
The CHIPS and Science Act passed into law in August 2022. It gives $280 billion to boost research and manufacturing of semiconductors – aka chips – in the U.S.
Meantime, the Inflation Reduction Act offers tax credits worth $7,500 for folks who buy a new U.S.-manufactured electric vehicle. And EV demand has been soaring with sales projected to jump 35% this year.
More manufacturing means more warehouses needed to store raw materials and finished products.
And that’s not the only source of demand for warehouse space…
E-Commerce Is Pushing Demand Even Higher
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 in the U.S. By 2027, that’s expected to increase to 23%.
Warehouses for brick-and-motor retail stores are packed to the roof with goods on pallets. Products are taken out every time a store needs to be restocked.
But e-commerce is different…
Workers and robots in the warehouse pick out products and pack them for shipping to customers as orders come in. That requires up to three times more warehouse space than the typical brick-and-mortar retailer needs.
And e-commerce goods don’t just sit in one warehouse. They go from distribution buildings to sorting facilities to last-mile warehouses before they make it onto a delivery truck.
Those extra stops mean even more warehouse space is needed to support an e-commerce economy.
And surging 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 has reached $9.59 a square foot in 2023.
As you can see below, that’s a more than 50% jump compared with rents three years ago.
And next year, rents are expected to climb to more than $10 a square foot.
Become a Warehouse Landlord
One way to play this set up is to buy shares in Rexford Industrial Realty (REXR).
It’s a real estate investment trust (“REIT”) that rents out warehouses, distribution centers, and light manufacturing properties.
Don’t worry if you haven’t heard of a REIT before.
It’s a special kind of company that owns income producing real estate and is required by law to pay out at least 90% of the rent it collects to shareholders.
As I tell my readers all the time, this allows you to become a landlord… without directly owning any real estate.
Instead, you buy the shares REITs issue through your regular brokerage account. This entitles you to a cut of the rental income they collect.
Rexford owns 365 properties covering 44 million square feet in Southern California.
That’s the equivalent of roughly 763 football fields…enough to fill New York’s Central Park, and then some.
Southern California is the country’s largest industrial market. And demand for warehouse space is particularly high near the Port of Los Angeles. It’s the largest port in the U.S. by container volume.
The port is in San Pedro Bay, about 20 miles south of downtown Los Angeles. Most of the land there has been developed. So, there is little new supply of warehouse space.
Shares of Rexford have sold off due to worries about the economy slowing. 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 about 15% below its historical average. So, you’re able to pick up shares at a discount.
And there’s an even better company to play the growing demand for warehouse space.
This company is making outsized profits from the success of Amazon.
And it can set you up with a rising stream of reliable income.
I call it “Amazon’s Secret Royalty Program.” And it’s one of the most popular ideas I’ve shared with my readers.
Happy SWAN (sleep well at night) investing,
Editor, Intelligent Income Daily