The real estate industry tends to be highly cyclical. When the economy hits a rough patch, it tends to impact real estate values. However, certain sectors of the real estate industry are benefitting from supercycles that should enable them to continue growing for years even if the economy hits another rough patch. Because of that, investors can own real estate investment trusts (REITs) focused on these megatrends for the long haul.
REIT investors won't want to miss three major real estate trends: data infrastructure, e-commerce-related warehouses, and affordable housing. Here's a look at a REIT focused on each one that investors could hold for the next 10 years.
Constructing the next-generation network
We're becoming a data-driven society. That's powering the need for infrastructure to transmit and store data like communications sites, fiber optic cables, and data centers. REITs are among the leaders in owning, operating, and developing this infrastructure.
While there are several excellent REITs to choose from, infrastructure REIT Crown Castle International (NYSE: CCI) should be near the top of the list. The company sees a decade of growth ahead as it invests in building out the next-generation infrastructure needed to support the roll-out of 5G networks in the U.S. It recently signed deals with Verizon (NYSE: VZ) and DISH Networks (NASDAQ: DISH) to support their 5G ambitions by agreeing to build more small cells and the fiber optic cable needed to deploy their coast-to-coast networks.
Crown Castle estimates that its 5G-related investments will give it the power to grow its 2.9%-yielding dividend at a 7% to 8% annual rate over the next several years. That should enable it to produce double-digit total annual returns for years to come.
Building the real estate behind e-commerce
Consumers have been steadily shifting their purchase habits from retail stores to websites over the years. This trend has accelerated because of the pandemic, driving the need for even more warehouse space to support the growth in e-commerce. According to one estimate, the U.S. needs to add 1 billion square feet of additional warehouse space by 2025 to support the sector's projected growth.
Several high-quality REITs focus on owning, operating, and developing warehouse space. One of the leaders in the U.S. is Duke Realty (NYSE: DRE). The company currently holds interests in 534 facilities with 159 million square feet of space across 20 of the country's top logistics markets. Those existing properties should benefit from steady rent growth as demand for industrial real estate grows, making its prime locations even more valuable.
On top of that, the company has an extensive development pipeline as it continues expanding its logistics portfolio. Duke has a top-tier balance sheet to fund development projects and acquisitions, giving the ample flexibility to keep growing. Because of that, Duke Realty estimates that it can expand its AFFO per share at a mid to high single-digit annual rate over the next several years. That should support similar growth in its 2.3%-yielding dividend, likely giving Duke Realty the fuel to produce market-beating total returns.
Providing a solution to meet the need for affordable housing
There's a significant need for affordable housing in America. With home prices steadily rising, down payments are getting out of reach for many prospective homeowners. The pandemic exacerbated this issue, especially as more renters took advantage of low interest rates to buy homes with more space. As a result, homebuilders are struggling to keep up with the demand for new homes, which are still not affordable to many working-class families.
One solution to this problem is single-family rental (SFR) properties. These homes offer the space young families need without the costly down payment and maintenance expenses of owning. Leading the charge in tapping the growing demand for SFRs is residential REIT Invitation Homes (NYSE: INVH). It owns thousands of SFR homes across several major markets, especially those in the fast-growing Sun Belt region. This existing portfolio should benefit from steady rent growth.
On top of that, the company expects to continue buying homes to expand its SFR portfolio. It sees significant pent-up demand from millennials over the next decade, with many preferring to rent. Because of that, Invitation Homes could continue growing at a brisk pace over the next 10 years as it expands its industry-leading SFR platform.
Great REITs to own for the long haul
Data, e-commerce, and affordable housing are three megatrends with compelling real estate opportunities. While several REITs focus on each trend, Crown Castle, Duke Realty, and Invitation Homes stand out as some of the top options for long-term investors. Each one has the potential of producing market-beating total returns over the next decade, making them great REITs to buy and hold for the long haul.