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Industrial Warehouse

Still Not Investing in Warehouses? Check Out UPS's Revenue Numbers


Apr 27, 2021 by Maurie Backman
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The coronavirus pandemic has changed the way a lot of people shop. Between capacity limits and general fears over in-person shopping, many consumers have shifted to online orders over the course of the past year, and many businesses have adapted by expanding their pickup and delivery options.

In fact, so many consumers have been ordering goods to be shipped to their homes that UPS (NYSE: UPS) is raking in major profits as a result. The shipping giant just released its most recent earnings, and the numbers were outstanding. Revenue came in at $22.91 billion, up 27% from a year earlier and above the $20.49 billion Wall Street analysts were forecasting. This is coming off a quarter where parts of the country saw major shipping disruptions due to a spell of harsh weather that battered the South back in February.

Of course, stellar earnings are great news for anyone who holds UPS stock. But they're also good news for investors in industrial REITs (real estate investment trusts). So if you've yet to look at warehouses for your portfolio, you may want to adjust your strategy.

Digital sales could be here to stay

While it's true many consumers have adopted more online shopping habits due to the pandemic and the safety issues it's brought to light, the reality is that it's a convenient, cost-effective way to buy goods. As such, there's a good chance digital sales will remain strong even once the pandemic is far behind us, which means there will not only be a need for businesses like UPS, but also more warehouse and distribution center space. And that gives investors a key opportunity to get in on a growing industry.

It's estimated the U.S. may need an additional 1 billion square feet of warehouse space by 2025 as e-commerce continues to dominate. And retailers are acknowledging this shift, too. Many are making plans to shut down underperforming stores and instead invest money in large distribution centers to support digital order fulfillment. And while that's bad news for mall REIT investors, it's great for those with industrial REITs in their portfolios.

Of course, investing in warehouses isn't risk-free. Building out that space isn't as easy as it may seem, with some cities pushing back against large distribution centers. There are also safety and regulatory concerns for warehouses to address, especially in light of certain issues that have come to light during the pandemic, like poor working conditions and safety hazards. As such, warehouses could become more costly to operate if the laws around them shift.

The Millionacres bottom line

But from a demand perspective, warehouses are likely to remain hot even as the pandemic peters out and consumers gear up to rejoin society. And that means now's a great time to consider investing in warehouses -- before it gets too expensive.

Of course, investors may also want to give UPS a look given its solid quarter. After all, if the demand for warehouses stays strong, somebody's going to need to haul all of those packages from distribution centers to consumers' doors.

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Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.