If you're an investor looking for something a little more spicy than simple residential real estate investing, you can choose from a whole world of commercial real estate stocks. From commercial investors who manage nothing but offices or retail properties, your niche investing interests are here.
Although residential real estate stocks are great for buying and holding, they’re not generally involved in much innovation or excitement. Choosing commercial real estate stocks can provide exposure to up-and-coming industries that could be primed for large growth or allow investors to get a piece of an industry that’s already growing exponentially.
Real estate investment trusts (REITs) also pay dividends, which can be very attractive to an investor looking for a little cash bonus every so often. Dividends can be reinvested into the stock that paid them or used to buy shares in stocks you might otherwise shy away from due to the risk involved.
5 Best Commercial Real Estate Stocks to Buy
5 Best Commercial Real Estate Stocks to Buy in 2024
Here are a few commercial real estate stocks to keep an eye on this year.
| Name | Ticker | Market Capitalization | Description |
|---|---|---|---|
| Kilroy Realty | (NYSE:KRC) | $3.64 billion | Office REIT |
| Realty Income Corporation | (NYSE:O) | $38.38 billion | Diversified REIT |
| Prologis, Inc. | (NYSE:PLD) | $101.64 billion | Industrial REIT |
| Alexandria Real Estate Equities | (NYSE:ARE) | $17.99 billion | Office REIT |
| Simon Property Group, Inc. | (NYSE:SPG) | $45.56 billion | Retail REIT |
1. Kilroy Realty
1. Kilroy Realty
Although office REITs have taken a bit of a beating since the work-from-home trend started, Kilroy Realty is still finding ways to remain profitable and grow its income. With 119 total buildings in five markets --Austin, San Diego, Los Angeles, San Francisco, and Seattle -- and housing 403 tenants in over 16 million square feet of rental space, Kilroy's in some of the hottest markets in the country. It's also looking to the future, with eight sites yet to be developed that total 64 acres in the pipeline.
Kilroy Realty's largest tenants include: Stripe, Inc., Amazon.com (AMZN -1.11%), Salesforce (CRM -0.39%), Microsoft's (MSFT -0.66%) LinkedIn, Adobe (ADBE -0.37%), DoorDash (NYSE:DASH), Riot Games, Okta (OKTA -1.27%), and Netflix (NFLX -0.62%). That's a solid base of companies to help guarantee income even in these days of lower office occupancy.
Kilroy's dividends have been increasing steadily since 2015, from $1.36 to $2.12 in 2022, an increase of over 55% in just seven years. It's on track to pay $2.16 per share in 2023 if its first-quarter dividend of $0.54 remains stable. The company has also won many awards for its commitment to sustainability and holds Energy Star Certifications for 66% of its buildings.
2. Realty Income
2. Realty Income
If you're interested in building a diverse real estate portfolio but aren't sure where to start, a diversified REIT may be the answer. Realty Income is a reliable player in this arena. Its portfolio includes a variety of commercial properties, including retail, industrial, and agricultural, across all 50 states, Puerto Rico, the United Kingdom, Italy, and Spain. Instead of operating the businesses therein, the company simply leases the land and structures to huge companies that are dependable tenants.
Some of Realty Income's biggest clients include Dollar General (DG -0.34%), Walgreens (WBA -0.06%), Dollar Tree (DLTR -0.25%), FedEx (FDX -0.71%), Walmart (WMT -0.32%), and Tractor Supply (TSCO 1.04%). Retail makes up about 80% of its property mix, but an additional 13% is industrial.
Unlike most REITs that pay dividends quarterly, Realty Income pays its dividend monthly, which can be useful for extra free cash if you're using your dividends for income rather than reinvesting them. These dividends have increased steadily since the 1990s, with the most recent monthly payout being about $0.25 per share for April 2023.
3. Prologis, Inc.
3. Prologis, Inc.
Warehouses may not seem like the most exciting place to put your hard-earned money. But with the supply chain issues of 2020 and 2021 (some of which are still ongoing), more companies are looking for places to stash backup inventory and equipment. As a result, warehouse REITs have been thrust into a race for unforeseen growth over the past few years.
Prologis is one of the biggest players in the field, with more than 1 billion square feet of rental space in 19 countries. It primarily services business-to-business, retail, and e-commerce online fulfillment companies. With a 98.2% occupancy rate and rent growth of almost 30% on average for 2022, it's solidly positioned. Because the leases signed for warehouses tend to be multiyear, the bumps in new lease values will continue to pay off in the medium term. Prologis counts Amazon, Home Depot (HD -0.6%), FedEx (FDX -0.71%), UPS (UPS -0.45%), Walmart, and the U.S. government among its top 10 tenants.
4. Alexandria Real Estate Equities
4. Alexandria Real Estate Equities
As a REIT focused on the life science, ag-tech, and technology industries, the spaces that Alexandria Real Estate Equities controls are used for work important to the future of humanity. But it's not just small spaces here and there; the company believes in creating clusters of research facilities to help foster innovation in cities such as Boston, San Francisco, New York, San Diego, and Seattle.
Alexandria has built a solid base for long-term stability with occupancy rates for operating properties of almost 94%, plus a weighted-average remaining lease term for all tenants of 7.2 years. It leases space to companies that include Moderna (MRNA -0.34%), Novartis (NVS -0.13%), Merck (MRK 0.25%), and Uber (UBER -2.95%). More than 90% of its leases are triple net leases, which require the tenant to cover real estate taxes, insurance, utilities, repairs, maintenance, common area expenses, and other operating expenses. The lease terms reduce the company's overall cost of doing business.
5. Simon Property Group, Inc.
5. Simon Property Group, Inc.
One of the largest operators of mall properties in the world, Simon Property Group is constantly looking for new ways to reinvest in and add additional value to its older properties. During 2021, it completed more than 14 redevelopment projects in the United States and has invested more than $8 billion since 2013 to expand and upgrade existing properties.
Although the REIT holds substantial debt, it's largely due to a huge building boom in mixed-use properties that include retail, hotel, dining, and event space. The boom has allowed Simon Properties to increase its occupancy rate for U.S. malls and premium outlets to 94.9% in 2022, which should help reduce debt.
Adding more components to traditional retail should continue to bring value to investors as consumers are drawn to the enhanced properties. Retailers are certainly banking on it -- 1,262 new leases and 1,517 renewals, for a total of approximately 9.1 million square feet, were executed in 2022.
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The bottom line
Whether you’re looking for more exposure to warehousing, retail, or office, there are plenty of opportunities to add stable real estate investments to your portfolio.
As a commercial real estate stock investor, you can do a lot more than simply invest in a place for someone to live. From real estate groups that lease exclusively to biotech to warehouse REITs that move e-commerce closer to home, there’s a lot of variation in commercial real estate stocks.
