There's an old saying in real estate that the three most important factors for success are location, location, and location. While that's true for residential real estate, a commercial property needs more than a good location to succeed. Another important factor is that demand for that property type needs to be on the rise. If demand isn't expanding, occupancy levels and rental rates could fall, turning it into a money-losing investment.
Three real estate investment trusts (REITs) focused on property types benefiting from strong long-term demand tailwinds are Camden Property Trust (CPT -0.03%), Invitation Homes (INVH 1.00%), and Prologis (PLD -1.69%). That makes them great REITs to buy and hold for years to come.
Apartments aren't going out of style
Camden Property Trust is a residential REIT focused on owning apartment communities. The REIT has 170 properties with over 58,000 apartment homes spread across 15 major markets, primarily in the Southern half of the U.S. It focuses on areas where the population is growing, putting its communities in the right locations for success.
Meanwhile, demand for apartments continues to rise, especially in areas where Camden operates. That's unlikely to change as the population continues expanding. Add in the increasing unaffordability of buying a home, and apartment demand should remain strong.
In addition to owning sought-after properties in great locations, Camden Property Trust has an excellent track record of growing shareholder value. The REIT has steadily grown its funds from operations per share and dividend over the years. It has benefited from steady rent growth in its existing apartment communities and its ability to expand its portfolio by buying and building additional apartment communities. The REIT has a strong financial profile, giving it the flexibility to continue expanding its portfolio of durable income-producing multifamily communities for years to come.
A more affordable way to get into a single-family home
Invitation Homes is also a residential REIT. However, it focuses on renting single-family homes. It owns about 80,000 rental homes in 16 markets across the U.S., mainly those where the population is growing at an above-average rate.
The REIT benefits from many of the same catalysts as Camden Property Trust. Demand for rental housing continues to grow due to a steadily expanding population and the growing cost of buying a home. Meanwhile, Invitation Homes is benefiting from an additional growth driver. With remote work on the rise, people need more space, leading many to seek to rent a home.
Invitation Homes has steadily expanded its portfolio over the years by purchasing additional homes to rent. It has also started developing communities of rental homes in partnership with major builders while partnering with other investors to help expand rental options. That should enable the REIT to continue growing its rental income and dividend for years to come.
Benefiting from the steady shift to shopping online
Prologis is an industrial REIT focused on owning logistics properties. These warehouses and related properties are benefiting from the steady growth of online sales. E-commerce companies need an estimated 1 million square feet of warehouse space for every $1 billion of online sales. With e-commerce sales likely to keep growing, the world will need more warehouse space.
That should benefit Prologis, a global leader in warehouse real estate. The company recently agreed to acquire its next largest rival, fellow industrial REIT Duke Realty, in a $26 billion deal. That will give it even more upside in the future of industrial real estate demand. The two companies have a vast land portfolio to build more warehouse space. On top of that, there's a widening gap between current market lease rates for warehouses and the rates on existing contracts. As those legacy agreements expire, Prologis can capture the much higher market rates on new leases.
Those catalysts should enable Prologis to continue growing its funds from operations per share and dividend at above-average rates for years to come. That should allow the REIT to continue enriching long-term investors.
Focused on the right properties
A key to successful REIT investing is to focus on ones that own properties benefiting from demand tailwinds. With demand for apartments, single-family rentals, and warehouses growing, Camden Property Trust, Invitation Homes, and Prologis should prosper. That makes them great REITs to buy and hold for the long haul.
