For investors looking for something a little more spicy than simple residential real estate investing, you can choose among a whole world of commercial real estate stocks. From commercial investors who manage nothing but storage facilities to people focusing on office or hospitality 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.
Many also pay dividends, which can be very attractive to an investor looking for a little cash bonus every so often. Dividends can also be rolled back into the stock that paid them, or used to buy shares in stocks you might otherwise shy away from due to the risk involved.
6 Best Commercial Real Estate Stocks in 2023
Here are a few commercial real estate stocks to keep an eye on this year:
|Equinix||(NASDAQ:EQIX)||$65.0 billion||Data center REIT|
|Apple Hospitality REIT, Inc.||(NYSE:APLE)||$3.8 billion||Hospitality REIT|
|Prologis, Inc.||(NYSE:PLD)||$112.0 billion||Industrial REIT|
|Alexandria Real Estate Equities||(NYSE:ARE)||$25.3 billion||Office REIT|
|Simon Property Group, Inc.||(NYSE:SPG)||$45.3 billion||Retail REIT|
|Public Storage||(NYSE:PSA)||$50.6 billion||Storage REIT|
A pure-play data center real estate investment trust (REIT), Equinix is one of a few leaders left in the space after recent massive consolidation. As a data center REIT, Equinix rents server space to businesses and maintains the server farms within its massive warehouse-like facilities.
Equinix has seen 77 straight quarters of revenue growth and now operates 244 data centers spread around the globe. It has consistently offered a payout ratio of at least 42% in annual dividends since 2018. Roughly 36% of its clients are heavily involved in cloud computing, including services such as Amazon (NASDAQ:AMZN) Web Services, Microsoft’s (NASDAQ:MSFT) Azure, and Alphabet’s (NASDAQ:GOOGL) (NASDAQ:GOOG) Google Cloud. Enterprise-level businesses make up another 34% of client revenues, providing a stable base of ongoing rental revenue.
In addition, Equinix is one of the greenest data centers in the world, using 95% renewable energy globally and having a 100% renewable energy goal. It has used at least 90% green energy since 2018.
2. Apple Hospitality REIT, Inc.
The entire hospitality industry is seeing some huge benefits from the pent-up travel demand over the past few years, including Apple Hospitality REIT. The company owns 219 hotels with a total of 28,747 rooms across 36 states and 86 markets and focuses on upscale hotels including brands such as Marriott, Hilton, and Hyatt.
A wide range of rooms and locations has helped it regain positive cash flow and increase occupancy rates despite a wide range of challenges in 2020 and 2021. A small debt-to-asset ratio also is helping Apple Hospitality REIT past the hotel slump. It wasn’t forced to borrow excessively to maintain business during the down period, demonstrating solid financial stewardship in bleak times for its industry.
3. Prologis, Inc.
Warehouses may not seem like the most exciting place to put your hard-earned money, but Prologis would absolutely disagree. With the supply chain issues of 2020 and 2021 (including some that are still ongoing), more companies are looking for places to stash backup inventory and equipment. 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 online fulfillment companies. With a 97.4% occupancy rate and rent increases for new leases of 37% on average for the first quarter of 2022, it’s solidly positioned. Because the leases signed for warehouses tend to be multi-year, the bumps in new lease values will continue to pay off in the medium term.
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 more than 96% over the past 10 years, plus remaining lease terms of anywhere from two to 61 years. It leases space to companies that include Moderna, Novartis, Merck, and Uber. 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.
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 20 redevelopment projects around the globe and has invested almost $9 billion since 2012 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 93.4% in 2021, 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 -- more than 4,100 new leases for a total of approximately 15 million square feet were executed in 2021, the highest number in the past six years.
6. Public Storage
With the residential real estate market still facing significant housing shortages and more people able to live farther away from their jobs, the self-storage business is booming. People are packing away things so their homes show better to prospective buyers and moving across the country to temporary housing that may lack space for all the stuff they’ll eventually put in their permanent homes.
Public Storage has not missed a beat during this time of opportunity and has seen both income and occupancy rates grow dramatically since 2019. As it enters its 50th year in business, the company is finding new ways to offer services customers want, such as digital access to their units or online self-service for formerly labor-intensive tasks like renting out units.
All of these items taken together have Public Storage issuing an optimistic outlook for the coming year. It will also be expanding its portfolio due to the unaddressed demand it sees in the market.
Related investing topics
What Is an Estoppel Certificate?
Part of proper due diligence, this document is filled out by tenants on the status of their lease.
What Is Exclusive Right to Sell?
This real estate contract term can give your real estate agent extra motivation.
Real Estate Inflation: How Does It Impact You?
When inflation is high, here's how it can affect your real estate investments.
The bottom line
Choosing commercial real estate stocks is a great option for anyone looking for a more sophisticated investment. Although some sectors such as self-storage and hotels offer short leases of as little as one day, other niches in the space secure their properties with leases of years or even decades.
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.