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Here's Why Warehouses Will Be a Good Investment in the Near Future

Aug 29, 2020 by Maurie Backman

The retail apocalypse was a major concern before the COVID-19 outbreak took hold. In 2019, an estimated 9,500 stores went out of business, according to Coresight Research. But now, a lot of major retailers are making plans to close stores as the effects of the pandemic rear their ugly head.

According to the company, bankrupt retailer J.C. Penney (OTC: JCPNQ) plans to close 154 stores in the near term while Neiman Marcus and Lord & Taylor will be shuttering locations as well. And these are just a handful of examples. So far, an estimated 6,600 retail locations have shut down this year, according to Coresight Research, but as many as 25,000 could close permanently by the time 2020 comes to a close.

It's for this reason that real estate investors who would normally be inclined to invest in retail locations and malls may want to shift to another piece of the market: warehouses.

Why warehouses could be the next big thing

Many retailers that were struggling before the pandemic, or were hurt by it, are seeking to shift from physical stores to online sales in the near future. Doing so makes a lot of financial sense. It's more cost-effective to fulfill and ship online orders than to cover the expenses associated with maintaining physical locations, like rent, insurance, and employee wages.

But this rapidly evolving shift to e-commerce is apt to spark an uptick in warehouse demand. After all, retailers will need a home for their inventory once they stop maintaining physical stores, and warehouses fill that need. And that's something real estate investors should really line up to capitalize on, especially given shopping malls' precarious future.

Of course, there are several options for investors. They can sink money into building new facilities to align with what will likely be a near-term increase in demand. They can also invest in existing facilities or focus their strategy on industrial REITs, which typically acquire warehouse space as part of their portfolios.

The upside of investing in warehouses

Warehouses tend to be relatively low-maintenance properties, focusing on storage and efficiency more than aesthetics. Also, warehouse tenants may be more inclined to sign longer-term leases in the coming years, whereas retailers these days may be loath to lock themselves into multiyear arrangements given the uncertainty that abounds. As such, warehouses really do offer a lot of upside.

Warehouses are also a good bet for investors starting to dabble in real estate -- namely because they fulfill a perpetual need that’s not going away anytime soon. And let's not forget that e-commerce mainstays like Amazon (NASDAQ: AMZN) will likely seek to acquire more warehouse space in an effort to win the shipping race and expand their empires.

The bottom line

For all of these reasons, warehouse investing is a good bet right now, and it will continue to be a solid move in coming years. If you don't have warehouses in your portfolio, consider shifting some assets around to make room for them.

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