The new economy needs more real estate and here’s why

There has been a lot of interest recently in the potential upside from investments in the warehouse sector. We have all become acquainted with the importance of large, semi-automated warehouses to the facilitation of logistics. Our straight-to-the-front-door economy depends on them. What is less obvious, perhaps, is the role played by technology infrastructure, and the property that it occupies.

Our tech sector uses a lot of space. For starters, there are all those mobile phone towers, but beyond that there are the massive server farms and data centers that keep large technology businesses like AWS functioning. And I’ve not even started on what the next generation green energy market is going to require.

But let’s take, for example, the 5G networks that have everyone excited: they are going to need MORE space than the old 4G or 3G networks. Who is providing this space to these towers? Companies like American Tower [AMT] are front and center in this boom. We’ve touched on this ourselves in previous coverage of our own stock picks. Examples include Airtel Africa [LON:AAF] and MTI Wireless [LON:MWE].

Aside from the big telco roll out, e-commerce is obviously also making demands. The overall size of the REIT (real estate investment trust) sector occupied by trusts focused on this growth is now more than 30%, up from less than 10%. Old real estate like warehouses and disused shopping malls are being converted into the new hubs for supply chains.

Ultimately, we are talking here about the building blocks for a new economy. Developers are waking up to the new opportunity.

What sort of companies are operating in this sector?

There are quite a few companies that now occupy this space. Some of them might not spring to mind immediately as classic examples of property plays, but a few examples include:

Airbnb: Although technically classified as a hotel group, Airbnb is a disruptive stock that has completely changed the way travelers think about staying in foreign destinations. Its private rental model has changed the way people manage their personal real estate and the way investors look at the hotel sector.

Cellnex Telecom: A classic telecoms infrastructure play, Cellnex Telecom (CLNX) is listed in Spain but it works with over 53,000 sites across Europe. Telecoms infrastructure is a big part of its overall business, but it also focuses on next generation urban infrastructure solutions. It joined the benchmark Spanish IBEX 35 index in 2016.

Digital Realty Trust: A REIT that invests in carrier-neutral data centers – it owns over 225 of them all over the world. Founded in 2004 by a private investment firm that immediately put 23 properties and 5.6m square feet of space into the fund, Digital Realty Trust continues to build on a very impressive portfolio, adding Interxion for a cool $8.4bn in 2019 and 55% of Teraco Data centers in this year.

Goodman Group: A specialist global property group which owns, develops and manages high quality, sustainable properties that provide what it calls “essential infrastructure for the digital economy.” Based in Australia, it is listed on the ASX (GMG). It has an international property portfolio that includes large scale logistics facilities and business and office parks.

While the above stocks offer real opportunity, a more cautious investor may look to an Exchange Traded Fund (ETF) or a Managed Fund for exposure to a larger number of stocks within this sector.


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