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 to mixed-use properties, your niche investing interests are here.
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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.
The 5 best
Five 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) | $3.975 billion | Office REIT |
| Realty Income | (NYSE:O) | $52.74 billion | Diversified REIT |
| Prologis | (NYSE:PLD) | $112.87 billion | Industrial REIT |
| Alexandria Real Estate Equities | (NYSE:ARE) | $19.88 billion | Office REIT |
| Simon Property Group | (NYSE:SPG) | $59.48 billion | Retail REIT |
1. Kilroy Realty
1. Kilroy Realty
Office REITs have taken a bit of a beating since the work-from-home trend started. Nevertheless, Kilroy Realty is still finding ways to remain profitable and grow its income.
Kilroy is in some of the country's hottest markets, with 121 total office buildings in five markets -- Austin, San Diego, Los Angeles, San Francisco, and Seattle -- and 410 housing tenants in more than 17 million square feet of rental space. It's also somewhat diversified, with three residential properties containing a total of 1,001 units.
Kilroy Realty's largest tenants include:
- Stripe
- Amazon (AMZN -0.27%)
- Salesforce (CRM 0.47%)
- Microsoft's (MSFT 0.84%) LinkedIn
- Adobe (ADBE -8.47%)
- DoorDash (NYSE:DASH)
- Okta (OKTA 0.76%)
- Netflix (NFLX 1.49%)
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 $2.16 in 2023, an increase of more than 58% in just eight years. The company has also won many awards for its commitment to sustainability and held Energy Star Certifications for 73% of its buildings as of Dec. 31, 2023.
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, France, Germany, Ireland, Italy, Portugal, and Spain. Instead of operating the businesses, 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 1.85%)
- Walgreens (WBA 4.19%)
- Dollar Tree (DLTR 2.67%)
- FedEx (FDX 0.13%)
- Walmart (WMT 1.18%)
- Tractor Supply (TSCO 1.24%)
Retail makes up about 82% of its property mix; another 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, the most recent monthly payout being about $0.26 per share for July 2024.
3. Prologis
3. Prologis
Warehouses may not seem like the most exciting place to put your hard-earned money. But the COVID-19 pandemic changed how we shop, turning more people on to online stores and e-commerce fulfillment from brands they already know and trust.
This trend means more companies are looking for places to stash backup inventory and equipment. As a result, warehouse REITs have been thrust into unforeseen growth over the past few years.
Prologis is one of the biggest players in the field, with approximately 1.2 billion square feet of rental space in 19 countries. It primarily services business-to-business, retail, and e-commerce online fulfillment companies.
With a 97.6% occupancy rate and growth in net operating income of almost 40% from 2022 to 2023, it's solidly positioned. Prologis counts Amazon, Home Depot (HD 1.49%), FedEx, UPS (UPS -0.92%), and Walmart among its top 10 tenants.
4. Alexandria
4. Alexandria Real Estate Equities
As a REIT focused on the life science, ag tech, and technology industries, Alexandria Real Estate Equities controls spaces used for work important to humanity's future. 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 95% as of Dec. 31, 2023, plus a weighted-average remaining lease term for all tenants of 7.4 years. It leases space to companies such as Moderna (MRNA -2.01%), Novartis (NVS -0.05%), Merck (MRK 0.53%), and Uber (UBER 6.45%).
Approximately 94% 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
5. Simon Property Group
As one of the world's largest operators of mall properties, Simon Property Group is constantly looking for new ways to reinvest in and add additional value to its older properties. In 2023, it completed more than 13 redevelopment projects in the United States, and its investment in expanding and upgrading existing properties contributed to a 7% increase in consolidated revenue in 2023.
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 Property to increase its occupancy rate for U.S. malls and premium outlets to 95.8% in 2023, 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 -- 1,185 new leases and 1,841 renewals, for a total of approximately 10.9 million square feet, were executed in 2023.
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The bottom line
Whether you're looking for more warehousing, retail, or office exposure, 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.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Kristi Waterworth has positions in Alexandria Real Estate Equities and Kilroy Realty. The Motley Fool has positions in and recommends Adobe, Alexandria Real Estate Equities, Amazon, FedEx, Home Depot, Merck, Microsoft, Netflix, Okta, Prologis, Realty Income, Salesforce, Uber Technologies, and Walmart. The Motley Fool recommends Moderna, Simon Property Group, Tractor Supply, and United Parcel Service and recommends the following options: long January 2026 $395 calls on Microsoft, long January 2026 $90 calls on Prologis, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
