We recently compiled a list of the 11 Best Self Storage and Apartment Stocks to Buy Now and in this article, we discuss whether Prologis Inc. (NYSE:PLD) is the best real estate stock to buy.
The American dream of sprawling living spaces is undergoing a transformation. Increasing housing costs in densely populated areas and the rising need for frequent relocations have led more people to use self-storage facilities. Furthermore, as families expand and accumulate more belongings, the demand for additional storage space continues to grow.
The self-storage sector experienced many changes from 2020 to 2023. The pandemic fueled a boom, with users increasing by 970,000 and sales volume nearly tripling between 2020 and 2021. This boom was driven by relocations, remote work, and increased online shopping. However, 2022 saw moderation with declining home sales and consumer spending leading to slightly lower rental rates and a sales volume drop. The first three quarters of 2023 continued this trend, with economic factors contributing to a further downturn.
Looking ahead to 2024, the self-storage industry is expected to maintain stable occupancy rates and rental income, driven by the ongoing housing shortage. Although a slight uptick in new facilities (4.4%) is predicted, the housing shortage is likely to continue driving demand. According to Mordor Intelligence, the US self-storage market is projected to reach nearly $50 billion by 2029, reflecting a steady growth rate of 2.44%. This indicates continued investor confidence and a healthy market outlook.
Meanwhile, in the apartment sector, rent growth in 2024 is forecasted to be moderate, ranging from 2.5% to 3.7%. The sector is expected to experience slightly stronger growth in 2025. However, with the potential weakening of the labor market and increased supply, some areas may require rent concessions and reductions.
Overall, the US residential real estate market is experiencing steady growth, valued at $2.5 trillion in 2023. This positive trend is expected to continue as the valuation of this market is projected to reach $2.8 trillion by 2028. This jump in the valuation of the residential real estate market translates to a compound annual growth rate (CAGR) of 2.04% during the forecast period. Apartments hold a substantial share of the sector’s total demand. This dominance is likely due to the high number of apartment units being completed, with completions up by 26% as of 2023.
Aerial view of a city skyline with a modern real estate development in focus.
Our Methodology
We have compiled a list of the best self-storage and apartment stocks to buy based on hedge fund sentiment toward each stock. Our assessment of hedge fund sentiment is derived from Insider Monkey’s database of 919 elite hedge funds as of the first quarter of 2024. The best self-storage and apartment stocks to buy have been ranked in ascending order of the number of hedge fund investors in each company.
“Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).”
Is Prologis Inc. (NYSE:PLD) the Best Real Estate Stock to Buy?
Prologis Inc. (NYSE:PLD)
Number of Hedge Fund Holders: 48
Prologis Inc. (NYSE: PLD), a real estate investment trust based in San Francisco, is the global leader in industrial real estate. Established in 2011 through the merger of AMB Property Corporation and Prologis, the company specializes in investing in and managing logistics facilities.
Prologis Inc. (NYSE:PLD) recently increased its quarterly dividend by 4% YoY to $0.96 per share. Furthermore, in Q1 2024, Prologis Inc. (NYSE:PLD) reported revenue of $1.96 billion, up from $1.77 billion in Q1 2023.
Analysts are bullish on Prologis Inc. (NYSE:PLD) with a consensus rating of “Strong Buy” and a price target of $130. The price target reflects a potential upside of over 14% from the current price levels.
Here’s what Third Avenue Management said about Prologis Inc. (NYSE:PLD) in its Q4 2023 investor letter:
“Prologis, Inc. (NYSE:PLD) (a U.S.-based Industrial and Logistics REIT) held a capital markets forum, where the management team reviewed the evolution of the business and highlighted their “customer focus”. The team also covered several material value-drivers, including: (i) the “loss-to-lease” opportunity within the existing portfolio with market rents approximately 60% above in-place leases, thus representing nearly $3.0 billion of incremental cash flow3 that can be realized as leases renew, (ii) a 12k acre landbank that can accommodate more than 200 million square feet of additional properties, which is increasingly being used to deliver datacenters given the higher capital values relative to industrial properties, and (iii) its Essentials segment, including the addition of rooftop solar panels at many facilities, which currently account for 555 Megawatts (“MW”) of installed capacity (and generates $40 million of operating profits) but is expected to comprise 7000 MW of capacity by 2030 (and generate approximately $800 mm of annual profits).”
At the end of the first quarter of 2024, 48 hedge funds reported owning a stake in the company.
Overall, Prologis Inc. (NYSE:PLD) ranks 2nd among the 11 best self-storage and apartment stocks to buy now. You can visit the 11 Best Self-Storage and Apartment Stocks to Buy Now to see the other self-storage and apartment companies that are on the hedge fund radar.
While we acknowledge the potential of self-storage and apartment stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: Michael Burry Is Selling These Stocks and Jim Cramer is Recommending These Stocks.
Disclosure. None. This article is originally published on Insider Monkey.