Prologis | Calco Commercial, Inc.

Category: Prologis (4)

Apr

CRE NEWS: Accelerating Rents for Smaller Warehouse Developments Nationwide

Source: CoStar
By: Diana Bell

Prologis, the country’s largest owner of industrial real estate, is raising its projected earnings for the coming year by more than 2% as it pursues further rent increases and seeks to capitalize on a preference for smaller warehouse developments.

The real estate investment trust, headquartered in San Francisco, said rent growth will be about 4% globally, principally driven by the United States, though Europe is expected to outperform later in the year, Chief Financial Officer Thomas Olinger said Tuesday on a conference call with analysts discussing first-quarter financial results.

Prologis plans to spend $2 billion on starting development and $600 million on acquisitions but seeks to reduce its ownership in open-ended European funds from 28 percent to 24 percent to accommodate “partners and bring ownership in line” with a long-term target of 15% on the continent, Olinger said.

The REIT signaled a focus on smaller-sized warehouse space, with only about 25% of its portfolio comprising big-box regional facilities over 250,000 square feet. About two-thirds are less than 250,000 square feet.

“We are seeing higher rent change on roll under 250,000 square feet versus bigger box, and that spread is accelerating. We are well-positioned to capture that opportunity,” said Olinger.

Chairman Hamid Moghadam doesn’t see weakness in large space demand but said “there are some markets on the periphery like outlying corridors of Chicago where there are a lot of big buildings and market rent is softer now until those buildings get absorbed.”

The executives declined to name locations Prologis is considering, but Moghadam said the REIT is staying out of overdeveloped markets.

“The big boxes got their growth early in the recovery cycle. They are up significantly on 40% to 50% in the past four to five years. Now they are taking a back seat to the medium and smaller spaces,” he said.

The REIT’s strategy this year will be to push rents up. “Don’t be surprised if you see occupancy be a little lower throughout the year,” said Olinger. “We are going to make the right long-term decision, which is going to be pushing rents and extending term.” Prologis expects to end the year with an uptick in occupancy to 97.5%.

As the first developer to build a multistory warehouse in the United States, Prologis has faced headwinds with leasing the three-story, 589,000-square-foot Seattle building known as Prologis Georgetown Crossroads, where it is asking for rents in the range of $1.30 to over $2 a square foot.

Of the Seattle property, Olinger said, “We have done a 100,000-square-foot lease in this asset, and one lesson we’ve learned about this is there is a process that we have to go through with customers. It is a new product in a new location. We need to get a premium and we think we’ll get that premium, but deal gestation periods are long and they will continue to be long until customers are basically more accustomed to this product.”

The REIT said it will pursue opportunities with Seattle-based online retailer Amazon, its largest customer.

“Broadly we are seeing customers like Amazon and other customers focused on e-commerce with some network rollouts involve a combination of large buildings and a series of higher number of smaller buildings that are located close-in to larger population centers, all of which fit really well for our portfolio,” said Olinger.

Moghadam noted the smaller-footprint buildings these types of tenants are favoring offer more options in terms of parcel size and have higher clear heights with more mezzanine floors, which effectively increases space utilization.

Of the 772 million square feet Prologis had within its portfolio as of March 31, 59% was U.S.-based and is expected to generate 77% of the REIT’s net operating income for the year. Prologis has about $97 billion in assets under management.

Some of the largest shippers and household-name companies lease from Prologis, with Amazon in first place contributing to 3.6% of its net effective rent. Amazon leases about 20.7 million square feet. Shippers DHL, UPS and FedEx, retailer Home Depot and automaker BMW all rank within Prologis’ top 10 largest customers. Retail giant Walmart is in 11th place with 4.4 million square feet. And the U.S. government ranks 19th, with just over 1 million square feet.

This year, Prologis expects to complete just under 12.4 million square feet of development activity for properties it will fully own and manage spending $1.1 billion to do so. Roughly half of that development is planned for the Western United States. For 2020 and beyond, so far it has docketed 1.6 million square feet in development solely in the West.

Of the $239 million Prologis spent on development starts globally in the first quarter, just 41.2% is build-to-suit, showing a bulk of speculative industrial work.

Despite recording a decline in net earnings in the first quarter, the REIT saw rental revenues jump year-over-year to $696.8 million compared to $555.9 million. Occupancy was roughly flat at 96.8%, but Prologis leased 43 million square feet in the first quarter, compared to 33 million the in the same quarter a year ago.

The results follow what Moghadam called Prologis’ “strongest year ever” in 2018. The REIT embarked on $3.1 billion in new developments globally totaling 36 million square feet. The year also saw Prologis sell off an 86-property portfolio to MapleTree and acquire Denver-based industrial REIT DCT Industrial.

Link to article: Prologis Sees Opportunity in Smaller Warehouse Footprints

Oct

National CRE News: ProLogis Watch on Tariffs & Warehouse Vacancies

Source: CoStar
By: Randyl Drummer
Date: October 18, 2018
Link to article: ProLogis

Prologis, the world’s largest warehouse and logistics property company, has begun to consider its leasing options should space suddenly come available as a result of recent bankruptcies by retailers or the consequences of a trade war with China.

So far, San Francisco-based Prologis has yet to find any “measurable impact” from trade issues or retailer bankruptcies this year, Prologis Chief Executive Hamid Moghadam told investors during the company’s third-quarter earnings conference. In the latest sign of struggles among retailers, Sears Holdings Corp. filed for Chapter 11 bankruptcy this week and announced another 142 closings of Sears and Kmart stores.

“If we search real hard, we can point to one or two companies who backed out of lease negotiations in the U.S., but the impact of those isolated cases was negligible in the context of our overall leasing volume,” Moghadam said.

“I can think of 20 other reasons why tenants stopped negotiating or dropped out of a negotiation, and certainly the trade stuff has not yet in any way translated to any action on the ground that we can tell,” Moghadam added.

The company isn’t waiting for any trade war to start before monitoring possible effects on customers. Prologis is already making sure it’s aware of how long it would take to fill space should customers start vacating.

The fact that the largest company of its kind is concerned enough to seek signs of effects of tariffs and bankruptcies reflects the cautious nature of corporations at this point in the extended economic expansion since the recession.

The company has found that “there are plenty of other customers that are waiting in line for quality space and are frustrated by the shortage of suitable options,” Moghadam said.

The Trump Administration has levied tariffs on a total of $250 billion of imported goods from China, which has retaliated by announcing tariffs on $110 billion of U.S. exports.

About 25 percent of the most recent round of tariffs enacted in September is on consumer goods, unlike earlier announcements that mostly targeted materials and intermediate goods, according to Peterson Institute for International Economic, a Washington D.C.-based think tank.

Prologis has said that while a protracted trade war could increase the likelihood of a global downturn, about three-quarters of its U.S. customers are focused on local and regional business activity, including e-commerce delivery, rather than international trade.

Prologis now expects companies to take 260 million square feet of industrial space in the U.S. this year, 15 percent more than 2017, even as newly built space falls an estimated 10 million square feet short of tenant demand. As a result of the tight market, Prologis has been able to keep more than 80 percent of its tenants when their leases expire, despite imposing average rent hikes of more than 11.5 percent.

Not all companies in that industry can operate with that level of efficiency, meaning that Prologis could have a better chance of withstanding any downturn than smaller rivals.

“The markets are really strong and that’s why we’re getting these increases,” Moghadam said. “And not every discussion with every tenant starts out with the intention of them staying. In fact, many of them when they hear about the new rent get a little spooked.”

He said many tenants come back to Prologis and renew after shopping the market and failing to find lower rents.

Among the major commercial property types, only apartment and industrial real estate investment trusts have gained ground in their stock prices since the beginning of the year, according to National Association of Real Estate Investment Trust data.

Matt Kopsky, an analyst for Edward Jones, noted that about 30 percent of new Prologis leasing activity is related to space needed to fill online orders, with Amazon the company’s largest tenant at about 3 percent of total revenue from rents across its portfolio. The company also has demand from overseas to help insulate it from any downturn.

“Despite increasing competition from new construction and trade-tariff concerns, we think demand will remain robust,” Kopsky said. “Increased global trade is also a significant factor, particularly overseas, since Prologis leases space to third-party logistics firms providing warehouse and distribution to multinational corporations.”

Apr

National CRE News: Warehouses Commanding Peak Prices

Source: CoStar
By: Randyl Drummer
Link: Warehouses

Warehouse giant Prologis Inc. is ramping up construction and asset sales following healthy first-quarter results powered by brisk leasing and near-double-digit rent growth in the red-hot logistics market.

Based on robust demand for modern logistics space by e-commerce and other tenants, San Francisco-based Prologis this week raised the value of planned development starts by $200 million to between $2.2 billion and $2.5 billion for 2018. Roughly half the new activity is lower-risk build-to-suit construction, Prologis Chief Financial Officer Tom Olinger told investors.

Prologis (NYSE: PLD), by tradition one of the first equity REITs to report earnings each quarter, also increased its estimate of projected building and land sales by roughly $475 million to between $1.4 billion and $1.7 billion for the year. The sell off will effectively complete the company’s seven-year campaign to dispose of assets deemed “non-strategy” following Prologis’s 2011 merger with AMB Property Corp.

“Market conditions remain extremely healthy and our strategy is set,” Prologis Chairman and CEO Hamid R. Moghadam told investors. “Going forward, it’s all about execution.”

One stock analyst summed it up even more succinctly following the earnings presentation by Prologis, a quarterly bellwether for U.S. and global logistics markets: “Industrial has never been this good.”

John W. Guinee, analyst with Stifel, Nicolaus & Associates, said Prologis’s extraordinary 9.2% first-quarter rent growth, steady demand from Amazon and other tenants and strong development platform “sets the stage for a strong 2018 and 2019.”

Prologis, fueled by the strong earnings report, led all equity REITs with a 4.3% increase in its share price on Wednesday. Industrial REITs again led all property sectors with 1.8% average growth, with Prologis rivals Rexford Industrial Realty, Inc. (NYSE: REXR) and Terrano Realty (NYSE: TRNO) turning up among the top five gaining REIT stocks.

Only a handful of factors could derail the world’s largest industrial REIT from another strong year, including the prospect of a long trade war between the U.S. and China, which could hurt Prologis and its industrial REIT rivals along with the rest of the economy.

“Any kind of trade war is bad for economic growth generally,” Moghadam said in response to an analyst’s question. “If the economy grows at 30 to 40 basis points slower than it would have otherwise, that’s not good for anybody’s business.”

The good news is that talks, including President Donald Trump’s expressed interest in possibly rejoining the Trans-Pacific Partnership (TPP) trade agreement, are still in their early stages while announced new tariffs have not yet fully gone into effect, Moghadam said.

“All of our customers that I’m aware of, basically, have their head down doing business, and they’re not paying too much attention to what comes out in the tweets in the morning until there is something specific they can react to,” Moghadam said.

The CEO pointed out that most of the tariffs announced to date have been imposed on raw or intermediate materials, which does not affect Prologis’s main logistics and warehouse business.

“Steel doesn’t go through warehouses, aluminum doesn’t go through warehouses. The simplest way of thinking about it is that while we are concerned by the talk; we are not yet concerned by the action,” Moghadam added.

That said, Prologis is carefully monitoring rising construction costs which some analysts have said could be exacerbated by tariff-related increases in materials prices. In the San Francisco Bay Area, for example, costs are up 20% to 25% over last year, Moghadam said.

“[Construction costs] have been stable for many years and now it’s time for the contractors and buyers to make some hay while the sun is shining,” Moghadam said. “But it’s getting tougher to pencil out spec development in some of these markets, and that’s good news I guess for rental growth over time.”

New tariffs and trade disputes are casting a pall over sentiments across various sectors, even as all 12 regions of the Federal Reserve Bank reported continued robust job growth with few signs of overheating, according to the Beige Book, the Fed’s most recent survey of U.S. businesses.

Jul

National CRE News: Demand for Warehouse Space Strongest since 2011

Source: CoStar News
By: Randyl Drummer
Date Posted: July 20, 2016

Prologis, the world’s largest developer and owner of industrial real estate, reported the first six months of 2016 were the strongest in its company’s history as moderate levels of new supply paired with a strong appetite by e-commerce and other companies created the tightest market for tenants since the first internet boom of the early 2000s.

The San Francisco company owns or has interests in 3,347 buildings totaling 666 million square feet of property in 20 countries, including nearly 380 million square feet in the US. As such, the publicly traded REIT serves as a bellwether stock for the global warehouse and logistics market.

The REIT’s same-store net operating income increased 6.1% in the second quarter, securing an average 17.8% rent increase at lease expirations while delivering $621 million in new projects. Prologis had more than $3.7 billion in cash liquidity, its highest on record.

“All in all, the last six months have been the best in our company’s history,” said Hamid Moghadam, chairman and CEO of San Francisco-based Prologis (NYSE:PLD). “E-commerce and supply chain reconfiguration continue as big drivers of demand for our product. The Class A market is where the action is.”

Building Fast, Leasing Faster

CoStar and other CRE services firms, including CBRE Group, Inc. and JLL, noted the increasingly limited availability of U.S. industrial space at midyear as online sellers, third-party logistics firms, food and beverage and consumer goods firms scoop up newly constructed bulk warehouses and other industrial buildings as fast as they are built.

Even though developers added 158 million square feet of new warehouse/distribution space over the past 12 months, the overall vacancy rate for industrial property continued to inch down to 5.5% as of June 30 of this year.

According to a preliminary analysis by CoStar of midyear logistics and industrial property leasing data, that’s nearly 2 percentage points lower than the 2004-2007 expansion cycle, and within a few basis points of the lowest vacancy rate for industrial property since the Internet-driven demand boom of the late 1990s and early 2000s.

CBRE said it expects the global economy will continue to sustain demand for industrial space.

“While we’ve had some shocks to the global economy, the U.S. economy still is moving along at a slow and steady space and that will sustain industrial demand,” said Jeffrey Havsy, CBRE chief economist for the Americas. “Retail sales have been above expectations, posting pretty strong gains in April and May. That will help both the retail and industrial sectors.”

More than 210.5 million square feet of industrial space was absorbed by tenants over the last year, according to CoStar. The nearly 46.9 million square feet of net absorption in the second quarter, while down just under 10% from a year earlier, remains consistent with the average pace of demand growth throughout the long expansion, said CoStar Senior Real Estate Economist Shaw Lupton, in a preview of the company’s midyear industrial market review and forecast webinar scheduled for July 28.

Link to article: Demand for Warehouse Space Skyrockets