Category: warehouse san francisco (2)

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.”

With Little Available Modern Space, Investors Scrambling for Bulk Warehouses in Second-Tier Markets, Ramping Up New Development

Source: CoStar
Reporter: Randyl Drummer
Date: February 5, 2015
Article Link: Warehouse Owners

Package shipper UPS isn’t the only one who loves logistics.

Property owners and investors are singing the praises of the unattractive but highly functional and in-demand property type after another quarter of strong rent growth and increasing demand for modern, bulk warehouse space in key distribution markets.

So much so in fact, that investor demand for warehouse and logistics properties is limited only by the current shortage of modern new buildings available to buy, according to CoStar analysts presenting their findings at the Fourth Quarter Industrial Real Estate Review and Outlook last week.

With rental rates on the rise, especially for new, high quality logistics space, “You can build and lease a building potentially for the next 10 years with a good credit tenant,” said Rene Circ, director of research, industrial for CoStar Portfolio Strategy. “This is as good a time in industrial real estate as you could possibly imagine, and we are seeing that in terms of questions from our clients and people wanting to get into the market.”

Co-presenter and senior real estate economist Shaw Lupton also noted that, despite the dearth of property available in the market, sales of institutional grade properties have never been stronger in terms of sales volume and square footage traded.

Capitalization rates are at a record low of below 6% for institutional properties, with reports of much lower cap rates for sales of big box warehouse leased to triple-net credit tenants in the best markets, Lupton said.

“It’s a great time to own industrial real estate, and it’s increasingly competitive to get into it,” Lupton said. Investment sales were up a solid 8% in the industrial sector in 2014 to $60 billion.

Despite the robust investor interest, industrial property sales still lagged multifamily, office and retail property sales, largely because there simply wasn’t enough buildings available to buy. Construction on new bulk warehouse space is ramping up, but it has yet to catch up with investor demand for the new modern facilities favored in tenants for their increasingly sophisticated and high-tech logistics supply chains.

CoStar analyzed the inventory of newer logistics buildings five years old or less compared with all existing logistics buildings and found that both the supply of newer buildings and the ratio of sales has dwindled significantly since 2002, when 32% of all trades were of buildings less than five years old. Today, the number is closer to 10%.

“New supply will be needed to raise the overall level of transaction value,” Circ said. “You can make the argument that lack of new construction is holding back sales by as much as 10 percentage points. Building (prices) are being bid up because there are just not enough sellers.”

While industrial real estate rarely outperforms other more glamorous property sectors, rents for industrial space, led by demand for newer, high-functioning properties, grew an average 4.5% for all industrial properties in 2014 over the previous year. That rate of increase outstripped the healthy 3.7% rental rate increase logged by the office market, 3.2% in the apartment sector, and the 3% rent growth in retail real estate.

The amount of available space on the market is tightening. The 8.7% vacancy rate for logistics space in the fourth quarter compares with a reading of 9.9% at the height of the last real estate cycle in 2007. Absorption totaled 167 million square feet in 2014, slightly lighter than the year before only because of the lack of usable vacant space, Lupton said.

“There just isn’t enough space out there to allow for [larger] numbers,” he said. “We’re not lagging much below the absorption peak, but to get beyond that, we absolutely need more new construction.”

While logistics construction was up 14% in 2014 to 136 million square feet, it’s still about 44 million square feet below the early 2000s peak of 180 million square feet.

While the recovery in rents and property values for high quality logistics space is nearly complete, Circ and Lupton noted that the light industrial property segment is still in the early expansion phase, with very little new construction, which is expected to change over the next few quarters.

“There’s still a lot of runway for growth in light industrial,” Circ said, adding that the improvement in this sector of the industrial real estate market is a very promising sign for the recovery of numerous local markets.

“These are not the big multinational companies, the Amazons, these are local businesses. We’re seeing the light industrial segment doing really well, which gives me a lot of comfort in the strength of local economies,” Circ said.

“When you see these local manufacturing and housing-oriented businesses taking space and making lease commitments, it means they have a lot more visibility into their business growing again, and that supports the guts of the local economy.”

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