Prologis sees narrow window before warehouse rents increase

Yahoo

21 hours ago

Despite navigating weaker demand and uncertainty around trade policy, logistics real estate customers 'looked beyond short-term volatility to activate long-term plans' in the second quarter, according to Prologis' Industrial Business Indicator (IBI) report. While the real estate market remains in flux, indicators like net absorption and new leasing activity improved from the first quarter.
The San Francisco-based real estate investment trust acknowledged that decision making among tenants has been extended given macroeconomic uncertainties, but said buyers in the market looking for space, proposal volumes and signed leases were all up in the period.
Well-capitalized, large-scale tenants are moving forward with the build-to-suit projects that will be required to facilitate their long-term growth plans, the Monday report said. Prologis (NYSE: PLD) noted an uptick in nearshoring and reshoring activity as well as domestic demand from international companies.
'Real-time indicators and direct feedback from users suggest that space needs persist, and that demand is poised to reaccelerate once greater clarity emerges around pricing and broader economic conditions,' the report said.
Leasing activity recovered during May and June, following a slowdown after April's Liberation Day tariff announcements, according to Prologis.
Warehouse space utilization averaged 85% in the second quarter, a 50 basis-point increase from full-year 2024. The improvement was in part due to some customers pulling forward inventories in response to quickly changing tariff policies. Utilization slid in July, but the report said it was likely due to a sell-through of certain merchandise (temporarily drawing down warehouse inventories) and choppiness in container imports to the U.S.
'We maintain that utilization will be volatile in the near term as shifting trade policies disrupt typical import patterns but generally trend upward as companies grow into any excess capacity.'
The report said supply risk, or overcapacity, in many U.S. markets is now 'largely in the past' as speculative development starts have declined by 75% from the peak and second-half warehouse deliveries will be 30% lower year over year.
'This dynamic is creating a short-term window of opportunity for customers,' the report said. 'Prime space options are available in select locations, but these are expected to diminish as the pipeline of new deliveries slows and competition for quality product increases.'
The pace of declines in market rents slowed to just 1.4% in the quarter. The change has been largely due to price resets in the West Coast markets.
The report concluded that long-term structural drivers, like e-commerce growth and the need to modernize operations, remain intact. With new supply falling, the current environment 'presents a narrow and time-sensitive window of opportunity for users to secure prime logistics real estate before rents increase.'
According to a separate report, Prologis said nearly $3.2 trillion worth of goods, or 2.9% of the world's GDP, moved through its warehouses last year. The study conducted with Oxford Economics showed Prologis' 1.3 billion square feet of space contributed $348 billion to the global economy, supporting 3.6 million jobs.
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