Prologis Raises Outlook in Bet on Warehouse, Data Center Demand.

Prologis, the world’s largest warehouse owner, raised its financial outlook for the year as a surge of leasing activity in the second quarter served as a promising industry sign that warehouse demand is starting to pick up again.

The San Francisco-based real estate investment trust reported 52 million square feet in leasing volume in the quarter, up 27% over the prior three months and one of strongest quarters of the past few years, Prologis Chief Financial Officer Tim Arndt told analysts during the company’s earnings call on Wednesday.

Despite the uptick in leasing from a slow first quarter, overall customer demand remains subdued, Prologis officials said, following years of rapid expansion driven by surging e-commerce demand during the COVID-19 pandemic.

Prologis reported revenue of just over $2 billion for the second quarter, down 18% from $2.5 billion in the same quarter last year. Prologis executives attributed the drop mostly to an 80% decline in strategic capital revenue generated by asset and property management services to co-investment ventures and other activities.

Demand for data centers and energy facilities, fueled by cloud computing and a push from technology companies to expand artificial intelligence across their platforms, provides “tremendous confidence in future growth,” Prologis CEO Hamid Moghadam said in a statement.

That growth coupled with improving warehouse demand prompted Prologis to increase its earnings outlook for the full year to between $3.25 and $3.45 per share attributable to common shareholders, up from its earlier projected range of $3.15 to $3.35 per share.

Second quarter leasing activity included deals with Amazon and Home Depot for space in new logistics development projects, Prologis President Dan Letter told analysts.

CoStar data for the spring of 2024 showed the volume of new U.S. industrial leases signed in April and May increased by 30% compared to the same time in 2023.

Prologis reported stronger-than-expected average occupancy during the quarter of over 96% across its global portfolio of nearly 1.2 billion square feet, despite a slowing market as many businesses look to use their existing real estate footprint more efficiently before taking on new space.

“We believe we are near peak vacancy,” while a dwindling construction pipeline “is setting the pace for more favorable conditions in 2025,” Arndt said.

The company’s move to revise its annual forecast reverses a guidance cut in April, when it pointed to an anticipated downshift in industrial demand across the United States.

Recent 12-year lows in home sales that have cut into sales of furniture, building materials and appliances have contributed to declining warehouse demand, according to CoStar’s National Industrial Report.

Prologis said industrial rental rates were down 2% year over year in the quarter, led by declines in Southern California, contributing to a forecast of 2% to 5% rental rate declines over the next 12 months.

In other moves that show confidence in rebounding demand, Prologis continues to both invest in land for future development and sell some buildings that it does not intend to operate long-term. For example, the company in May sold 20 properties in Minnesota’s Twin Cities area to Swedish private equity firm EQT Group in one of the country’s biggest industrial sales of the year.

Source: https://product.costar.com/home/news/shared/371393213