E-Commerce Demand Continues to Drive Prologis' Growth
Prologis completed $25 billion of investment activity on an owned and managed basis, as reported in its investment activity results for year-end 2020.
Accelerated e-commerce adoption and higher inventory levels have the potential to generate 400 million square feet or more of additional US logistics real estate demand or 150 to 200 million square feet per year for two to three years, Prologis reports. E-commerce requires more than three times the logistics space of brick-and-mortar sales. This persistently high ratio supports the need for additional e-fulfillment space should e-commerce penetration retain gains made during the stay-at-home phase.
These trends are borne out in the REIT’s third quarter activity. E-commerce represented 37% of Prologis’ rental revenue compared to its historical average of 21%. It reports that demand for space is coming from both omnichannel and pure online retailers, along with third-party logistics firms and Amazon.com. Amazon accounts for about 13% of the company’s new leasing.
To keep up with demand, Prologis has completed $25 billion of investment activity in 2020.
From the Prologis-AMB merger in 2011 to year-end 2020, Prologis has completed investment transactions totaling more than $131.4 billion in 30 global markets. The company’s investment and development activities have ranged from the largest merger and acquisition transactions in the real estate sector to individual off-market deals of less than $5 million.
“Despite the disruption and uncertainty of this past year, investment activity across our global platform continued unabated, reflecting the strong demand for high-quality logistics real estate in the best locations around the world,” said Hamid R. Moghadam, chairman and CEO, Prologis. “Our portfolio and development-ready land bank near large population centers continue to be a competitive advantage for our customers.”
More Growth is Forecast
Companies are looking to strengthen supply chain networks as inventories are at record lows relative to sales. Going forward, companies are beginning to restock after operating with extremely tight inventory levels. The most active sectors include food and beverage, healthcare, and consumer products.
This caused Prologis to take up guidance for expected rent growth to 2%, which was an increase of 250 basis points from the prior forecast.
At a time when the logistics real estate sector is becoming more complex and attracting greater demand from customers and investors, Prologis has created a new senior role to bolster its growing global capital deployment efforts and investment activities. Long-time Prologis executive Dan Letter was named global head of capital deployment effective January 1, 2021.
Letter is responsible for the company’s investment committee process, capital deployment forecasting, deployment pipeline management, and multi-market portfolio acquisitions and dispositions. He reports to Prologis chief investment officer Eugene F. Reilly.