Prologis Tenants Brush Off Rising Rents

On Prologis’ Q2 earnings call, Chairman and CEO Hamid R. Moghadam said high demand for industrial space meant the company could push pricing higher if they wanted to. The company saw a 4.1% rent growth in its US markets, which exceeded expectations.

On that same call, Chief Customer Officer Mike Curless said the competition for space among customers is as fierce as he has seen it. He added that Prologis probably wouldn’t lose much business if it did raise rents. Overall, less than 5% of customers are leaving due to higher rents. “I got to tell you the rent becomes a very minor discussion. Just the availability and accessibility of that space becomes the priority,” he said.

It was an interesting bit of color from one of the largest providers of industrial space in the world. Rents, the executives appeared to be saying, do not seem to matter to customers desperate to lease space. 

Indeed, the market is so tight right now that developers are having trouble finding suitable land and planning permission for logistics facilities in many markets globally, and leasing decisions are being put on hold due to a lack of the right space, according to JLL’s inaugural survey on global logistics real estate. According to the poll, taken in April, more than two out of every five respondents, 43%, said they consider ‘limited availability of entitled land’ as the number one constraint on occupier demand. Over one out of every three cited a ‘lack of available speculative buildings’ as the primary constraint.

Another report from Marcus & Millichap also illustrates the situation for tenants. It found that demand for warehouse and distribution space enabled nearly all of the nation’s major markets to record positive absorption over the 12 months ended in March.

Since the onset of COVID-19, strong leasing activity has kept the US vacancy rate in the low- to mid-5 percent range. Moreover, the number of lease executions is also steadily improving.

During the first three months of 2021, demand outpaced supply additions as 88 million square feet was absorbed. This was the first time that demand outpaced supply in the previous ten quarters. In addition, Q2 preliminary data shows that more improvements in leasing activity are on the horizon, exemplified by growing demand for 100,000- to 200,000-square-foot-plus layouts.

“The absorption of existing midsize and big-box industrial space teamed with relatively robust pre-leasing of new supply is poised to preserve the nation’s low-5 percent vacancy rate over the near term,” according to Marcus & Millichap.