Prologis Expects Industrial Rent Growth Will Be a Record 10% This Year

Warehouse rents are rising at a record pace, says Prologis in the latest report of its Industrial Business Indicator.

Rents rose by a record 4% in the second quarter while vacancies fell to 4.1%, another record, Prologis pointed out.

For 2021 as a whole, Prologis is predicting net effective market rent growth will set a record, exceeding 10%.

The surge is happening as supply chains race to restock amid rapid consumer purchasing, in turn creating strong future demand. For the first time in more than five years in the US, the company sees no markets where supply appears to be a threat to local vacancies or rents.

Rents and demand are being propelled as the confidence of consumers stays strong. Combined with a savings rate higher than pre-pandemic levels this could translate to sustained strong consumption for the foreseeable future and support ongoing high supply chain activity,

Logistics demand from a wide range of customers eager to secure space reached a record quarterly high of 110 million square feet in the second quarter, bringing absorption for the first half of the year to an unprecedented 194 million square feet, more than double from the same period last year, the warehousing construction and services firm says.

While rent hikes are across the board, Prologis says growth is highly concentrated in bulk markets with shrinking opportunities for development and coastal higher-barrier markets, with Southern California, New York/New Jersey and Pennsylvania leading the spikes.

The company is reporting inventory-to-sales ratios are at historic low levels (1.09 in June), limiting space utilization:

“Looking forward, target inventory-to-sales ratios will likely be higher in a bid for resilience, pushing up utilization rates and supporting logistics demand as supply chains boost inventories.”

To help meet the rapid demand, Prologis says developers are working hard to monetize entitled land, but new starts do not appear significant enough to weigh on rental rate levels and growth.

Moody’s Analytics reports that developers are rushing to deliver new warehouse and distribution facilities. Last year completions finished at a record high, just over 171 million square feet. However, activity fell from 16.2 million square feet in the first quarter to 8.6 million square feet completed in the second quarter. Still, Moody’s expects a “healthy” number of completions in 2021.