With the overall warehousing space seeing in a post-pandemic downtrend for multiple years now, Prologis is betting that the bottom of the cycle is coming up soon.
Already saying that warehousing was “near peak vacancy” back in July, the logistics real estate company suggested the industry is getting closer to that point during a Wednesday earnings call.
“Overall, the bottoming process is underway, and we expect demand to remain soft in the near term,” said Timothy Arndt, chief financial officer at Prologis in the call. “Looking ahead, market vacancy is at or near its peak and will hover there as utilization improves, and global rents will bottom sometime mid next year.”
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Chris Caton, managing director, global head of strategy and analytics at Prologis, said the elongation of the peak will continue “over the course of the first part of next year. You’ll see recovery emerge later next year and accelerate into 2026.”
Nevertheless, Prologis still saw a sales jump based on increases in rental revenues. The logistics real estate company generated third quarter revenue of $2 billion, a 6.5 percent increase from the $1.9 billion brought in during the year-ago period. The firm also reeled in $1 billion in net income in the quarter, up from $746 million in the year prior.
Prologis raised its projected spending on acquisitions to between $1.75 billion and $2.25 billion for the full year, up from its prior estimate of between $1 billion and $1.5 billion. This marks the second straight quarter the firm has increased its 2024 outlook on deals.
“We are very much looking at markets that we see to build additional scale and deepen our presence and our teams are scouring the market in that regard looking for opportunities,” said Arndt.
Occupancy rates across its 1.2 billion-square-foot global portfolio dipped to 95.9 percent from more than 97.1 percent during the same time in 2023.
“While occupancy and rent softened against the backdrop of positive yet subdued demand, we continue to deliver impressive net effective rent…which bridges us through this soft patch to the next cycle of rent growth,” Arndt said.
Caton noted that Prologis still has a measured outlook on demand, saying that while customers are engaged, “they are taking their time in terms of making decisions.”
“We’re going to be going into 2025 with a relatively low level of supply and an opportunity for demand to improve as we progress through this uncertainty in the spare capacity,” said Caton.
Another major player analyzing the warehousing space agrees with the bottoming trend. Data from real estate services firm Cushman & Wakefield identified that there was a 6.4 percent vacancy rate for U.S. industrial real estate, up from 6.1 percent in the quarter prior and even further from the 4.6 percent in the year-ago quarter.
In its quarterly MarketBeats report, Cushman & Wakefield said it expects vacancy to peak at 6.7 percent midway through 2025, which would be in line with longer-term pre-pandemic averages.
“We anticipate the engines driving demand for industrial space—e-commerce, 3PL, consumer spending, housing recovery and onshoring—to kick into a higher gear” in 2025, the report said.
Construction has reached a low not seen since 2018, with industrial totals plummeting 43 percent to 309 million square feet. The drop itself is the steepest drop since 2008.
Prologis indicated that internationally, Chinese e-commerce platforms and 3PL providers appear to be bucking larger global and U.S. trends, having been some of the biggest scalers for the warehousing company.
Caton said the 3PL providers represent roughly 20 percent of total net absorption—the change in the amount of occupied space in a market over a period of time—in 2024.
Although Caton didn’t mention any company names, Prologis is a partner of e-commerce fashion giant Shein. The warehousing firm operates two logistics centers in Chinese manufacturing and trade hub Foshan where Shein stores and distributes inventory: one spanning 1.2 million square feet and another covering an even wider 1.6 million square feet.
Alibaba and JD.com are also Prologis customers.
“We are leasing with these customers, and yes, we think they will continue to lease space into next year and beyond,” Caton said. “Their businesses are diversifying as now they compete for all contracts, not just Chinese e-commerce. And so, many of these customers are positioned for growth. They’re signing long-term leases and they’re investing in their space.”
On the call, the company also gave an update on affairs back in the U.S. as supply chains recover from recent hurricanes. In the wake of the back-to-back damage that Hurricane Helene and Hurricane Milton inflicted, Arndt said “our property sustained limited damage for such strong storms.”
