Even the booming industrial real estate sector isn’t immune from the effects of the pandemic.
Prologis, one of the biggest logistics real estate companies in the world, announced this week that nearly a quarter of its tenants are seeking rent relief.
On average, 24 percent of tenants are requesting 69 days of rent relief, Prologis chief investment officer Gene Reilly told analysts on a conference call Monday. Despite the volume of requests, only about a quarter of those requests will be granted.
“We have received several opportunistic relief requests from large, financially sound customers,” he said.
The announcement comes as landlords and the real estate industry grapples with offering rent deferrals to tenants. Many tenants are asking for relief on rent payments but at the same time landlords claim they need to make mortgage payments. Related Companies CEO Jeff Blau said in an interview with Andrew Ross Sorkin on CNBC’s “Squawk Box” on Monday that only 26 percent of its retail tenants have paid rent.
Reilly said that Prologis, a real estate investment trust with a market cap of $60 billion and a global portfolio that spans 964 million square feet, saw some positive signs due to the growing demand of e-commerce. He noted that lease signings increased 16 percent year-over-year in March, with two-thirds of activity occurring in the second half of the month. About 40 percent of the increase came from e-commerce, he said. The company has said it has received over 94 percent of March’s rent.
“Short term surge in demand is real, how durable this will be remains to be seen,” said Reilly.
Hamid Moghadam, CEO of Prologis, pointed to several long-term changes that could occur due to the virus. One is that companies’ inventories could increase to about 5 or 10 percent, to combat the possibility of future shortages. This could provide a huge boost to the logistics real estate market, since companies will need somewhere to store such inventory. He said he also sees more manufacturing coming to the United States or North America from overseas.
Company executives also talked about construction, which has been halted in certain municipalities such as Boston, but is considered “essential business” elsewhere and is still ongoing.
“We have stopped all new speculative development. We have halted construction on new speculative projects that have recently started,” said Reilly.
Prologis has leases with some of the country’s largest e-commerce tenants such as Amazon, FedEx and Home Depot. The company recently completed a $12.6 billion acquisition of Liberty Property Trust, gaining control of its 107 million-square-foot warehouse portfolio.