Global supply chain disruptions have sent industrial tenants into a leasing frenzy, pushing warehouse vacancy to unprecedented lows.
Prologis’ portfolio was 98 percent leased and just under 97 percent occupied at the end of the third quarter, the San Francisco-based warehouse REIT reported Friday. Moreover, its development pipeline was already 70 percent pre-leased — the firm’s highest pre-lease rate ever.
“Space in our markets is effectively sold out,” CFO Tom Olinger said on the firm’s quarterly earnings call.
Excluding special items, adjusted funds from operations hit $795 million for the quarter, or $1.04 per share, up from $689 million in the same period a year ago.
Rents, meanwhile, were up 7.1 percent compared to the second quarter. Prologis expects rents to grow a record 19 percent this year in the U.S. and 17 percent globally.
Industrial real estate is alone among the major commercial sectors in that its fundamentals actually strengthened over the course of the pandemic, as consumers made more and more purchases online. Ecommerce was driving historic demand for warehouse space even before the pandemic began, and lockdowns sent the trend into overdrive.
The broader U.S. industrial market mirrored Prologis’ performance in the third quarter, with vacancy falling to an all-time low of 4.1 percent and average rents reaching an all-time high of $7.18 per square foot.
Industrial demand right now is “crazy,” Prologis chairman and CEO Hamid Moghadam said on the call.
“Just based on the number of people competing for the same good spaces, and all the inbound calls we get from all our good customers wanting to gain an advantage over another good customer, people are almost in a panic mode when it comes to committing to real estate,” Moghadam said.
In sum, Prologis inked 56 million square feet of leases during the quarter — well above historical figures.
Ecommerce companies were responsible for roughly one-quarter of the firm’s new leases during the third quarter, and spaces of more 100,000 square feet are “effectively fully leased,” Olinger said.
Prologis forecast a record 375 million square feet of net absorption in 2021, against 285 million square feet of new deliveries.