The booming industrial real estate sector could soon see the bottom fall out, an executive at Prologis predicted.
Tenants could cut through the remaining logistics space in 16 months, Prologis head of U.S. research Heather Belfor said in a webinar reported by Bisnow. That’s a record low amount of inventory in the market.
“That may sound like a long time, but prior to 2021, that rate has never dipped below 32 months,” Belfor said.
According to Prologis, 375 million square feet of distribution space is expected to come online this year. But supply can’t keep up with demand as more tenants seek industrial space and the e-commerce boom continues to prop up the sector. Industrial rents surged 8.5 percent from the fourth quarter of 2021 to the first quarter of 2022, while vacancy dropped to a low of 3.2 percent.
“The overarching theme here is that logistics real estate leasing conditions are in uncharted territory around the globe,” Prologis global head of research Melinda McLaughlin said.
Amid the declining inventory in the logistics sector, Prologis is plowing ahead successfully.
The industrial landlord beat Wall Street’s expectations in the first quarter, raising its earnings guidance for 2022 by 10 percent. Net operating income, a key metric for REITs, jumped 8.7 percent globally and 9.7 percent nationally year-over-year in the first quarter.
Prologis tried to keep the good times rolling this week with an offer to buy Duke Realty for $24 billion in an all-stock deal that would’ve added about 160 million square feet to its industrial real estate portfolio. Duke quickly rejected the offer, calling it “insufficient.”
The other shoe may be about ready to drop on the industrial real estate sector. Amazon CEO Andy Jassy said last month the company was “no longer chasing physical or staffing capacity” after spending billions to double its fulfillment and distribution footprint from 2020 to 2022.
If Amazon isn’t in the warehouse market anymore, other warehousing firms could benefit from less competition, potentially easing the industrial market.
[Bisnow] — Holden Walter-Warner