Prologis seeing demand bump for logistics warehouses

Net effective rent change on Prologis’ portfolio of multiyear leases was 36.9% in the quarter, near the company’s full-year goal of 40%. The change drove $16 million in incremental net operating income.

Lease mark-to-market (resetting in-place rents to current market rents) was estimated at 17%, or $800 million in future net operating income.

Management said net absorption—leased space less the amount of space vacated—was 66 million square feet in the U.S. during the quarter, the highest since 2022. The Prologis portfolio outperformed the U.S. market, which carried a 7.2% vacancy rate in the period.

Prologis is forecasting total net absorption to equal 220 million square feet this year (includes 195 million square feet of completions). That should allow market-wide occupancy to improve 30 bps. It said U.S. rents increased 70 bps during the quarter, but it expects rent growth to outpace inflation in tight markets like Texas, the Southeast, the Midwest and the San Francisco Bay Area.

Core FFO is now forecast to a range of $6.22 to $6.30 per share, a 2% increase at the midpoint. The guide assumes average occupancy of 95.25% to 95.75% (25 bps higher on the low end of the range) and development starts between $4.5 billion and $5.5 billion (a $1-billion increase at both ends of the range). Development projects also include new data center construction, but the increased outlook is largely due to higher demand for logistics properties.

Development starts totaled $1.6 in the second quarter, with half of the activity tied to logistics properties.

Prologis didn’t comment on its £12.6 billion ($16.6 billion) takeover bid for London-based logistics warehouse operator Segro, which was rejected last month. Shares of PLD were up 3.2% at 2:08 p.m. EDT on Thursday compared to the S&P 500, which was down 0.5%.

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