Prologis Inc., the world’s largest logistics real estate developer and operator, sees nothing to stunt its short- to midterm prospects other than factors such as geographic or political firestorms that it can’t control anyway, the company’s chairman and CEO said.
All the elements that support Prologis’ business are extremely robust, Hamid Moghadam told an industrial real estate conference. Demand remains strong — though it has moderated — and is well diversified among the company’s many verticals, he said at the event Tuesday in Hollywood, Florida.
Supply is moderating even more, as rising interest rates have dramatically curbed industrial construction starts, he said. This keeps a strong floor under leasing demand, he added.
The average Prologis (NYSE: PLD) lease runs about 5.5 years. The company’s facilities are 98.6% leased, Moghadam said. Many leases will reset at higher rents once their current agreements expire. Market rents and dynamics are “as strong as I’ve seen” in 40 years in the business, he said.
“We have very strong pricing power” based on what Prologis sees coming out of the first quarter, according to Moghadam. Momentum remains clearly on the company’s side, though the year has a long way to go, he added.
Starts may pick up in the second half, but no one at the San Francisco-based company is banking on it, Moghadam said. Construction costs are declining as well but remain elevated, he said.
Supply in 2023 may be higher in certain markets once projects already in the development pipeline get delivered to those markets. Despite that, Prologis sees no path forward for global vacancy rates rising above the low-4% level, Moghadam said. That is still near all-time record lows.
The company manages more than 1 billion square feet globally, and it leases, on average, 1 million square feet every day around the world. Unlike industry analysts who get quarterly snapshots of activity, “we watch this stuff every day,” Moghadam said.
The company’s longer-range forecast is for inflation-plus annualized rent growth, well below annualized double-digit rent growth levels that will be unsustainable over the long term. Still, macro trends remain very strong, especially when it comes to inventory build, Moghadam said.
“We have not seen inventories jump back to levels that they need to be to meet the needs of customers, or to build the resiliency needed” to ensure proper buffer stock in the event of future supply chain disruptions, he said.
E-commerce, which spiked to 25% of total retail sales during the pandemic, will remain a strong element of overall retail sales as many digital consumers enter their peak earnings years, he said.
Moghadam took issue with the perception that e-commerce growth has spelled the end of traditional retail. The traditional U.S. retail market is chronically overbuilt, with about five times more space than that of any other developed country, he said.
“The enemy of retail has not been e-commerce,” he said. “It has been too much retail. But good retail will continue to do well.”