Prologis says softness in logistics real estate market to last into mid-2025

Logistics REIT somewhat insulated as 90% of leases won’t renew over next 12 months

An empty parking lot at a Prologis facility

Occupancy across the Prologis portfolio fell 120 basis points to 95.9% in the third quarter. (Photo: Jim Allen/FreightWaves)

Logistics real estate landlord Prologis said the current downturn in warehouse leasing demand will likely extend into the middle of next year as vacancies have likely not yet peaked. Management from the company noted on a third-quarter call Wednesday “a measured level of optimism” and that “customers are very engaged, but they’re just not making decisions.”

San Francisco-based Prologis (NYSE: PLD) reported core funds from operations (FFO) of $1.43 per share, 5 cents higher than the consensus estimate and 13 cents higher year over year. The company raised the bottom end of its 2024 FFO guidance range by 3 cents to $5.42 and lowered the top end by 1 cent to $5.46 per share. The consensus estimate was $5.42 at the time of the print.

Consolidated revenue increased 6% y/y to more than $2 billion in the period. Total leases commenced included more than 50 million square feet, a 10% y/y increase. Occupancy fell 120 basis points y/y to 95.9%, but the company said that metric outperformed the broader market by 300 bps.

Table: Prologis’ key performance indicators

Global market rents were down 3% overall during the quarter but only half that amount when excluding larger declines in Southern California. Even with the headwinds, Prologis’ Southern California portfolio saw rents change on multiyear lease commencements by 84% on average.  


Net effective rent change over the entire lease term fell more than 16% percentage points y/y to 67.8%, which represents more than $90 million in incremental net operating income. Prologis said its lease mark to market (resetting in-place rents to current market rents) was 34% in the quarter, which equates to $1.6 billion in future net operating income.

Prologis’ outlook is that vacancies will continue to rise, with rents not inflecting positively until the middle of next year. However, it said 90% of its leases don’t start to roll over for another 12 months, meaning the current dip in market rents “won’t have [a] significant impact on our long-term earnings, nor the value of the business,” President Dan Letter said on the call.

Letter said recent legislation in California will restrict new warehouse capacity, driving rents higher across the state, including in the massive consumption and logistics region of Southern California.

He believes the broader market is poised to improve in 2026 and beyond as new warehouse deliveries are now post-peak, warehouse starts (215 million square feet of space) are the lowest since 2017 and utilization is improving at existing locations. These dynamics are expected to tighten capacity and push rates higher.


Prologis’ development starts in the quarter were valued at more than $500 million, but the company lowered its full-year starts guidance by $750 million to a new range of $1.75 billion to $2.25 billion. It has acquired 14 million square feet of space so far this year and raised full-year guidance for portfolio acquisitions to $1.75 billion to $2.25 billion, a $750 million increase.

Shares of PLD were up 4.4% at 2:40 p.m. EDT on Wednesday compared to the S&P 500, which was up 0.5%.

More FreightWaves articles by Todd Maiden

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