The booming industrial real estate sector could soon see the bottom fall, a Prologis executive has predicted.
Tenants could reduce the remaining logistics space in 16 months, Heather Belfor, head of US research at Prologis, said in a webinar reported by Bisnow. This is a record level of inventory on the market.
“It may seem like a long time, but before 2021 this rate had never gone below 32 months,” Belfor said.
According to Prologis, 375 million square feet of retail space is expected to come online this year. But supply cannot keep up with demand as more tenants seek industrial space and the e-commerce boom continues to support the sector. Industrial rents jumped 8.5% from the fourth quarter of 2021 to the first quarter of 2022, while vacancy fell to a low of 3.2%.
“The main theme here is that logistics real estate leasing terms are in uncharted territory around the world,” said Melinda McLaughlin, global head of research at Prologis.
Amid dwindling inventory in the logistics sector, Prologis is making good progress.
The industrial owner beat Wall Street expectations in the first quarter, raising its 2022 profit forecast by 10%. Net operating income, a key metric for REITs, jumped 8.7% nationwide. globally and 9.7% domestically year-over-year in the first quarter.
Prologis tried to keep the good times going this week with an offer to buy Duke Realty for $24 billion in an all-stock deal that would have 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 to fall on the industrial real estate sector. Amazon CEO Andy Jassy said last month that the company was “no longer chasing physical capacity or staffing” after spending billions to double its fulfillment and distribution footprint from 2020 to 2022.
If Amazon is no longer in the warehouse market, other warehousing companies could benefit from less competition, which could loosen the industrial market.
[Bisnow] — HoldenWalter Warner