Prologis, the world’s largest industrial developer and landlord, posted record quarterly leasing as it looks to add more data centers.
The San Francisco-based real estate investment trust posted a 9% year-over-year increase in revenue to $2.2 billion in the third quarter as tenants signed 62 million square feet of leases — a company record for any quarter — to secure warehouse space ahead of rising demand. Analysts had predicted revenue of just over $2 billion.
The U.S. industrial vacancy rate has increased steadily for nearly three years and now stands at 7.5%, according to CoStar’s national industrial report. The soft market — complicated by millions of square feet of new warehouse space completed by developers in recent years — has shifted negotiating leverage to tenants and caused quarterly rent growth to stall, according to CoStar.
Now, Prologis executives are pointing to an “inflection in occupancy and rent” as a result of “strengthening customer sentiment, improved leasing velocity, and continued success in build-to-suit activity,” Chief Financial Officer Tim Arndt said.
Prologis slightly raised its earnings guidance to a range of $5.78 to $5.81 per share, higher than the $5.77-per-share estimate by analysts.
“Demand has clearly turned a corner. I hope you’re hearing that,” said Chris Caton, managing director of global strategy and analytics for Prologis.
That growth comes as Prologis is ramping up its data center network portfolio to meet rising demand for artificial intelligence. The company advanced another 1.5 gigawatts of data center power capacity to advanced stages of development during the quarter. That gives Prologis a total of 5.2 gigawatts of capacity either in operation or advanced development stages worldwide.
Warehouse, data center development
Prologis signed leases for nine build-to-suit development projects in the quarter for a total of 21 such deals inked this year, representing a total investment of $1.6 billion, Arndt told analysts during the company’s earnings call Wednesday.
Two-thirds of the company’s development spending in the quarter was build-to-suit projects with large global customers, with “dozens of viable deals” in the development pipeline, Arndt said.
The company raised its estimate of development starts for the year to between $2.75 billion and $3.25 billion, up from the company’s previous estimate of $2.25 billion to $2.75 billion.
Prologis plans to spend $8 billion over the next four years to build 20 data centers, eventually expanding that number to as many as 100 projects in a bid to extend its dominance in industrial real estate to the properties and digital networks powering artificial intelligence.
The company’s ability to combine real estate, power access, customer relationships and large amounts of investment capital provides a foundation for “one of the most significant value creation opportunities in our history,” Arndt added.
All of the firm’s current development projects have drawn interest from data center operators and other customers, he said.
“Every megawatt we can deliver over the next three years is already in dialogue,” Arndt added.
Moghadam’s last call
Wednesday’s earnings call brought the 112th and final such call with investors for Prologis CEO Hamid Moghadam, who is retiring from the chief executive role at the end of this year, more than 42 years after co-founding the company.
Dan Letter, the San Francisco-based real estate investment trust’s president, will succeed Moghadam, who will stay on with Prologis as executive chairman, the company said.
The Iranian-American Moghadam co-founded San Francisco-based real estate development company AMB Property Corp. in 1983 and took the company public in the mid-1990s.
He led AMB’s acquisition of Prologis, its larger rival, in 2011 to create an industrial powerhouse that assumed the Prologis name.
The logistics market in terms of rent and occupancy growth, is “one of the most compelling setups I’ve seen in 40 years,” Moghadam said Wednesday.
“The business has become highly professionalized and has grown in its scope and global footprint,” Moghadam told analysts and colleagues. “To witness that arc and to have had the privilege of leading this company through it all, it’s been surreal.”