Prologis Says Demand For Data Centers Is Boosting The Industrial Property Outlook

Prologis raised its annual earnings outlook despite a steep decline in revenue in the second quarter, saying that a dwindling pipeline of new warehouses and growing demand for artificial intelligence infrastructure should boost profitability.

San Francisco-based Prologis, the world’s largest industrial property company, just posted earnings attributable to common shareholders of $859.8 million, or 92 cents a share, for the three months ended June 30, down from $1.21 billion, or $1.31 a share, a year earlier. Core funds from operations were $1.34 a share, slightly above analysts’ estimates of $1.33 a share. Revenue declined 18%, to $2.01 billion from $2.45 billion in the same quarter last year. Analysts polled by FactSet expected $2.02 billion.

“Demand for warehouse space is not as crazy as it was the last couple years, but it’s solid,” said Prologis Chief Executive Hamid Moghadam. “Prologis leased 52 million square feet of space in the second quarter, up 27% from the first quarter. Many tenants are still expanding their operations within buildings they leased over the past four years in a tight market. Because of that, new leasing over the next few quarters “will be muted, but actually utilization and occupancy and all that—underneath the leased space—will improve.”

Warehouse developers are navigating a slowing industrial real-estate market following several years of rapid expansion fueled by surging e-commerce demand during the pandemic. Real-estate services firm Cushman & Wakefield recently reported the vacancy rate for U.S. industrial real-estate reached its highest level in nine years in the second quarter, climbing to 6.1% from 4% in the year-ago quarter.

A tight market has pushed the average warehouse asking rent up during the past four years to $9.97 a square foot this year compared with $6.58 a square foot in 2020, according to Cushman. Rent growth has slowed more recently and many developers have pared back construction plans amid cooling leasing demand and high interest rates.

Prologis said it expects the slowdown in new construction will keep supply tight and push pricing upward. Artificial intelligence is expected to drive demand for data centers

“Artificial intelligence gives Prologis tremendous confidence in future growth,” said Moghadam. “Every time we convert a warehouse to a data center, we pick up lots of value, like $500 a foot of value.”

Prologis now projects earnings per share attributable to common shareholders for 2024 between $3.25 and $3.45, compared with its earlier outlook of $3.15 a share to $3.35 a share. Core funds from operations attributable to common shareholders was forecast between $5.39 a share and $5.47 a share, compared with its previous guidance range of $5.37 a share to $5.47 a share. Prologis shares just rose about 1.4% to $123.21. The company’s shares have declined about 8% this year.

Source: MSN