Prologis Warehouse Rents Jump as Space Remains Tight

By Robbie Whelan 

Prologis Inc., the largest owner of warehouses and distribution centers, reported a record increase in rents in the first quarter, gains the company attributes to limiting new construction despite rising demand.

The company expects to cut its 2016 construction budget to just over $2 billion, lower than last year, even as vacancy rates approach all-time lows, Chief Executive Hamid Moghadam said in an interview.

As a result, rents on lease renewals jumped 20.1% in first three months of the year, "the best numbers we've ever seen," he said. Occupancy rates at Prologis facilities rose to 96.1% at the end of March, though customer retention slipped to 84.4%, from 86.3%.

"What's the point of building a ton of properties and weakening the market?" he said. "People are really worried about getting over their skis, so they're being much more measured in what they build."

This month, the real-estate brokerage CBRE Group Inc. reported that only 9.2% of warehouse space was available for leasing in the first quarter, down 0.2 percentage points and the 24th straight quarter of tightening occupancy in the market.

Prologis started development work on $193 million worth of projects in the first quarter. Mr. Moghadam said he thinks demand for warehouse space is only at about 75% of level seen at the top of the last market in 2007, and said he expects rents to grow further in 2016.

"Tenants have had a great bargain for a long time, and only now are starting to pay reasonable rates," he said.

Prologis' net earnings per diluted share narrowed from $0.65 in the first quarter of 2015 to $0.39 in the first quarter of 2016, the company reported Tuesday. Mr. Moghadam said that last year's first-quarter earnings were boosted by the sale of a 56-acre Silicon Valley industrial park to Facebook, Inc.

Prologis shares were up 0.5% at $45.33 early Tuesday afternoon in New York.

Write to Robbie Whelan at [e-mail]

(END) Dow Jones Newswires

April 19, 2016 13:15 ET (17:15 GMT)

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