- Prologis started $900M in new projects last quarter, nearly triple from a year earlier.
- Around 65% of those projects already had tenants before construction began.
- The company raised its full-year development outlook, driven by strong demand for build-to-suit space.
Custom Warehouses in High Demand
Prologis, the world’s largest industrial real estate owner, is ramping up warehouse construction to meet growing demand. In Q2, the company started over $900M in new projects—up from $324M a year ago. About 65% of those developments were already leased before construction began.
CEO Hamid Moghadam said more companies need extra space to support long-term growth. “With each passing day, large customers have less room to delay their plans,” he told investors on a recent call.
Full-Year Plans Expand
Prologis increased its full-year forecast for new warehouse construction to between $2.25B and $2.75B, up from the previous estimate of $1.5B to $2B. Moghadam said demand for custom-built spaces is the highest he’s seen in his career.
Companies like retailers, consumer goods makers, and auto-parts suppliers are committing to space they expect to need once construction ends.
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Speculative Projects Lag Behind
Leasing activity remains slow for warehouses built without a signed tenant. Nationwide, warehouse vacancy hit 7.1% in Q2, up from 6.1% a year ago, according to Cushman & Wakefield. That’s the highest since 2014.
Still, Prologis sees many tenants renewing leases as they delay bigger real estate decisions. Moghadam noted that clients often prefer to “kick the can down the road” rather than commit to speculative space.
Financial Highlights
Prologis reported $2.18B in revenue for the quarter, beating analyst estimates. However, net income dropped to $571.2M, down from $861.3M a year earlier. On an adjusted basis, funds from operations hit $1.46 per share, also above expectations.
The company also raised its full-year guidance. It now expects $5.75 to $5.80 per share in core funds from operations.
Why It Matters
Despite a cooling market for spec projects, demand for tenant-specific warehouses remains strong. With a 1.3B SF global portfolio and major clients like Amazon, FedEx, and Home Depot, Prologis is betting on long-term tenant needs to drive growth.
What’s Next
Expect more build-to-suit deals in the months ahead. As companies focus on efficiency and supply chain strength, demand for custom warehouse space will likely stay strong—even in a softer market.
