Prologis: Rents Up, Occupancy Outperformed Expectations

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Industrial REIT powerhouse Prologis reported that tenant turnover was lower than expected even while it pushed up rents, underscoring the ongoing strength of the industrial property sector.

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“We leased almost 43 million square feet, bringing occupancy at quarter-end to 96.8 percent. This was down 70 basis points sequentially, consistent with our strategy to push rent and term,” Tom Olinger, chief financial officer for Prologis, said during the company’s first quarter earnings call earlier this week.

“Occupancy did outperform our expectations. Our retention was quite good and quite high this quarter, but we are continuing to push rents,” Olinger added. “Don’t be surprised if you see occupancy be a little lower throughout the year.”

User demand in the small to mid-sized segment as tenants prioritize access to both the end consumer and labor was “exceptionally strong,” Olinger said, though that doesn’t indicate a weakness in the larger big box spaces of 250,000 square feet that make up around 25 percent of the company portfolio.

Hamid Moghadam, chairman and CEO of Prologis, said any weakness in the larger industrial spaces were contained within “some markets on the periphery” such as the outlying corridors of Chicago which he characterized as “the exception not the rule.”

In addition to pushing rents and term, Moghadam elaborated on plans to address its customers “pain points” through partnerships with other providers.

“We are going to attack all those things that our customers need to basically operate our properties. So, these are projects and services that they need to basically fully utilize our services. We’re going beyond roof and four walls in that sense,” he said. “Are we going to be in those businesses ourselves? The answer is clearly no, but we will partner with vendors and other players that can help us execute that business plan.”

Prologis did not return a request for more information on upcoming partnerships and products.