Prologis Bullish on Data Centers and AI
The San Francisco-based REIT reported an 18% drop in earnings, but significantly raised its spending budget
By Nick Trombola July 19, 2024 1:27 pm
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Logistics giant Prologis (PLD) has seen a financial decline over the past year due to nationwide industrial cooldown, but the real estate investment trust is viewing data centers and AI as a new guiding light.
The REIT reported an 18 percent drop in revenue in a recent earnings call — $2.01 billion this past quarter compared to $2.45 billion year-over-year — citing high warehouse vacancies stemming from large supply and slow demand, according to the San Francisco Business Times.
Still, leaders at Prologis are bullish on the future of data center and AI development, arguing in the earnings call that the growing need for such spaces, which can range into the millions of square feet, will likely be a major source of business growth in the years to come.
That’s particularly true of Prologis, the company’s co-founder, Chairman and CEO Hamid Moghadam told investors on the call, because of the talent pool of data center and renewable energy specialists it has cultivated lately. In March, for example, Prologis tapped Compass Datacenters founder Chris Curtis to lead its new $25 billion data center development and investment arm.
“In this environment, the ability to finance and deliver and execute [data center development] becomes super important,” Moghadam said on the call. “We think the competitive position of Prologis, both because of talent and balance sheet, are just going to get better and better going forward.”
Moghadam’s faith is well founded. The national data center submarket was valued at about $101 billion last year, with a compound annual growth rate of about 6.5 percent over the next five years, reaching nearly $149 billion by 2029, according to a market outlook conducted by Arizton Advisory & Intelligence.
The REIT, which is the largest owner of industrial space in the U.S., currently has data centers either under construction or already completed that will together produce 1.3 gigawatts of electricity. (1 gigawatt is enough to power roughly 750,000 homes.) Chief Financial Officer Timothy Arndt said in the earnings call that the company is in the “advanced stages” of procuring another 1.5 gigawatts, representing between $7 billion and $8 billion in data center investment over the next five years.
“Overall, we’ve made significant progress growing this business and are optimistic about the targets we laid out at our Investor Day,” Arndt said.
The company is also planning to spend between $1 billion and $1.5 billion on new acquisitions across all asset types this year, a 66.7 percent boost from its previous forecast of $500 million to $1 billion, according to the earnings report.
In Northern Virginia, the veritable home of data center development in the U.S., Prologis is already making moves to capitalize on projected demand.
The San Francisco-based REIT wants to rezone some 94 acres of land near Dulles International Airport for new density allowances. If approved by Loudoun County, the rezoning would lay the groundwork for a data center complex that could reach upwards of 4 million square feet.
Nick Trombola can be reached at NTrombola@commercialobserver.com.
