Prologis Says E-Commerce Drives Surge in Warehouse Demand
Real estate giant says funds from operations are soaring as builders can’t keep up with demands for distribution centers created by online sales
Hamid Moghadam, chairman and chief executive of Prologis, says online sales are driving greater demand for warehouse space. PHOTO: BLOOMBERG NEWS
Prologis Inc., the world’s largest owner of industrial real estate, reported its annual core funds from operations jumped 19% in 2015, as the rapid growth of online shopping constrained warehouse capacity and created a windfall for building owners.
The company had a record occupancy rate across its real estate portfolio of 97% last year, up from 96% in 2014.
Core funds from operations, a key financial performance measure for real estate investment trusts, expanded 40.3% in the fourth quarter over the same quarter the year before, to $345.8 million, and reached $1.2 billion for the year.
Hamid Moghadam, Prologis’ chairman and chief executive, said in an interview that builders haven't been able to keep up with the growth of e-commerce. Online retailers typically use more distribution center space than traditional retailers.The share of warehouse space either vacant or up for lease renewal, fell to 9.4% in the fourth quarter, the 23rd consecutive quarterly drop, according to real-estate brokerage CBRE Inc.
“The market is the tightest it’s been in my career, which is over 30 years,” he said. “We’ve never had higher occupancy, and I don’t think rent growth has ever been this high. It’s because supply is very much in check.”
‘Online retail is a much less efficient supply chain in terms of space usage.’
Products sold online can take up about three times as much space as products waiting to be shipped to and sold in stores, Mr. Moghadam said, mainly because online orders require individual packaging and shipping boxes, rather than being stored in pallets or large batches.
E-commerce sales increased about 9% over this past holiday season over the previous year, while overall retail sales rose about 3%, according to multiple industry estimates.
“If you even see modest growth in e-commerce, you have significant grown in demand for industrial space,” Mr. Moghadam said. “Online retail is a much less efficient supply chain in terms of space usage.”
Mr. Moghadam said he expects online sales to continue to outpace brick-and-mortar stores, and demand for warehouse space to keep rising. “Do you know any kids who still buy things at the store?” he said.
