• ITVI.USA
    13,683.230
    2,931.500
    27.3%
  • OTLT.USA
    2.949
    -0.056
    -1.9%
  • OTRI.USA
    19.680
    -0.650
    -3.2%
  • OTVI.USA
    13,646.340
    2,945.470
    27.5%
  • TSTOPVRPM.ATLPHL
    2.960
    0.380
    14.7%
  • TSTOPVRPM.CHIATL
    3.710
    0.160
    4.5%
  • TSTOPVRPM.DALLAX
    1.290
    -0.010
    -0.8%
  • TSTOPVRPM.LAXDAL
    3.720
    0.010
    0.3%
  • TSTOPVRPM.PHLCHI
    2.240
    0.100
    4.7%
  • TSTOPVRPM.LAXSEA
    4.160
    0.060
    1.5%
  • WAIT.USA
    132.000
    -5.000
    -3.6%
  • ITVI.USA
    13,683.230
    2,931.500
    27.3%
  • OTLT.USA
    2.949
    -0.056
    -1.9%
  • OTRI.USA
    19.680
    -0.650
    -3.2%
  • OTVI.USA
    13,646.340
    2,945.470
    27.5%
  • TSTOPVRPM.ATLPHL
    2.960
    0.380
    14.7%
  • TSTOPVRPM.CHIATL
    3.710
    0.160
    4.5%
  • TSTOPVRPM.DALLAX
    1.290
    -0.010
    -0.8%
  • TSTOPVRPM.LAXDAL
    3.720
    0.010
    0.3%
  • TSTOPVRPM.PHLCHI
    2.240
    0.100
    4.7%
  • TSTOPVRPM.LAXSEA
    4.160
    0.060
    1.5%
  • WAIT.USA
    132.000
    -5.000
    -3.6%
Modern ShipperNewsTop StoriesWarehouse

E-commerce, elevated inventories to keep warehouse demand hot, Prologis head says

Storage crunch won't last forever but won’t be resolved until 2023 or 2024, Moghadam says

The chairman and CEO of logistics warehouse titan Prologis Inc., Hamid R. Moghadam, said the unprecedented tightening of logistics warehousing space that has severely disrupted U.S. supply chains in the wake of the COVID-19 pandemic is likely a “temporary event” that lasts two to three years. However, the growth of e-commerce and increases in inventory levels could become permanent parts of the warehousing and supply chain landscape, Moghadam said.

Speaking to analysts Friday following Prologis’ (NYSE:PLD) third-quarter results, Moghadam said most people are too busy struggling with the current environment to focus on long-term issues. However, the twin secular phenomena of elevated e-commerce levels and permanently higher inventories are ever-present and not going away, he said. 

The San Francisco-based company, the world’s largest operator of logistics warehouses, on Friday reported better-than-expected results, with core funds from operations (FFO), the benchmark of its financial performance, coming in at $1.04 per diluted share, a penny above Wall Street consensus. 

Occupancy rates in Prologis’ markets — it operates 995 million square feet in 19 countries — averaged more than 96% during the quarter. It ended the quarter at 98% occupancy. Space in its markets is “effectively sold out,” Moghadam said in a statement that accompanied the results.

Prologis posted an extraordinary 27.9% increase in third-quarter “net effective” rental prices on new and renewed leases over the 2020 period. Company executives kept returning to that number during the analyst call. Moghadam said the spike in rental prices has overwhelmed any negative impact from higher interest rates that could otherwise affect Prologis’ results.

In a sign businesses continue to fight each other tooth-and-nail over available space, Prologis said its U.S. pre-leasing activity in the quarter hit an all-time record. That lessees are willing to lease quickly and pay dearly for space reflects a “panic mode” mindset in the market, Moghadam said.

The company raised its full-year estimates for domestic net absorption–the amount of square footage occupied in a specific period minus the square footage left vacant–to a record 375 million square feet. Prologis expects vacancy rates in its U.S. markets to hit 4% by year-end, another company record.

Moghadam said that in West Coast port markets and big industrial distribution nodes in Victorville, California, home of the gargantuan Inland Empire complex, and in New Jersey and central Pennsylvania, there is no available land to build on. A market like Dallas, which the company never considered to be space-constrained, has tightened up meaningfully in the more desirable pockets of the area, he said.

Supply increases are inevitable, but Moghadam said they are unlikely to cool down the market, 

 “Demand would be higher if supply was higher,” he said.

Mark Solomon

Formerly the Executive Editor at DC Velocity, Mark Solomon joined FreightWaves as Managing Editor of Freight Markets. Solomon began his journalistic career in 1982 at Traffic World magazine, ran his own public relations firm (Media Based Solutions) from 1994 to 2008, and has been at DC Velocity since then. Over the course of his career, Solomon has covered nearly the whole gamut of the transportation and logistics industry, including trucking, railroads, maritime, 3PLs, and regulatory issues. Solomon witnessed and narrated the rise of Amazon and XPO Logistics and the shift of the U.S. Postal Service from a mail-focused service to parcel, as well as the exponential, e-commerce-driven growth of warehouse square footage and omnichannel fulfillment.

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