Logistics warehouse operator Prologis boasted a record leasing pipeline as “broader economic uncertainty begins to clear” following April’s Liberation Day tariff announcements. The company cautioned that conditions will likely “remain choppy” over the next few quarters but said leased space utilization is increasing and “demand is piling up.”
The San Francisco-based real estate investment trust said Wednesday that customers are actively signing leases, albeit at a slower-than-normal pace. The company’s leasing pipeline of 130 million square feet was up 19% year over year in the second quarter and now stands at “historically high levels.”
“With every passing day there’s more water building up behind the dam,” said Hamid Moghadam, Prologis co-founder and CEO, on a quarterly call with analysts. “I think every bit of business that’s delayed is going to translate to more business in the future.”
Occupancy across Prologis’ (NYSE: PLD) portfolio was 94.9% in the second quarter, 120 basis points lower y/y, but level with the first quarter as market conditions appear to have stabilized. The company ended the quarter with the portfolio 95.1% occupied, which it said is 290 bps ahead of the broader market.
Prologis reported second-quarter core funds from operations (FFO) of $1.46 per share before the market opened on Wednesday, which was 4 cents above the consensus estimate and 12 cents higher y/y. Total revenue increased 9% to $2.18 billion as new leases commenced rose 10% to 51.2 million square feet.
Leasing activity slumped 20% shortly after the April tariff announcements but improved throughout the period, ending the quarter just 10% lower than normal. Roughly one-third of Prologis’ leasing activity in the quarter came from 3PLs. That was a little lower than the prior two quarters, but those periods saw outsized activity from logistics operators.
The company raised its full-year FFO guidance range to $5.80 to $5.85 per share, which was roughly 1% higher than the prior guide at the midpoint of the range.
The new outlook assumes average occupancy in a range of 94.75% to 95.25% and development starts between $2.25 billion and $2.75 billion. The new guide for starts is back in line with the company’s initial outlook for 2025, which was issued in January.
Importantly, Moghadam said that the market has seen a 7.4% median vacancy rate since 2000, with vacancy exceeding that level 44% of the time. He believes the market has already topped out at a mid-7% vacancy rate and noted that at 5% vacancy, the landlord regains pricing power. (Market rents were off 1.4% in the quarter.)
A fear of missing out and inflationary concerns are likely to push tenants away “from being very conservative to being much more aggressive,” Moghadam said.
“I think if you have people that are pulling the trigger on big capital improvements … they are going to take comfort by seeing other people make the same decisions.”
Shares of PLD were up 1.4% at 2:28 p.m. EDT on Wednesday compared to the S&P 500, which was up 0.2%.
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