Industrial warehouse operator Prologis said its pipeline is at an all-time high even after record lease signings in the first quarter. Among the deals inked were new contracts representing 64 million square feet of logistics space.
The San Francisco-based real estate investment trust said on a Thursday call with analysts that March was a very strong signing month, even with the added overhang of the U.S.-Iran conflict. High energy prices and interest rates are not deterring customers’ leasing intentions. It noted particular strength in Dallas, Houston and Atlanta, and in markets across the Midwest. It also said that its portfolio of properties exceeding 500,000 square feet is currently 98% leased, implying rents for this segment are about to step higher.
Prologis (NYSE: PLD) reported first-quarter consolidated revenue of $2.3 billion, which was 7% higher year over year and ahead of a $2.12 billion consensus estimate. Core funds from operations (FFO) of $1.50 per share were 8 cents higher y/y and 1 cent better than analysts’ expectations.
New development starts equaled $2.1 billion in the first quarter, $850 million of which was tied to logistics customers. Approximately 75% of the logistics starts were speculative, “reflecting improving fundamentals and our confidence in the need for new supply across many of our markets.”
New leases commenced increased 3% y/y to 66.7 million square feet.
Average occupancy improved 40 basis points y/y to 95.3%, which was in line with the fourth quarter. Occupancy normally steps down sequentially into the first quarter—the seasonally weakest of the year. The Prologis portfolio outperformed the U.S. market, which carried a 7.5% vacancy rate in the period.
Management is encouraged by market fundamentals as the U.S. construction pipeline sits at just 1.7% of supply compared to a 10-year average of 2.6%
Net effective rent change on Prologis’ portfolio of multiyear leases was 32% in the quarter and remains on pace to reach 40% for full-year 2026. Net effective rent change was 50% last year.
Lease mark-to-market (resetting in-place rents to current market rents) was estimated at 17%, or $750 million in future net operating income. Mark-to-market was negatively impacted during the quarter as 40% of the leases that rolled were in softer markets like Los Angeles and Seattle.
Prologis increased its 2026 outlook.
Core FFO is now forecast to a range of $6.07 to $6.23 per share, a 1% increase at the midpoint. The guide assumes average occupancy of 95% to 95.75% (25 bps higher on the low end of the range) and development starts between $3.5 billion and $4.5 billion (a $500-million increase at both ends of the range). Development starts also include new data center construction.
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