Prologis, the largest developer of logistics properties, reports strong warehouse demand, despite an economic slowdown.
Fourth-quarter revenue exceeded expectations, while earnings fell.

Prologis reports Q4 revenue of $1.75B with earnings at $587.2M, as warehouse demand stays strong amid an economic slowdown.

San Francisco-based Prologis, the world's largest developer of logistics properties, reported strong Q4 results, with revenue soaring above expectations and average occupancy rates edging higher. Despite signs of an economic slowdown, Prologis remains bullish about the demand for industrial real estate in 2023.

Prologis's CFO, Tim Arndt, said on an earnings call that the firm sees little that points to a significant slowdown in demand. Although Prologis remains cautious about building new facilities as the economy wavers, executives noted that vacancy rates are near record lows, and much of this year's leasing activity is already secured or underway.

The latest report from real-estate services firm Cushman & Wakefield shows that new leases for industrial space in the US fell 28.2% from Q3 to Q4 2022, indicating that the market is cooling after several years of red-hot demand and rising rates based on tight capacity. However, Prologis's outlook for 2023 remains positive, with rent growth of around 10% in the US and 9% globally forecasted, even allowing for a possible "moderate recession."

Warehouse demand peaked last year as average national vacancy rates plummeted to near 3%, reaching close to 1% in Southern California. However, demand has eased somewhat as inventory levels fall, and importers pull back on orders amid receding consumer demand. Companies such as Amazon have started to sublease space, and developers are scaling back projects as the cost of borrowing increases and demand wanes.

National and Southern California warehouse vacancy rates hit near-record lows, peaking demand last year.

Prologis has aportfolio of about 1.2 billion square feet of industrial real estate in 19 countries, with tenants that include Amazon, FedEx, and Home Depot. Prologis's average occupancy rate in its owned and managed portfolio ticked up to 98% in Q4 from 97.7% in the prior quarter, with average occupancy expected to be between 96.5% and 97.5% this year.

Despite some companies being more thoughtful about the pace of leasing new space, demand remains strong as retailers continue to expand their supply chains, particularly in e-commerce fulfillment, which requires a different kind of warehouse than traditional bricks-and-mortar stores. Multiyear contracts provide facility owners with some insulation from sharp fluctuations in market conditions.

Prologis's Q4 earnings report indicates that the demand for industrial real estate remains healthy, with average national vacancy rates still near record lows. As retailers continue to expand their supply chains, particularly in e-commerce fulfillment, the demand for a different kind of warehouse remains robust. While the economy may be wobbling, Prologis sees little reason for concern and remains positive about the outlook for 2023.