© Reuters. FILE PHOTO: View of the Munich East DC1 Prologis warehouse in Bruckberg, Germany in this undated handout obtained by Reuters on November 30, 2020. Courtesy of Prologis/Handout via REUTERS
By Lisa Baertlein
LOS ANGELES (Reuters) – Warehouse rents will continue to rise even as other supply-chain costs tumble from pandemic highs, the CEO of the world’s largest warehouse landlord told Reuters on Tuesday.
Lease prices have proven far more resilient than air, ship, truck and train transportation rates which have dropped sharply due to the consumer spending shift from goods to services, inflation and higher borrowing costs.
Still, warehouse rent hikes are moderating as the market returns to more normal conditions, said Hamid Moghadam, the top executive at Prologis (NYSE:).
“It’s not going to be like it was in the last three or four years,” he said, adding that he now expects rents to grow at the rate of inflation plus “a little bit more.”
Prologis expects 5% to 10% rental growth across its portfolio this year, driven by rate increases and contract renewals resetting at higher levels. Last year, the company’s rental growth clocked in at nearly 30%.
“The last couple years have been exceptional,” he said.
Shares of the company, which earlier on Tuesday raised its 2023 earnings forecast, closed 3.1% lower as some investors took profit.
The San Francisco-based real estate investment trust, from whom Amazon.com (NASDAQ:) leases more space than any other landlord, has a property portfolio that includes 1.2 billion square feet around the globe.
At the end of the second quarter, Prologis’ average vacancy rate was 2.5%, up from 2% in the prior period.
The U.S. average for the warehouse-dominated industrial segment jumped to 4.1% in the second quarter, according to data from real estate services firm Cushman & Wakefield (NYSE:).
Notably, warehouse space around the busiest U.S. container port complex in Southern California loosened after ocean shippers rerouted cargo to ports on the East Coast and Gulf of Mexico to avoid disruptions related to West Coast port labor talks.
Warehouse vacancy in the Inland Empire, which anchors the nation’s largest warehouse hub and serves the ports of Los Angeles and Long Beach, hit 3.4%, versus 0.5% in the second quarter of 2022, Cushman & Wakefield said.
“In the last two to three years, rents have actually increased by about 150% … 180% in some cases” in that market, said Moghadam.
Moghadam and other real estate experts said warehouse construction will send vacancy rates a tick higher before new building dries up late next year.
“It will continue to be a landlord-favorable market for the foreseeable future,” said Jason Tolliver, co-leader of Cushman & Wakefield’s Americas logistics and industrial services practice.