EUR 850.00 For Business Accounts Only

Morningstar | Prologis Continues Performing Well in a Favorable Operating Environment

Prologis leases distribution space to some of the nation’s top retailers, and we view its tenant list as the strongest in the business. The continued growth in e-commerce should provide a long growth runway for distribution and logistics facilities, especially given the large amount of space necessary to support online sales compared with brick-and-mortar retail. We find it difficult for industrial REITs to earn moats since supply can quickly and easily enter key cities to negate supply and demand imbalances. The aggressive construction after the financial crisis brought a lot of new facilities online and we expect supply to continue to grow. Although demand has outpaced this newly added supply in recent years, we are cautious that any slowdown in retail will expose the asset class, increasing vacancies, as seen in the recent downturn. With vacancy rates at nearly all-time lows in the U.S. and Europe, and average market rent rebounding significantly since 2012, we believe Prologis is in the best position to benefit from incremental demand, with its vast portfolio that outsizes all other logistics REITs, predominantly along coastal markets, where it more than doubles its competition. Most of Prologis’ activity comes from the U.S., so trade concerns surrounding the new administration could act as a tailwind, especially given ongoing tariff discussions. There is an undeniable shift toward the tech-savvy millennial consumers, who more likely to skip the brick-and-mortar locations and spend more time on retail websites and utilize mobile purchasing. Additionally, they are more likely to return items, which adds to the space needed to fuel the growing e-commerce distribution industry. As retailers seek additional distribution facilities to accommodate this trend, Prologis will tap into its deep land bank to complete lucrative developments.