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Prologis CEO forecasts 'many, many years' of robust same-store NOI growth


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Prologis CEO forecasts 'many, many years' of robust same-store NOI growth

In the exceptionally tight industrial real estate market, prospective tenants are communicating to landlords that they are less concerned about price than about obtaining the right space to grow their businesses, Prologis Inc. management said Oct. 17.

"We've never heard that before from customers, and we're hearing it from multiple customers at the same time," Chairman and CEO Hamid Moghadam said on the company's third-quarter earnings call.

The executive noted that the pace of absorption has actually slowed as a result of the dearth of suitable space, and that the company's build-to-suit business, as a consequence, has picked up from the normal 25% of the company's development activity to roughly 50% of it.

The outlook for rent growth meanwhile continues to exceed expectations. Moghadam on the call predicted "many, many years" of robust same-store NOI gains on the back of "really incredible" rent growth. Some markets are 2% vacant.

"I think people pay entirely too much attention to quarter-by-quarter trends, as opposed to longer-term trends," he said. "And the longer-term trends have been remarkable I mean, far in excess of our expectations."

Later, during the Q&A segment of the call, an analyst asked management to weigh in on the North American Free Trade Agreement negotiations and the implications for the company's business should the U.S. ultimately withdraw from the agreement. Eugene Reilly, CEO for the Americas at Prologis, said the company so far has observed no fall-off in demand.

"If we go back a year and a half, the NAFTA dialog has gone in one direction [then] the other direction," Reilly said. "It does have an effect on currency, which we pay attention to. But during that entire period of time, actually demand has probably grown slightly. And the conditions right now in Mexico are actually pretty good."