Prologis Inc.'s tenant base is having to swallow higher and higher rents in a tight, charged industrial real estate market, but few are choosing to decamp.
"Not every discussion with every tenant starts out with the intention of them staying," Chairman and CEO Hamid Moghadam said of rent negotiations on the company's third-quarter earnings call. "In fact, many of them, when they hear about the new rents, they're a little spooked. [But] when they go shop to market, they tend to come back and renew their lease, because what we told them is an indication of where the market was. We're doing our best to push down retention, but obviously not hard enough."
The company reported an 11.6% gain in cash rents in the third quarter, factoring in a 16.7% increase in the U.S., while retaining about 82% of its tenant base.
"The markets are really strong, and that's why we're getting these increases," Moghadam said.
Moghadam said only "one or two" of the company's tenants so far have opted out of renewals as a direct result of the brewing trade war between the U.S. and China and the accompanying tariffs.
"It's really irrelevant," the CEO said of the trade war. "I mean, I can think of 20 other reasons why tenants stop negotiating or drop out of a negotiation. And certainly the trade stuff has not yet, in any way, translated to any action on the ground that we can tell."
Management noted on the call that its European business may accelerate more quickly than the U.S. market in 2019, in part because it has been slower to recover over the years. It framed 2018 as a turning point for Europe.