![](\"https:\/\/qa.bluevaultpartners.com\/download\/news_articles\/2022\/october\/pld-kpi.jpg.optimal.jpg\")
<\/p>\nOctober 19, 2022 | Todd Maiden | Freight Waves<\/p>\n
Logistics real estate operator Prologis Inc. pulled in 2022 financial forecasts on Wednesday as its base case now assumes \u201can economic slowdown.\u201d The change in direction was a reversal for a company that has seen tremendous growth throughout the pandemic as operators invested heavily in their supply chains, adding incremental warehouse space to meet record consumer demand.<\/p>\n
Prior to the market open, Prologis (NYSE: PLD) reported core funds from operations (FFO) of $1.73 per share in the period, which was 6 cents better than analysts\u2019 expectations. While the updated FFO guidance for 2022 was mostly unchanged, net earnings guidance was reduced 18% at the midpoint of the range to $4.25 to $4.30 per share.<\/p>\n
On the likelihood of a recession and the impact Fed rate hikes will have on demand for logistics properties, Prologis co-founder and CEO Hamid Moghadam told analysts the psychology of the market has changed.<\/p>\n
\u201cMy view of the economy is that the Fed was behind the eight ball and they\u2019re now really running hard to catch up and they\u2019re going to overshoot in their reaction,\u201d Moghadam told analysts on a Wednesday call. \u201cI think we\u2019re going to whipsaw this economy.\u201d However, he said changes usually take two years to play out. \u201cI am concerned about inflation. I think the Fed is going to overdo it.\u201d<\/p>\n
In the third quarter, occupancy tightened 110 basis points year over year (y\/y) to 97.7%. Leases commenced in the period increased 3% y\/y to 51 million square feet and the average rate change over the lease term, or net effective rent change, reached an all-time high of 59.7% across the global portfolio, up 67% in the U.S.<\/p>\n
The utilization of space reached 86.6%, the 95th percentile historically, but proposals for available units slowed to 2019 levels, which is \u201cindicative of less urgency to renew space far ahead of expiration.\u201d True months of supply, which compares current vacancies plus the development pipeline to trailing net absorption, increased to 22 months from 18 months in the quarter. The metric is expected to reach 30 months over time, however, that is a level still reflective of a strong operating environment.<\/p>\n
<\/p>\n
Table: Prologis\u2019 key performance indicators<\/span><\/p>\n For 2022, Prologis raised its rent forecast by 300 bps to 26% globally and 28% in the U.S. Management said rents are likely to climb again next year by mid- to high single digits.<\/p>\n \u201cRents are still going up. I mean we started 2022 thinking rents are going to be up 11%; they\u2019re up 28%,\u201d Moghadam said. \u201cIf a normal range of market outcomes is kind of 0 to 10, we were operating in an environment that was maybe a 12 for the last 18 months and that\u2019s coming down to sort of a 9, 9.5 today. By any measure, other than the last 18 months, I would say we\u2019re in very strong market conditions.\u201d<\/p>\n Management sees supply potentially outpacing demand by 100 million square feet next year. However, it believes the incremental capacity will not push vacancies above 4%.<\/p>\n New development activity is slowing across the industry as construction and capital costs increase. Prologis reduced development starts guidance for 2022 by 7% at the midpoint of the range to $4.2 billion to $4.6 billion out of an abundance of caution. Guidance around year-ending average occupancies remained unchanged at 97.25% to 97.75%.<\/p>\n \u201cOccupancies are high, utilization is high, there\u2019s a lot of ongoing demand and we\u2019re starting off at 98% occupancy. Even if the global financial crisis were going to repeat itself, we\u2019ll be at 94% occupancy; \u2026 we can get rent growth at those kinds of numbers.\u201d<\/p>\n Logistics real estate operator Prologis Inc. pulled in 2022 financial forecasts on Wednesday as its base case now assumes…<\/p>\n","protected":false},"author":3464,"featured_media":162172,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"single-article.php","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[2814,3007],"tags":[],"class_list":["post-244974","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-industrial","category-industry-news"],"acf":[],"yoast_head":"\n<\/div>","protected":false},"excerpt":{"rendered":"