Prologis Index Points to ‘Elevated Uncertainty’ for Logistics

Nationally, the COVID-19 pandemic has brought more activity to some parts of the sector while slashing activity in others, according to a new survey by industrial real estate powerhouse Prologis.

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The once-unflappable logistics sector could be in for “elevated uncertainty” for the rest of this year, according to a recent quarterly report from Prologis.


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After more than a year of “consistently strong readings above 58,” the company’s proprietary Industrial Business Indicator, which is based on a survey of customer sentiment, fell in March to 41.7. Although Prologis noted that an IBI number below 50 indicates a contraction in demand, the company stated that the figure would have to remain under 50 “for several months to more clearly signal a recessionary environment.”

The report advises that demand and new development could both be limited, with rental growth flat, at least until “health and economic uncertainty subsides—likely in 2021.” Until the pandemic became a factor, operating fundamentals were strong, with market vacancy in the first quarter near an all-time low of 4.7 percent.

Now however, Prologis is lowering its projection for net absorption from 250 million square feet to 100 million square feet, despite first-quarter demand of more than 50 million square feet. Similarly, the estimate of anticipated 2020 completions fell from 275 million square feet to 225 million square feet.

Caution is warranted based on an increase in rent relief requests, and we anticipate that some longer lease-up times and potential defaults will likewise contribute to vacancy,” the report warned. Unsurprisingly, leasing activity is up in a few customer sectors, such as e-commerce, food and beverage, and 3PL. Other parts of the logistics customer base, including nonessential retail, restaurants, travel and tourism, entertainment and auto are suffering.

Though the latter segments total only a minority of the customer base, the authors noted that “they have contributed to a rise in rent relief requests and may offset some of the demand surge” coming from the customer industries that are doing well.

Still investing—for now

While virus-related business interruptions led to a rough end to the first quarter, investment activity for industrial had been strong. In early February, BKM Capital Partners acquired a nearly 2.7-million-square-foot portfolio of 11 industrial assets in Arizona, California and Portland for $425.4 million. Later that month, WPT agreed to buy a 26-property logistics portfolio from Pure Industrial Real Estate Trust for $730 million. The assets total about 9 million square feet across eight states. And in early March, Venture One sold a 28-building industrial portfolio in metro Chicago to Taurus Investment Holdings  for $153.5 million. Venture One will continue to manage the properties.

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