Warehouse whale Prologis cuts its outlook as retailers embrace “just in time” storage
Trouble in forklift paradise… Prologis, the company that retailers like Amazon and Home Depot pay for warehouse space, is warning of trouble in the industrial real-estate market. The world’s largest industrial property company (with 1B+ square feet of warehouses globally) last week cut its annual guidance. Analysts saw it as a signal that the pandemic-fueled boom in warehousing demand has been deflating as retailers shift inventory strategies.
Palletable: Prologis shares fell more than 20% this year as warehouse rents flattened industry-wide. The average industrial rent didn’t budge in Q1 — the first time rents haven’t climbed in four years.
The unboxing: The average US warehouse-vacancy rate rose to nearly 6% last quarter, roughly double 2022’s 3%. That uptick could = millions of square feet of empty warehouse space across America.
From “just in case” to “just in time”… retailers are rethinking storage strategies. Warehouse demand spiked during the pandemic as the likes of Target and Foot Locker protected themselves from unexpected supply issues (think: a ship getting stuck in a canal) by stockpiling products. That excess supply cost retailers that struggled to track goods and sometimes turned to discounts to offload glut. Now retailers like Walmart and Ikea have returned to “just in time” inventory management — aka holding only as much as is needed. In December, inventory declined for the seventh time in eight months.
The bigger the box, the harder the return… Plans made during brighter days may be hurting warehouse owners like Prologis. 115M square feet of freshly built US warehouse space became available last quarter, nearly triple the 10-year quarterly average. It’s keeping supply up while demand slows, pushing rents, and outlooks, down for the industrial-property owners that’ve covered vast amounts of the country in delivery hubs.