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Prologis Inc. had another outstanding quarter with customer sentiment remaining positive. On the firm’s Q3 earnings call, CFO Tom Olinger said that he sees no meaningful impact on the REIT’s business from uncertainties surrounding trade.
“Our proprietary operating metrics reflect healthy demand, showing deal gestation, conversion rates are positive and in line with last quarter as our customers improve their supply chains and response to consumer demand for ever faster delivery times.”
U.S. market fundamentals are strong, he added. “We see historically low vacancy in the mid 4s, with supply and demand balanced at 75 million square feet each. Rents have outperformed and as a result, we are raising our 2019 U.S. rent growth forecast from 6% to 7%, leading to an 80 basis point increase in our global rent forecast to 6.5%.”
Activity across Europe also remains healthy, he noted. For example, in the UK, “while overall demand is solid and our build-to-suit pipeline is very active, we are highlighting the Midlands as a supplier risk. We continue to forecast 2019 rent growth on the continent to be the highest in more than a decade. Fundamentals in Japan are improving with vacancy in Tokyo had less than 3% and Osaka at less than 6%, the lowest points in five years.”
From an operating standpoint, the firm’s quarterly results reflect its strategy of prioritizing rents over occupancy to maximize long-term lease economics. “We leased 38 million square feet, including nearly 6 million square feet in our development portfolio. Quarter end occupancy was 96.5%, down 30 basis points sequentially and remains above our five-year average. Rent change on roll for the quarter hit an all-time high of 37%, led by the U.S. at 41.7%.”