The rapid rise in the cost of capital cooled development starts. Construction starts dipped 40% quarter-over-quarter and the under-construction pipeline reached 562 MSF. Completions will rise through 2023 as the pipeline empties, driving a vacancy increase in markets with an abundance of speculative space under construction. Example markets include Atlanta, Dallas, Indianapolis, Phoenix and Savannah. Outside of select markets with significant construction, availabilities will likely remain limited due to low vacancies and fewer unleased buildings coming online. If everything under construction were delivered today as currently leased, the national vacancy rate would rise to 4.4%, still 30 bps below 2019.

True months of supply (TMS) increased to 25 months. TMS (the amount of time it would take to absorb all available supply at the current demand run rate) was up three months from Q3, driven by an increase in the speculative construction pipeline and a slowdown in leasing velocity. Because rent growth is highly correlated with TMS, Prologis Research expects it to decelerate from 2022’s historic high of 29.8%, a continuation of the quarterly trend we noted in 2022. Rent growth will likely remain well above inflation, however, because 25 months is far below the expansionary average of 36 months.

Endnotes

1. CBRE, JLL, Cushman & Wakefield, Colliers, CoStar, CBRE-EA, Prologis Research
2. Our historical and forecasted stock, net absorption, completions, under construction, and vacancy fundamentals now represent 31 markets to reflect where Prologis has a presence.
3. Prologis Research.
4. Prologis’ proprietary survey of customer activity and facility utilization.

FORWARD-LOOKING STATEMENTS

This material should not be construed as an offer to sell or the solicitation of an offer to buy any security. We are not soliciting any action based on this material. It is for the general information of customers of Prologis.

This report is based, in part, on public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. No representation is given with respect to the accuracy or completeness of the information herein. Opinions expressed are our current opinions as of the date appearing on this report only. Prologis disclaims any and all liability relating to this report, including, without limitation, any express or implied representations or warranties for statements or errors contained in, or omissions from, this report.

Any estimates, projections or predictions given in this report are intended to be forward-looking statements. Although we believe that the expectations in such forward-looking statements are reasonable, we can give no assurance that any forward-looking statements will prove to be correct. Such estimates are subject to actual known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those projected. These forward-looking statements speak only as of the date of this report. We expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein to reflect any change in our expectations or any change in circumstances upon which such statement is based.

No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of Prologis.

ABOUT PROLOGIS RESEARCH

Prologis’ Research department studies fundamental and investment trends and Prologis’ customers’ needs to assist in identifying opportunities and avoiding risk across four continents. The team contributes to investment decisions and long-term strategic initiatives, in addition to publishing white papers and other research reports. Prologis publishes research on the market dynamics impacting Prologis’ customers’ businesses, including global supply chain issues and developments in the logistics and real estate industries. Prologis’ dedicated research team works collaboratively with all company departments to help guide Prologis’ market entry, expansion, acquisition and development strategies.

ABOUT PROLOGIS

Prologis, Inc. is the global leader in logistics real estate with a focus on high-barrier, high-growth markets. As of December 31, 2022, the company owned or had investments in, on a wholly owned basis or through co-investment ventures, properties  and development projects expected to total approximately  1.2 billion square feet (111 million square meters) in 19 countries. Prologis leases modern logistics facilities to a diverse base of approximately 6,600 customers principally across two major categories: business-to-business and retail/online fulfillment.