The onset of the coronavirus wreaked havoc on company supply-chains across the country, a fact that will likely benefit industrial real estate owners in the long-run.
“Supply chains are going from just-in-time strategies to just-in-case strategies,” said Prologis CEO Hamid Moghadam, at a Wednesday webinar hosted by NYU’s Schack Institute of Real Estate. “Bottom line, I wouldn’t be surprised if after this people will carry 5 or 10 percent more inventory than before this, regardless of e-commerce. And that will double the demand for the growth rate for logistics facilities.”
As one of the largest industrial developers and investors, Prologis has weathered the pandemic far better than most companies.
Riding a wave of demand for warehouse and distribution centers, Moghadam noted that the real estate investment trust reported higher-than-expected rent collections for the most recent quarter and has readjusted earnings guidance to pre-coronavirus projections.
During the webinar, Moghadam even found time to joke.
“The killer risk is the transporter from ‘Star Trek,’” he said, referring to the teleportation machine. “If someone invents that we are toast.”
Blackstone has begun encroaching on its space with big investments and deals, but Prologis is still an industrial real estate giant. The REIT owns 963 million square feet of industrial space — up from around 800 million square feet at the end of 2019 — and 4,655 buildings across the country. The San Francisco-based company has $136 billion in assets under management and has leases with giants like Amazon, FedEx and Home Depot.
Moghadam said the company “has always been flush with capital” and has not had to raise money in public equity markets “in almost forever.”
The scarcity, he said, is finding a place to build. Buildable land in large U.S. cities is increasingly rare and local governments are growing more wary of new industrial development, he said. That hinders expansion plans.
“It’s very hard to find a 50-acre site to service the needs of the customers,” Moghadam said.
Constrained supply will keep vacancy rates down, he said, noting they were under 4 percent companywide. Another benefit, he added, is little threat of oversupply in metro areas, which typically serve as last-mile locations.
Schack Institute dean Sam Chandan introduced Moghadam, who spoke with Schack REIT Center director Scott Robinson; and with attorneys Adam Emmerich and Robin Panovka of New York-based Wachtell, Lipton, Rosen & Katz.
Moghadam said he does not see much opportunity in repurposing struggling retail centers into industrial facilities because of the strict contracts that generally prevent it.
As a property owner, he said, “the last thing you want to do is to give that as an excuse to the two anchors who are not doing well to walk away from the lease because you converted the third anchor to an industrial or logistics box.” A study by CBRE did find about two dozen instances of companies, including Amazon, repurposing retail stores and malls into warehouses, CNBC reported last year.
Moghadam added he is not worried about the trade tensions between the U.S. and China.
“Don’t listen to the politicians, look at the numbers,” he said. “We cannot produce all these things that we are depending on other countries to produce.” Should manufacturing return in a major way to the U.S., he said, the company would benefit from that, too.
“I honestly don’t care where stuff is made,” he said. “I care where stuff is consumed, and stuff is consumed in these major areas where people live and where they have money in their pockets.”