Industrial Insights - October 2024 - Leasing Update
Prologis & Rexford Q3 2024 Earnings Call Takeaways
Demand Trends and Tenant Behavior
Both major industrial REITs reported strong occupancy levels. Prologis maintained 96.2% occupancy while Rexford achieved 97.6%, though tenants are taking longer to make decisions due to economic uncertainty and macroeconomic factors including inflation and geopolitical concerns.
Rent and Leasing Metrics
Prologis achieved "substantial lease mark-to-market gains, with net effective rent changes up 68%." However, some regional softening occurred, particularly in Southern California. Rexford reported leasing spreads of 39% net effective and 27% cash basis, with smaller spaces under 50,000 square feet showing more stability than larger ones.
Market Segment Variability
Markets like Houston and Atlanta remained stable or saw rent increases, while Southern California faced declines due to excess capacity. Rexford noted that "subletting trends are stabilizing, signaling potential resilience in key Southern California markets" despite broader supply pressures.
Strategic Leasing Opportunities
Both companies are leveraging shorter lease terms to provide tenant flexibility while maintaining future rent adjustment potential. High-quality Class A spaces are increasingly sought after as tenants focus on efficiency and cost reduction.
Development and Redevelopment Pipelines
Prologis is expanding solar capacity toward a 1-gigawatt goal by 2025, while Rexford actively redevelops infill assets with attractive yields and high stabilization rates.
Strategic Outlook
Both companies anticipate rent stabilization by mid-2025, driven by constrained supply and improved absorption. Tenants seeking sustainable operations can benefit from clean energy initiatives.
Supply Chain Modeling
Companies can leverage tools like Supply Chain Guru X and Excel to model current supply chains and scenario-test different outcomes. Common modeling scenarios include:
- Distribution center and facility consolidation
- Post-acquisition supply chain integration
- Shipment pooling and backhauling implications
- Warehouse automation and inventory density increases - Geographic expansion and customer service level implications
New Podcast & YouTube Episodes
Three industry leader interviews were recently released:
1. Ralph Asher of Data Driven Supply Chain, Part 2 – Supply chain network design and optimization 2. Justin Rappel of Pacific Industrial – Ground-up development across the West Coast 3. David Hickey of Hickey & Associates – Economic incentives strategy and negotiation
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Contact: Justin Smith, Senior Vice President | Principal, Lee & Associates, Irvine Phone: 949-400-4786 | Email: jbsmith@lee-associates.com