Prologis Expects More Development, Acquisitions as Industrial Recovery Grows
Prologis executives told investors Thursday the company anticipates putting more shovels in the ground and buying more property after the third quarter of 2026, but also warned that higher interest rates could slow transaction activity.
The world’s largest warehouse landlord signed 60 million square feet of leases during the third quarter, CEO Dan Letter said on the company’s earnings call. Average occupancy improved to 95.1 percent, compared to 94.8 percent a year earlier.
The San Francisco-based real estate investment trust (REIT) generated $2.39 billion in third-quarter revenue, down slightly from $2.43 billion in the second quarter, but up from $2.21 billion a year ago. Core funds from operations totaled $1.55 billion, or $1.60 per diluted share. That compares with $1.56 billion in the second quarter, and $1.43 billion in the third quarter last year.
Chief Financial Officer Tim Arndt said the company acquired about $702 million of real estate in the third quarter, compared to $1.12 billion in the second quarter and just $48 million in third-quarter 2025.
Net income attributable to common shareholders came to $816 million, down from $1.06 billion in the second quarter, but above the $763 million reported during the same quarter last year.
Prologis also stepped up its outlook for capital deployment. The company increased its 2026 acquisition guidance to between $2.1 billion and $2.3 billion, up from $1.5 billion to $2 billion.
The REIT anticipates an especially active finish to the year on the construction side, too. Prologis now expects to finish the year with between $5 billion and $5.75 billion in new development, up from its previous expectation of $4.5 billion to $5.5 billion. During the quarter, Prologis started about $1 billion worth of development, bringing year-to-date starts to nearly $5 billion.
Arndt said the increase was driven by a “very high” fourth quarter of build-to-suit logistics projects. Letter said the company’s build-to-suit pipeline is 20 to 25 percent larger than at the same point last year, and Prologis expects those projects to account for 55 to 65 percent of the construction it started this year.
“We expect to have a pretty big quarter in the fourth quarter here in build-to-suit,” Letter said.
At the same time, Prologis executives said higher construction and financing costs are raising the threshold for speculative development. Letter said rents required to justify new projects are now 27 percent above market rents, which should slow new construction and support longer-term rent growth.
“We think the recent move in rates will slow transaction activity and could put some pressure on values,” he said. “Our bar for allocating capital was already high, and in response we’ve raised it even further.”
Managing Director Chris Caton added that Southern California, the nation’s biggest industrial market, continues to recover.
“We’ve also been clear that we expected a cyclical recovery to emerge, and that absolutely is emerging, and it positions our portfolio to outperform in the next coming years,” he said.
Prologis is also leaning further into data and power infrastructure. Deals for data centers and power supply accounted for 10 percent of new leasing and 17 percent in the U.S. during the third quarter, and Prologis estimates the segment could create more than 150 million square feet of industrial demand overall through 2030.
“Negotiations just take a long time,” Letter said. “These are multibillion-dollar decisions that these hyperscalers are making. … We’ve always said that this is going to be a very lumpy business, so there’s not one single constraint.”
Also during the quarter, shareholders of U.K. warehouse REIT Sergo approved its $18.8 billion merger with Prologis. The deal is expected to close in the first half of 2027 and give Prologis a 363 million-square-foot European operating portfolio.
Gregory Cornfield can be reached at gcornfield@commercialobserver.com.
Source: commercialobserver.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.