ProLogis' New Industry Report - Analyst Blog

ProLogis (PLD), a leading global provider of distribution facilities, has recently unveiled a new research report on the state of the industrial property markets in the U.S. and Canada. The research report, titled “On the Mend”, concluded that improving economic conditions have eventually fuelled a recovery in industrial real estate and the stage is set for a continuing recovery with limited new supply in the pipeline.
 
The in-depth study analyzed the market statistics compiled from a variety of sources, including indigenous reports developed by ProLogis market officers, brokerage companies and data providers. The research covered the top 31 distribution property markets in the respective countries during the first half of 2010 to arrive at the conclusion.
 
The report revealed that the overall vacancy rate for bulk distribution space across the top markets declined marginally to 10.2% during the second quarter of 2010 from 10.4% in the previous quarter. Total occupied space increased 15 million square feet during the second quarter, while asking rents in the major markets decreased 1.6% on an average.
 
However, growing customer interests in new build-to-suit development projects across the country suggested that market fundamentals were gradually improving. In addition, leasing decisions that were earlier postponed due to volatility in the markets were gradually coming off the shelf. The research report further revealed that demand for industrial real estate was rebounding, thereby offering a positive outlook for 2010 and beyond. Consequently, rent levels are expected to increase in 2012.
 
We currently have a Neutral recommendation on ProLogis with a Zacks #3 Rank, which translates into a short-term “Hold” rating and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months. The credit crunch has widened the bid-ask spread between buyers and sellers of commercial real estate, which has caused deal volumes to fall dramatically. In addition, market vacancy increases will mitigate ProLogis’ ability to push through rental rate increases, adversely affecting its top-line growth.
 
Meanwhile, our long-term Neutral recommendation on the stock is based on the belief that ProLogis has considerably reduced operating risks through continued lease-up of its development portfolio. ProLogis also has a geographically diverse portfolio of distribution facilities that integrate international scope and expertise with a strong local presence in its markets, which provides a strong upside potential for the company.