ProLogis' Industry Report on Europe - Analyst Blog

ProLogis (PLD), a leading global provider of distribution facilities, has recently released its research on the state of the industrial property markets in Europe. The research report, titled “Glimmers of Recovery”, 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 analyzes 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 distribution property markets in the northern, southern, and central Europe, and the U.K. during the first half of 2010 to arrive at the conclusion.

The report revealed that the overall occupancy rates for bulk distribution space across Europe were steady, but varied widely from over 90% in the Netherlands, Belgium and southern Europe to 83%–84% in central Europe and the U.K. The research study further divulged that the demand for distribution space increased gradually during the first half of 2010 with continuous supply chain reconfiguration, and focus on lower operating costs and supply-chain efficiencies.

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 steadily coming off the shelf. The research report further revealed that logistics property markets across Europe were nearing the point of inflection with the gradual revival of the overall economy.

We maintain our Neutral recommendation on ProLogis, which currently has a Zacks #3 Rank that 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. 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.