Twenty centuries after archeological excavators unearthed the first warehouse—140 rooms covering 225,000 square feet—on the banks of Rome’s Tiber River, San Francisco’s Prologis Inc. introduced the first multi-story storage structure in the US.
Hailed as an innovative solution to storage and distribution in America, the three-floor 590,000 square foot Georgetown Crossroads facility is minutes away from the Port of Seattle. It features truck ramps leading to loading docks on the second floor and a third floor served via forklift accessible freight elevators. E -commerce giant Amazon is the sole tenant.
Yet Prologis did not just tiptoe into the Asian marketplace. It designed and built a five-story, 1.7 million square foot logistics facility a mile from a major artery in metropolitan Tokyo. It also developed a six-story, four million square foot “total logistics hub” in Osaka in 2001, marking its 100th development project in Japan, according to a company spokesperson.
Indeed. Prologis not only had the vision to see the future of industrial warehousing, but its real estate savvy leadership had the guts and capital to import the multi-story structure to the U.S., then aggressively trailblaze in acquiring or developing creative logistics properties globally.
It has been on an audacious, single-minded expansion path ever since. Over the past 41 years, the company transformed itself from a three-man firm investing mainly in community shopping centers into the biggest owner of industrial warehouse and distribution properties in the world.
Headquartered in a former creaky covered pier on the San Francisco waterfront that it converted into a modern two-level, estimated 500-foot-long horizontal office building reflecting its corporate commitment to shipping and transportation, Prologis today owns 5618 warehouses in 19 countries around the world covering 1.2 billion square feet of storage and distribution space, according to the company’s website.
While the vertical warehouse trend is still in its relative infancy in the U.S, it is growing, and Prologis has competitors. The California real estate company developed, owns and operates a three-story warehouse at Miami International Airport, a market where it also reportedly owns 103 other warehouses. Prologis also owns a multi-story warehouse in the Bronx, New York and is developing one currently in San Francisco.
With the surge of e-commerce and the growing demand for same-day delivery, multistory warehouses of more than one million square feet are springing up in crowded urban centers. One is planned for Chicago as this is written. Washington DC in the dense middle Atlantic is prime for the concept.
But growing industrial warehouse capacity nationwide does not always translate into consistent occupancy. In mid-April, Prologis warned investors that demand for its storage, fulfilment and distribution space—single story and multi-story alike—is expected to weaken in coming months. Logistics customers are cutting costs, driven by higher interest rates and a reduction in industrial product sales, according to a CoStar National Industrial Report, citing a 12-year low in home sales that have cut into consumer purchases of building materials, furniture and appliances.
Prologis had an 11% increase in 2024 first quarter revenues, however, co-founder and CEO Hamid Moghadam said in a recent financial press statement “while operating conditions are healthy in a majority of our markets, customers remain focused on controlling costs which is weighing on decision making and the pace of leasing.” He sees a “short term” effect on space demand. The company also said it expects to start $2.5 billion to $3 billion on new warehouse construction in 2024, down from its previous projection of $3 billion to $4 billion.
Profits are taking a hit this year. On July 17, Prologis reported second quarter net earnings of 92 cents per diluted share, down from $1.31 in the second quarter of 2023. Said CEO Moghadam in a press statement: “While customer demand remains subdued, it is improving, and we expect that trend to continue as the construction pipeline shrinks.” He sees future opportunities for the company in data centers and energy facilities but did not elaborate.
Still, the real estate investment trust balances its development growth with acquisitions and buys warehouse portfolios, not one-off properties, from other major industrial real estate owners. For example, Prologis ponied up $3.1 billion in cash to buy 14 million square feet of warehouse space covering an undisclosed number of properties from New York-based Blackstone, Inc., said to be the world’s largest alternative investment house with $1 trillion under management. The two mega firms have done 12 buy-sell transactions together in the last 11 years.
Interestingly, Prologis tailors its logistics facility developments to a customer’s needs rather than just spec build and lease. The company has a dedicated in-house team called Prologis Ventures that helps create design and technology solutions to address its customers’ most “critical pain points” — sustainability, energy, workforce, mobility, digital buildings and infrastructure — and then invests in them.
To date, the company has invested $250 million dollars in projects for 48 companies. Prologis, interestingly, only buys or develops off-airport warehouses and does not get involved in the tarmac truck congestion problem plaguing many large US airports today.
Prologis doesn’t just build, buy, sell and operate logistics space. In late May, it teamed up with Performance Team, owned by transportation giant Maersk, to launch Southern California’s largest heavy-duty electric vehicle (EV) charging depot strategically located near the ports of Los Angeles and Long Beach. The facility can simultaneously charge 96 EV commercial trucks.
“The transition to zero emissions is a priority for both companies,” said Henrik Holland, global head of Prologis Mobility. California has mandated an end to the sale of diesel trucks, and a move to EV drayage trucks by 2035. A statewide switchover to all electric heavy-duty trucks is slated for 2045.
In fact, Prologis continues to venture far beyond the traditional transportation properties format. Its Oakland Global Logistics Center includes three buildings covering 675,000 square feet one block from the fifth busiest container port in the US. A mixed use project in the United Kingdom includes a park and walking trails but with quick access to major roads and railways.
In 2009, it created a distribution center for cosmetics maker L’Oreal that is their largest in the world with 7,400 solar panels and a vast greenspace that houses the area’s skylark bird population. Currently, it is building $562 million worth of new laboratory space on the Cambridge, England Biomedical Campus, covering 400,000 square feet that will host small life sciences businesses. The company also develops data centers.
In only a few industries do rivals do ongoing business with each other. One involves industrial warehouse landlords which seem to swap assets continually. On May 29, Philadelphia headquartered EQT Exeter, the global property investment management unit of Stockholm -based EQT AB, the third largest private equity firm in the world, said it is acquiring 20 bulk, light industrial and last mile warehouses covering five million square feet throughout Minneapolis-St. Paul from Prologis. The deal for what Prologis terms “the Assemblage,” calls for EQT Exeter to buy an additional four industrial warehouses.
