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Prologis Ramps Up Europe Development on E-Commerce Boost
By Dalia Fahmy Oct 17, 2014 12:43 AM GMT+0800
Prologis Inc. (PLD), the world’s biggest industrial-building owner, is increasing construction of warehouses in Europe as growing demand for goods sold online supports more development without tenants or buyers in place.

Prologis, based in San Francisco, is building in countries such as Poland that have growing economies and aging facilities, Philip Dunne, president of Prologis Europe, said in an interview. London and the English Midlands are particularly attractive, he said.

“Growth in the market is going to start lending itself more to growth through development than through acquisition,” he said. “The supply of modern logistics facilities in Europe is relatively immature compared to the U.S.”

Tenants are signing the most leases for warehouses and industrial buildings in Europe since 2008, as retailers use more space to manage their growing online sales, according to broker CBRE Group Inc. (CBG) Companies rented 30 percent more European industrial property in the first half compared with a year ago, the broker said. Investors bought 8.7 billion euros ($11 billion) of space in the first half, the most since 2007, CBRE said.

Prologis has started speculative projects in Germany, The Czech Republic, Poland and Slovakia and is looking for more opportunities in Germany and the Netherlands the CEO said.

“The recovery in Europe is very uneven,” said Dunne. “The U.K. is healthy. The continent has been a bit slow, particularly in southern Europe and Poland, but we’re seeing some signs of recovery.”

Online Sales

Online retail in Europe will grow at a rate of 12 percent a year over the five years through 2018 to reach 233.9 billion, according to research company Forrester Inc. Retail trade overall increased 2.5 percent in August from a year earlier across 28 European countries, data compiled by Eurostat showed. In the U.K., online retailers dispatched 20 percent more orders in August than a year ago, according to a report by industry group IMRG and e-commerce technology company MetaPack.

Prologis will start building about 500,000 square meters (5.4 million square feet) of warehouse space in Europe this year, up from 410,000 square meters in 2013, according to a person with knowledge of the company who asked not to be named because the information is private. Dunne declined to be more specific about the amount of development.

Building More

“They’re benefiting from generally good real estate conditions in Europe,” said Ross Smotrich, a property analyst at Barclays Capital Inc. in New York who has a buy rating on the stock. “They have a good land bank, so they’re ramping up development.” Other logistics companies are also building more to meet demand for warehouses, he said.

Shares of Prologis have risen 3.6 percent this year in New York trading, giving the company a market value of $19.1 billion.

Speculative development in Europe is growing more quickly than built-to-suit projects as Prologis becomes more confident that demand will continue, Dunne said. About 40 percent of all European development in 2014 will be built before leases are signed, compared with 20 percent a year ago, said the person with knowledge of the company.

Prologis’s first speculative property in the U.K. was completed in May in England’s Midlands region and leased to Jaguar Land Rover Automotive Plc. The company is close to completing three projects in the U.K and two more will probably be started within four months, Dunne said.

“This year has seen the return of spec,” said Dunne. “We have confidence to bring spec specifically in the Midlands and London because there is no supply of modern product.”

Supply of U.K. properties ready for use in the first half fell 16 percent from a year earlier, encouraging more companies to develop before securing tenants, according to research by CBRE. That’s squeezing monthly prime rents, which rose 9.5 percent in Birmingham, 8.3 percent in Glasgow and 3.5 percent in Manchester in the second quarter from a year earlier, according to CBRE.

Prologis has $52 billion of properties, or about 571 million square feet, under management globally. In Europe, the company has 154 million square feet of space valued at about $13.5 billion. Its customers include DHL Worldwide Express and Inc.

To contact the reporter on this story: Dalia Fahmy in Berlin at

To contact the editors responsible for this story: Ross Larsen at