Despite Earnings Beat, Prologis Cuts Back on Growth Plans

A Conservative Turn

Prologis cut 2025 development and stabilization targets by over $1B, citing market uncertainty, per Bisnow. Its capital deployment targets for acquisitions and dispositions have also been reduced by up to $500M each.

The shift comes amid a pronounced slowdown in leasing, which the company attributes to tenants delaying decisions due to rising uncertainty surrounding global trade policies and tariffs.

Q1 Snapshot

Despite the cautious guidance, Prologis delivered a strong Q1:

• Revenue: $2.1B
  
• Core FFO: $1.43/share (up 9.2% QoQ)
  
• Occupancy: 95% across its 1.3B SF global portfolio
  
• Leasing: 21M SF of new leases + 42M SF of renewals
  

However, recent leasing volume has dipped. The firm signed 6M SF in the last two weeks of the quarter—20% below normal levels—and the average lease gestation period increased to 64 days, 10 days above historical averages.

Tariffs and Tenant Caution

CFO Tim Arndt highlighted the impact of escalating tariffs and trade uncertainty, which derailed what had been improving industrial fundamentals. “Had it not been for the recent uncertainty from global tariffs and their downstream impacts, we would have raised our expectations for 2025,” he said.

Instead, Prologis cut its development forecast as a precaution, adopting a more measured approach in response to the wide range of potential economic outcomes—from inflation to recession.

Prologis has long positioned itself as resilient across cycles, but today’s uncertainty is prompting strategic restraint.

Still in Demand

Despite current cuts, demand remains healthy:

• Amazon reentered the market and e-commerce accounted for 20% of leasing in Q1.
  
• 108M SF of active lease negotiations marks the highest level since 2019.
  
• Same-store NOI rose 6.2% from the previous quarter.
  
• Net effective rent growth came in at 53.7% YoY, though it has decelerated for four consecutive quarters.
  

President Dan Letter noted that many tenants who had delayed decision-making are now being forced to act, assuming their core businesses remain stable.

Looking Ahead

With 345M SF of new construction still in the pipeline nationwide, Prologis expects occupancy to hold steady in 2025. As part of its more cautious outlook, Prologis cut its development targets significantly, and speculative development will remain limited, with 78% of Q1 groundbreakings being build-to-suit.

While Prologis’ stock saw a modest 2% bump post-earnings, broader industrial market sentiment remains cautious amid ongoing oversupply concerns and tepid rent growth.

As Arndt summed it up: “Customers simply lack a steady backdrop upon which to plan their businesses.”