- Scotiabank downgraded Prologis from Sector Outperform to Sector Underperform, slashing its price target to $97 from $133.
- Prologis shares dropped 6.6% Monday, falling to a five-year low at $91.71, amid a pessimistic outlook for the industrial sector.
- Tariffs on China, Mexico, and Canada are weighing on industrial REITs, with analysts predicting no market recovery until late 2026.
Industrial REITs Under Pressure
Scotiabank’s double downgrade of Prologis—the largest global player in the industrial real estate space—marks a notable shift in sentiment toward the sector.
According to Bisnow, Prologis stock slid more than 6% following the announcement, closing Monday at $91.71, its lowest level in nearly five years.
Why The Downgrade?
Scotiabank cited worsening fundamentals in the industrial sector, amplified by new US trade tariffs that took effect on April 2.
The sweeping 10% tariffs on Chinese imports and 25% tariffs on goods from Mexico and Canada—three countries that make up roughly 40% of total US imports—have created broad market uncertainty.
Analyst Nicholas Yulico warned of minimal upside for industrial REITs this year and flagged Street estimates for 2026–2027 as overly optimistic.
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Vacancy Trends Worsening
According to CommercialEdge, the national industrial vacancy rate has doubled over the past two years to 8.2% as of February.
Prologis reported an uptick in its own vacancy from 4.1% in Q3 2024 to 4.4% in Q4, with CFO Tim Arndt projecting the rate could rise to 5.5% this year.
Short-Term Gains, Long-Term Doubts
While Prologis posted strong Q4 results—$2.2B in revenue and over 60M SF of leasing activity—the current tariff environment and rising vacancies suggest headwinds may outweigh recent momentum.
The REIT reports Q1 earnings next week, offering a clearer picture of how recent economic shifts are impacting performance.
Sector-Wide Slowdown
Prologis isn’t alone in facing downgrades. EastGroup Properties and Terreno Realty were also downgraded this week by Piper Sandler, with analysts highlighting industrial REITs as particularly vulnerable in the wake of ongoing trade volatility.
Looking Ahead
While Trump’s November election initially sparked an industrial leasing surge, the market now faces a stark reality check. With recovery expectations now pushed to late 2026, analysts and investors alike are bracing for a prolonged period of uncertainty in the industrial REIT space.
