The world's largest industrial developer and landlord said businesses in recent weeks have been hitting pause on what had been strong demand for leasing, delaying commitments to taking space at a time of economic disruption surrounding the Trump administration's shifting tariff policy.
For the three months ended March 31, Prologis posted a better-than-expected 9.5% jump in revenue to $2.14 billion from the same time a year earlier, fueled by a near-record 58 million square feet of signed leases and growth in the company's data center and solar energy businesses. Global industrial market conditions were improving, positioning the company to raise its financial outlook for the rest of the year.
All that was before President Donald Trump announced sweeping tariffs on April 2 that led to swings in financial markets and ensuing policy shifts. The San Francisco-based real estate investment trust's leasing activity dropped roughly 20% in the first two weeks of April, "and we expect things may slow further," Prologis Chief Financial Officer Tim Arndt said on a call Wednesday to discuss earnings. That's preventing the firm from issuing a more optimistic growth forecast, he said.
“We are electing to maintain [last quarter's] earnings guidance, as there are no policy conclusions right now to plan differently," Arndt said.
Prologis executives warned that the instability created in the past two weeks could disrupt logistics and supply chains and will slow decision making on whether businesses rent more warehouse space.
”Let's be clear, the range of outcomes is wide," Arndt said. "We see potential for recession, inflation, or possibly both. And let's also not dismiss the potential for a quick resolution."
The results and forecast provide a window into how the tariffs could affect a broad swath of large industrial real estate developers and their tenants.
Other industrial REITs such as STAG Industrial Inc., EastGroup Properties, First Industrial Realty Trust and LXP Industrial Trust are slated to post earnings in coming weeks.
Silver lining
The tariffs announced on what the president called "Liberation Day" have amplified the uncertainty in recent months, causing ripple effects across the global industrial market. Both tenants and owners are pivoting their strategy to avoid the tariff fallout with shifting decisions on trade policy.
Prologis had previously said that in the short term, trade policies would probably not have a pronounced effect on the industrial market and could even boost activity as companies stock up on inventory and storage space.
However, the scope of Trump's April 2 announcement "clearly went beyond our early predictions, making the environment less certain," Arndt said.
Even with the president's subsequent plans to pause some tariffs and escalate others, "customers simply lack a steady backdrop upon which to plan their businesses," he added.
Despite the slowdown, the company's signing of about 80 leases totaling more than 6 million square feet during the first two weeks of April, with more than a dozen more deals still in active discussion, reflects "a market that's still active," he said.
Prologis executives said many of the more than 300 customers representing 20% of the company's rent revenue are accelerating or rerouting shipments where possible.
Those moves have created "urgent demand" for flexible overflow space typically provided by third-party logistics companies, presenting potential opportunities for Prologis, Arndt said, adding that "a disconnected world will require more warehouse space, not less."