The annual conference for the world's largest industrial developer, held in San Francisco, ran late into Wednesday night for those streaming from the United Kingdom, but there was plenty to stay up for as Prologis chief executive and co-founder Hamid Moghadam focused on the sector's burning issues at Groundbreakers 2023, warning peers not "to get run over" by the train-like force of artificial intelligence use.
A month after broker Savills predicted cooling global inflation and the bottoming out of the interest rate hiking cycle would lead to a "return to normal" for the global industrial investment market in the final months of 2023, Moghadam insisted Prologis was destined for a "really good year" in 2024 as the firm looks to grow its balance sheet and raise warehouse rents to match competitors.
But the Prologis chief, speaking to a packed audience of industry experts, addressed a wide range of areas of focus for the developer with a circa 1.2 billion square feet property and development portfolio, as he spoke about getting the most out of the "hybrid workforce" after the return to work from COVID-19, and the gains to be made from focusing on the sustainability of warehouses.
AI: Don’t Get 'Run Over'
A key topic was artificial intelligence. Numerous speakers discussed the opportunities created by the technology and how developers and tenants were already using it to make the most of their operations. Moghadam backed its use in real estate, but said companies had to do the "hard miles" for it to be effective.
He said: "I don't think you can be on the fence on this issue. I think it's a big, fast-moving train and you better get on it or you're going to get run over by it... But before you can engage with AI and get value out of it you have to have data, and have it digitised. Without data, AI is useless."
Moghadam highlighted that most real estate firms were "not yet" prepared to have their data in digital form for AI use, suggesting Prologis had taken the "first step" not so long ago. He also said adopting the technology was a "huge shift in culture" for employees, who may not be aware of its full power. He went on to explain what he sees as its three core uses for real estate.
"One is using AI to do all the things that we are already doing, but do them better, more efficiently. To me, that is okay, that is interesting, but that's not where the big prize is. The big prize is in [uses] number two and number three. Number two is using AI to make better decisions.
"What are the big decisions we make? What do we charge for a lease and how long a lease do we sign? Basically all the decisions that go around leasing with customers. Now we are using a lot of AI to drive those decisions. What else do we do? We decide to deploy massive amounts of capital ahead of our customers' needs to make sure we are there when they need the facility.
"That means we need to figure out where to site some of these buildings, and that means we need to learn how to put [electric vehicle] chargers ahead of the need in those facilities. So capital deployment and where we invest our money is a very big opportunity for AI in our business."
The third use, he said, was as a "customer engagement tool" that could be employed by developers to help tenants adopt and use AI to improve their business performance. He also backed the technology to have as big an impact on future business routines as e-commerce.
Hybrid Workforce Tensions
Despite COVID-19 lockdowns having ended, the pandemic continues to have longer term effects on the working patterns of employees across the world, the conference heard. Most firms have adopted a hybrid model, allowing staff to work from home for at least some of their working week.
The Prologis boss has embraced some aspects of this, explaining the company had allowed staff to have a better work-life balance. But he expressed concern over how it would affect younger people entering the workplace and forging careers.
"I think the workplace was too rigid before the pandemic; this idea of 9 to 5, chained to your desk. Given the communication tools that are available to us, the fact that people are [now available] 24/7, all of those things have really changed the world in the last 20 or 30 years.
"I fear that the young people coming into the workforce are not getting the same benefit of mentorship and apprenticeship that they were getting in times past and in times future, and I hope they will make a special effort to get that because that is the only way they will learn and succeed. We need to find the right balance and that will differ for every company."
Moghadam added that there were some aspects the real estate sector could do "pretty well" from home. But he stressed those doing the deal-making, lease acquisitions and development side of business needed to be face-to-face. "We are in the people business. I don't know how you do that by remote control."
Green Business
Another topic discussed was enivronmental, social and corporate governance. In the United Kingdom, Prime Minister Rishi Sunak was the subject of complaints last week he watered down government net-zero policy, with some warning that the pushing back or complete removal of some targets will cause "untold disruption" for United Kingdom developers and landlords.
Many developers and owners will continue to press ahead with improving the environmental credentials of their buildings regardless. They want to be prepared for any future regulation and reap the rewards of their improvements.
Moghadam said in the question-and-answer session that one obvious driver for firms to double down on ESG was the financial benefit, along with the environmental positives. He said: "So we have a real opportunity to address a global problem, while serving our customers who are getting pushed in that direction by their customers. Many of them don't have the resources to do that on their own."
The Prologis boss said developers had the expertise and resources to help tenants improve their sustainability credentials and meet their requirements. On the firm's sustainability drive, he said: "The reason we do it is pretty simple, we think it's a really good business. We do it not to get points or to go to heaven, we do it because we can make money doing it, and it serves a real purpose for our customers and creates more stickiness."
He added: "If somebody has a choice between going to space A and space B, a landlord that can not only provide them with the four walls and a roof, but also take care of their renewable energy needs and sell them energy at an appropriate cost, and have in the back of the building some places where they can [charge] their emerging EV van fleet... that creates stickiness in those relations."
CEOs Must Conquer Chaos
A large portion of the past 18 months have included unforeseen events that have had a major impact on property values, most noticeably increasing borrowing rates. Moghadam suggested that the US Federal Reserve was getting "a little carried away" with interest rates and enough to spook the market further. In the UK, the Bank of England paused the rate at 5.25% this month, providing some hope that rates rises were at a peak.
Offering his thoughts on the key to good leadership in turbulent times, the Prologis co-founder said real estate CEOs needed to lead with conviction to weather the storm. He said: "I think the most important characteristic of a CEO is to make clarity out of chaos.
"There's a lot of facts coming at us every day and lots of information, and the skill that is being scarcer and scarcer is the ability to sort through it all, see what's important, see what's affecting your business, and in what direction and then get the appropriate input, but be decisive.
"You can't run a company or any organisation by a committee, somebody's got to make the decision, but you have to get all the appropriate input. And you have to stay curious and consider all different points of view."