Prologis has agreed to pay Blackstone $3.1 billion for a portfolio of U.S. warehouses and distribution properties in a sign that industrial space remains one of the strongest property types in the shaky commercial property sector.
The portfolio includes nearly 14 million square feet in about 70 properties in major markets including Atlanta, California, Dallas, south Florida and the Washington, D.C., and New York regions. The all-cash deal, which is one of the largest commercial real-estate transactions of 2023, is expected to close by the end of June.
Prologis, a real-estate investment trust, is the world’s largest industrial property company with 1.2 billion square feet in 19 countries. Prologis last year purchased rival Duke Realty in a deal valued at $23 billion, the largest commercial property deal since the pandemic began.
Investment giant Blackstone is also a major investor in industrial real estate, with a global portfolio valued at $175 billion, and is continuing to buy warehouses and distribution centers. The assets it is selling to Prologis are held by Blackstone’s opportunistic funds, which typically sell properties after holding them long enough to see an increase in values.
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Most commercial property types have been hurt by higher interest rates, which have greatly increased borrowing costs for developers and investors. But industrial space has weathered the storm better than other property types such as office, which has gotten pounded by the increase of remote work in the pandemic era.
Demand for industrial space has remained strong thanks to the economic growth and the boom in online retail, which has required an overhaul of the supply chain. Nearly 60% of the portfolio being acquired from Blackstone by Prologis are properties in cities or close to consumers, which are prized by e-commerce tenants wanting to deliver packages to consumers within a few days.
While Amazon continues to dominate the e-commerce business, demand for industrial space also is increasing from numerous other online retailers. "We had 40 unique e-commerce users last quarter alone with Amazon actually being a small slice of that," said Dan Letter, Prologis president, on an earnings call earlier this year.
Prologis has grown both by developing new properties and through acquisitions. Lately, the company has been focusing more on acquisitions because of rising construction costs and challenges in getting development approvals from local governments.
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Prologis’ increasing size has enabled it to invest in a range of environmentally friendly businesses. The company is adding electronic-vehicle charging stations at some of its properties and putting solar energy panels on the sprawling rooftops of its warehouses and distribution centers.
Industrial property held by industrial property companies saw "solid market rent growth" in the first quarter, according to a May report on the sector by real-estate analytics firm Green Street. But the report noted that demand for industrial property might decline because retailer inventory levels rose during the first quarter and "retailers are expected to adopt a cautious approach toward inventory management for the remainder of the year."
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Prologis shares closed down $1.76 at $116.90 on Friday. Company shares hit a record high of over $168 a share in 2022 before the increase in interest rates.
