Warehouse rents poised for big increase, Prologis co-chief predicts

Warehouse rental rates are poised for a significant increase due to a tightening of supply and an increase in global demand for space, according to one of the top two executives of the world's largest industrial property developer.

Walter C. Rakowich, co-chief executive of Prologis, Inc., told attendees at the annual International Warehouse Logistics Association (IWLA) conference earlier this week that an aging warehouse network will render a growing number of facilities obsolete and unusable. In addition, the growth of global trade will increase the need for distribution center space in both established and emerging markets, he added.

Keynoting the group's annual conference this week, Rakowich said market occupancies are rising, and the industry would need to add as much as 75 million square feet in warehousing capacity merely to replace obsolescent space.

"Customer sentiment is bullish, investors are driving up values, and rents are poised to grow," he said.

The specter of increasing rents should be balanced by the fact that rents fell substantially during the 2008-09 recession, according to Rakowich. He said current asset values are roughly 80 percent of their pre-recession peaks.

Obsolescence is driven by a variety of global factors, he said. For example, much of the warehousing space in fast-growing Asian economies was never configured for distribution, but for manufacturing.

"There's a tremendous opportunity for development," he said. He pointed to Canada and Brazil as nations that are ripe for development of DC space.

San Francisco-based Prologis, which last year completed a merger with AMB Property Corp., has $43 billion of assets under management and investments in 600 million square feet of distribution facilities in 22 countries across four continents. Prologis is "cautiously optimistic" about its prospects this year, Rakowich said.