Industrial Realignment

Prologis (PLD) on the Trends Shaping the Industrial Real Estate Market, Labor Issues, and "The Gundo Bros"

Three broad trends are converging that will significantly reorient the US economy: The specter of rising instead of falling interest rates, the end of neoliberal hegemony, and the disruption of higher-level knowledge work by AI. If the past 30 years have been defined by markets primarily insulated from politics, the future promises a return of a true political economy where policy has a higher touch on market forces. 

There is now broad recognition that we have traded economic dynamism for only marginally improved material conditions. The implicit bargain was that Americans could move up the intellectual value chain by doing the nasty bits of the economy elsewhere. If AI is truncating that chain, then policy and capital will respond to protect American interests. It is hard to overstate what a significant departure from global consensus things like the China tariffs, IRA, or CHIPs Act genuinely are.

The US is on the path of reindustrialization. This trend has obvious real estate implications, but none more significant than in the industrial sector.

Source: ReShoreNow.Org

I will focus on comments from Prologis PLD 0.00%↑ over the past several weeks, both from the Bernstein conference and NAREIT. I have written about Prologis before; as the largest industrial owner in the market, their view of the changing landscape is valuable and has implications for other listed operators in the space like REXR 0.00%↑ TRNO 0.00%↑ , and FR 0.00%↑ . 

Source: Colliers

From a macro standpoint, industrial real estate looks well-supplied, possibly even oversupplied. Stephanie Rodrigues of Colliers states,

“More than 85% of these projects were built on spec. Demand began to normalize in early 2023, averaging 52M SF over the past five quarters, or about 80% of the pre-pandemic average."

Those high-level metrics belie a more nuanced landscape where property type and location are hugely important. 

Comments and notes combine commentary from NAREIT and the Bernstein conferences. 

Nearshoring and Mexico