Lang: “Market conditions remain favorable within centers of commerce, and demand is still solid, with supply disciplined.”

JERSEY CITY, NJ—Investors' deployment concerns are on the rise given the lack of supply in the industrial sector, and finding the right asset for each ownership profile continues to become more difficult, Prologis Senior Vice President Mary Lang tells GlobeSt.com. Lang will moderate “The Capital Investment Climate” session during NAIOP's I.CON: Trends and Forecasts conference in Jersey City this June. We spoke exclusively with her about consolidation in the industrial sector and trends in capital for various types of product.

GlobeSt.com: What impact will the broad consolidation investors are seeking in the market have over the next two years as we move to a seemingly less-certain environment in the industrial sector?

Mary Lang: Actually, the industrial sector is healthy. Market conditions remain favorable within centers of commerce, and demand is still solid, with supply disciplined. Business conditions that set the stage for growth have persisted, and the numbers on rent change are stronger than expected. Prologis' core Funds From Operations (FFO) grew 20 percent, and we're pushing rent growth over occupancy now. Occupancy for Prologis' portfolio is greater than 96 percent. Consumption and e-commerce continue to grow faster than the rest of the economy, and the industrial sector needs larger spaces for e-commerce fulfillment. We have every reason to expect these trends to continue into the future. Industrial consolidation has produced some strategic advantages in this asset class in two areas: one is institutional, as it has created a supply/demand mismatch, with fewer companies looking to sell their core holdings while capital continues to expand. Also, there has been greater consistency within the landlord/customer relationship in terms of operational expertise being better for the broader industrial business.

GlobeSt.com: What are you seeing in capital for Class A vs. Class B product and allocated capital for development vs. capital for acquisitions?

Lang: On the A vs. B piece, there's a healthy demand for functional Class B product as investors seek yield. The cap spread for functional Class A vs. Class B remains wide. With respect to development vs. capital on the acquisitions side, institutions have taken a disciplined approach toward new development. Build-to-suits make up 40 percent of our development starts, which gives us visibility; on the question of build vs. buy, the goals with respect to deployment are continually evolving as build-to-suit opportunities arise.

GlobeSt.com: What else should our readers know about the capital investment climate and how that might change over time?

Lang: There are really two factors: first, the impact of global capital flows has not yet been fully realized in the U.S. industrial sectors. Second, industrial as an asset class remains below equilibrium, with more demand than supply, so replacement costs have increased in many markets. This has paved the way for continued rent increases in the future.

GlobeSt.com: What are you seeing in capital for Class A vs. Class B product and allocated capital for development vs. capital for acquisitions?

GlobeSt.com: What else should our readers know about the capital investment climate and how that might change over time?

Instant Insights /

The Greatest Challenge in Industrial Investment

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