Dive Brief:
- Prologis expects customers' inventory levels will increase as they stockpile goods and prioritize resiliency to manage tariff-driven risks, CFO Tim Arndt said in an April 16 earnings call.
- Tenants of the logistics real estate giant are seeking inventory overflow space and short-term flexibility, a development drawing them to third-party logistics services in particular, Arndt said. Free trade zones and bonded warehouses are also being evaluated.
- "Indeed, 3PL's flex space is getting more utilized with one prominent name describing that they've increased their utilization from 83% to over 90%," Arndt said.
Dive Insight:
Warehouse users are frontloading shipments when possible to manage tariff volatility between the U.S. and its trading partners. But beyond these near-term tactics, the uncertainty has slowed companies' supply chain decision-making around where to source, manufacture or even sell products, Arndt said.
Prologis has signed about 80 leases totaling over 6 million square feet in the past two weeks, a roughly 20% dip from the company's usual pace, according to Arndt. He characterized the market as "still active" but warned leasing activity could slow further.
Customers with China-based production are facing the most uncertainty, while "insulated" industries like food and beverage and industrial manufacturing are operating more confidently, Arndt noted. The company's tenant roster includes Amazon, FedEx, UPS, Walmart, Pepsi and Wayfair.
"The diversity of feedback was a good reminder that many of our customers source domestically and are relatively unaffected while others have the capability to adapt or even stand to benefit," he said.
Mexico, Canada, India and Brazil are leasing markets Prologis expects to fare well amid the uncertainty, while port markets could benefit from inventory frontloading specifically, according to Arndt.
"If I were going to predict anything, I would say Mexico would be a big beneficiary of all this, so would Brazil, and we would probably have less coming from China for sure," Prologis CEO Hamid Moghadam said on the call. "And the countries surrounding or around China in Asia would have a higher share."
