Executive Briefings

An Eye on the State of Industrial Real Estate

The economy has not been good to this sector, says Walt Rakowich, ProLogis CEO, but some trends in industrial real estate are very promising. First, there is growing demand for sustainable warehouses. Second, a combination of GDP spurts and natural obsolescence of buildings stimulates construction.

The bad news for providers of industrial real estate is a downward spiral in occupancy rates and rents. The good news? In part because financing has not been readily available, there has been little in the way of new construction, so the supply of space is "way, way down," Rakowich says. "That's the silver lining down the road." When demand returns, facilities won't be dirt-cheap.

And, in fact, demand actually does have a pulse, he says. ProLogis has some 475 million square feet of warehousing in 18 countries. Demand for space has increased among 3PL clients for one thing. "People want to reconfigure distribution and be more efficient."

And the drive for sustainable operations has resulted in an uptick in  "green" warehouse space. "Actually, there's been reasonably good demand there," Rakowich says. Customers are talking more about  their sustainable agendas, especially the larger companies.

Such buildings are good for clients' pocketbooks. For one thing, overall utility costs are lower than in more traditional space. Most customers would prefer to be in them, "and we want to get ahead of that curve."

There is a direct correlation between improving GDP rates and demand for space. With parts of Europe and Asia seeing GDP growth, the hunt for warehousing is on in those areas.

Space at end of life also promises a relatively better near term for industrial real estate firms, says Rakowich. Every year, the industry sees the U.S. lose 1 percent to 2 percent of its warehousing space due to natural obsolescence. In Western Europe and Japan, the figure ranges from 2 percent to 4 percent. That, coupled, with the recent downturn in new builds, will create a tremendous demand for efficient facilities once the economy picks up.

To view this video interview in its entirety, Click Here.

The bad news for providers of industrial real estate is a downward spiral in occupancy rates and rents. The good news? In part because financing has not been readily available, there has been little in the way of new construction, so the supply of space is "way, way down," Rakowich says. "That's the silver lining down the road." When demand returns, facilities won't be dirt-cheap.

And, in fact, demand actually does have a pulse, he says. ProLogis has some 475 million square feet of warehousing in 18 countries. Demand for space has increased among 3PL clients for one thing. "People want to reconfigure distribution and be more efficient."

And the drive for sustainable operations has resulted in an uptick in  "green" warehouse space. "Actually, there's been reasonably good demand there," Rakowich says. Customers are talking more about  their sustainable agendas, especially the larger companies.

Such buildings are good for clients' pocketbooks. For one thing, overall utility costs are lower than in more traditional space. Most customers would prefer to be in them, "and we want to get ahead of that curve."

There is a direct correlation between improving GDP rates and demand for space. With parts of Europe and Asia seeing GDP growth, the hunt for warehousing is on in those areas.

Space at end of life also promises a relatively better near term for industrial real estate firms, says Rakowich. Every year, the industry sees the U.S. lose 1 percent to 2 percent of its warehousing space due to natural obsolescence. In Western Europe and Japan, the figure ranges from 2 percent to 4 percent. That, coupled, with the recent downturn in new builds, will create a tremendous demand for efficient facilities once the economy picks up.

To view this video interview in its entirety, Click Here.