Continued Demand for Logistics Should Drive Growth for Prologis for Several Years

Prologis leases distribution space to some of the nation’s top retailers, and we think its tenant list is the strongest in the business. The continued growth in e-commerce should provide a long growth runway for distribution and logistics facilities, especially given the large amount of space necessary to support online sales compared with brick-and-mortar retail. We find it is difficult for industrial REITs to earn moats since supply can quickly and easily enter key cities to negate supply and demand imbalances. The aggressive construction after the financial crisis brought significant new facilities on line, and we expect supply to continue to grow. Although demand outpaced newly added supply for several years, supply additions have increased sharply, and we are cautious that a slowdown in consumer spending could expose the asset class, increasing vacancies, as seen in the recent downturn.