Prologis CEO Hamid Moghadam told CNBC’s Jim Cramer that business is improving as demand for properties starts to grow following years of heightened vacancies, and data center buildout creates more opportunities for the company.
“Today, we’re at a trough,” Moghadam said. “We already see signs of companies committing to significant amount of space, particularly the strong ones.”
Prologis’ business is centered around warehouses and fulfillment centers for e-commerce.
Construction across the industry ramped up right after the pandemic because e-commerce was booming, Moghadam explained, and businesses anticipated more demand. But vacancy rates ended up increasing, going from about 4% to 7.5%, he said, and companies lost some pricing power.
While demand is picking up, supply is likely to decrease, according to Moghadam. He said supply will be curtailed because the “replacement cost” for warehouse real estate has shot up, and more jurisdictions are opposing the development of new logistic facilities.
Prologis is also developing a lot of data centers, Moghadam said, adding that the company is in a good position to tackle two main issues that arise during buildout — reliable power and available building components.
Moghadam lauded his company’s renewable energy business, saying Prologis was able to put its underutilized roof space to work at a low cost. He said on-premise energy generation is increasingly important “because to produce energy centrally and go through all these environmental constraints for transmission is going to take too long.”
Supply chain for data center parts hasn’t expanded, Moghadam continued, even as buildout explodes, so it’s becoming harder to get components. But Prologis has an edge because it has the funds to buy supplies in advance, he suggested.
“Companies like us that have a balance sheet and the ability to pre-commit for purchasing some of these components are in a position to deliver faster for our customers, which is a huge competitive advantage,” Moghadam said.
