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Moghadam: Industrial Sector Climbing Back Up

11/26/2012 | By Matthew Bechard

Hamid Moghadam, chairman and co-CEO of Prologis (NYSE: PLD), joined REIT.com for a CEO Spotlight video interview at REITWorld 2012: NAREIT's Annual Convention for All Things REIT at the Manchester Grand Hyatt in San Diego.

Prologis owns, operates and develops industrial real estate facilities focused on global and regional markets across the Americas, Europe and Asia. As of Sept. 30, 2012, Prologis owned or had investments in, on a consolidated basis or through unconsolidated joint ventures, properties and development projects expected to total approximately 565 million square feet in 21 countries. The company leases modern distribution facilities to more than 4,500 customers, including manufacturers, retailers, transportation companies, third-party logistics providers and other enterprises.

Moghadam discussed some of the drivers in the industrial REIT sector in the current market environment in the United States. Industrial REITs are "climbing their way back from the basement" following some lean years, according to Prologis' chairman.

"With good demand and virtually no construction in the market, we're seeing a very strong recovery in rents and occupancy, particularly in the larger spaces," said Moghadam, noting that his company's largest facilities have occupancy rates of more than 98 percent. "Really, the opportunity for us is to get the smaller space tenant up. We think with the recovery in the general economy and the housing market, in particular, we'll have a good run of that in the U.S. in the coming quarters."

Moghadam provided analysis of the evolution of the supply chain and its impact on the industrial sector.

"One of the reasons we're doing so well with bigger buildings is e-commerce, because those users require large floor plates, and they've been gravitating towards those existing spec buildings that were around following the downturn. We're basically out of space in that sector, so that demand is going to translate into new build-to-suit opportunities for our company," he said. "I think that trend has legs. We're at the very early stages of the supply chain building out."

When asked about the European market, Moghadam discussed some of the factors that have boosted the performance of Prologis' portfolio in the region.

"It's a real advantage to have efficient logistics infrastructure. It's a way of taking costs out of the system. When companies are in a no-growth or low-growth environment with flat top lines, the only way they can work on their bottom lines is to take costs out of the supply chain," he said. "Logistics and bigger, modern buildings enable them to do that."