Vikram Malhotra, managing director, real estate equities at Mizuho, joined the REIT Report to review trends in the industrial/logistics REIT sector. Despite some softness in the first quarter, a new upcycle remains in place, with big box demand playing a key role, he said.
Warehouses of over 500,000 square feet have done “very well,” Malhotra said, as companies like Walmart and Amazon adapt to the necessity of quick, last-mile distribution. Mizuho currently estimates overall sector vacancy at 7.5%. That rate is close to peaking, Malhotra said, and then should modestly trend down. “Until we see vacancy trend to about 6%, I think it'll be really hard to see real rent growth…I think we're at least a year away from a very strong market trend.”
As for the impact of current global instability, Malhotra noted that “in the very near term, spot demand is strong, but we are monitoring factors where we could see a sign of a pause.” Instability is likely to strengthen the reshoring trend that has been a theme for the past few years, Malhotra added. Despite the ongoing conflict, the demand for logistics space is expected to reach 150-200 million square feet annually, a significant uptick from previous years.
Malhotra also emphasized that, although decision-making timelines have lengthened, overall demand remains robust. Metrics from Prologis, Inc. (NYSE: PLD) indicate that while lease closing times have increased, proposal volumes are still near record highs, suggesting a strong underlying demand.