Prologis Cuts Up To $1B From Development Plans, Says Tariffs Slowed Leasing

Prologis cut its expected spending on developing and stabilizing new projects, revising its uppermost projection for such investments by more than $1B. The company also experienced a leasing slowdown in the first quarter that it said stemmed from tenant's hesitation to make decisions amid economic uncertainty.

The company turned in strong earnings for the first quarter, but executives on an earnings call Wednesday signaled that the ongoing trade war is dampening growth.

“Prior to April 2, industrial fundamentals were improving, and had it not been for the recent uncertainty from global tariffs and their downstream impacts, we would have raised our expectations for 2025,” Chief Financial Officer Tim Arndt said during the call. “Instead, we're electing to maintain earnings guidance, as there are no policy conclusions right now to plan differently.”

Prologis beat analyst expectations with $2.1B in revenue and core fees from operations per share of $1.43, up 9.2% from the previous quarter. The company's 2025 guidance projects that core funds from operations will be in the range of $5.65 to $5.81 per share. 

Tenants moved into 65M SF of industrial space owned or managed by Prologis in the first quarter, and the occupancy rate across the 1.3B SF portfolio was 95% at the end of March. 

Leasing activity has slowed in recent weeks as operators pause to assess tariff impacts. Prologis closed roughly 80 leases for more than 6M SF over the last two weeks, roughly 20% below the usual pace, Arndt said. 

In all, Prologis executed 21M SF of new leases and 42M SF of lease renewals in the first quarter. It has 1,868 projects under development, spent $811M acquiring properties with a stabilized cap rate of 4.2%, and disclosed $118M in dispositions.

Amazon, Prologis’ largest tenant and perhaps the largest industrial user globally, has recently reentered the leasing market, and e-commerce users accounted for roughly 20% of leasing activity at Prologis in the first quarter, President Dan Letter said.

Prologis is negotiating with tenants for 108M SF of leases, the highest volume since at least 2019. But economic uncertainty is already manifesting itself in those deals, with average lease gestation rising to 64 days in the first quarter, 10 days above the historical average. 

Prologis expects occupancy to remain around the same through 2025 despite the long tail of pandemic-era construction leaving 345M SF of new development underway nationwide. 

CEO Hamid Moghadam said industrial users have been putting off decision-making for a while as they waited for what they hoped would be a clearer economic picture.

“A lot of these people have been in delaying-decision mode for a number of years, and if their underlying businesses are solid, they can't do that anymore,” he said. 

The trade battle being waged by President Donald Trump has injected profound uncertainty into the industrial market, and Prologis is preparing for a wide range of contingencies, Arndt said. 

“Let’s be clear: The range of outcomes is wide. We see potential for a recession, inflation or possibly both. And let's also not dismiss the potential for a quick resolution,” he said. “It's important to remember that Prologis was designed to weather any environment.”

Prologis broke ground on $646M worth of new developments in the first quarter, 78% of which were build-to-suit. Its pipeline of speculative development is limited on a historical basis but reflective of this point in the industrial sector’s cycle, analysts from J.P. Morgan said in a note after Prologis reported its earnings. 

The pipeline is likely to continue to shrink. While maintaining its financial targets, Prologis executives made significant adjustments to their capital deployment plans in their 2025 guidance. 

The firm’s upper bound for development starts was revised down to $2B from $2.8B at the end of 2024, and it shaved $350M off of the upper bound for development stabilizations, which now sits at $2.3B. Prologis also signaled its investment activity could soften, revising down the cap for capital deployments for contributions and dispositions by at least $500M to $1B each. 

Prologis left its budget for acquisitions, ranging from $750M to $1.3B, unchanged.

The earnings beat resulted in modest gains on Wall Street. Prologis’ stock was up roughly 2 percentage points to roughly $100 per share after the earnings call, but the industrial sector has been battered over the last two years by fears of oversupply and stagnant rent growth. 

Same-store net operating income was up 6.2% from the prior quarter. Net effective rent growth was 53.7% year-over-year, but the pace of growth has declined for four consecutive quarters as tenants regain negotiating power amid a supply glut. Rent growth is likely to remain modest as users try to remain flexible in this macroeconomic environment, Arndt said. 

“Even with the pause in some tariffs or a resolution of others, customers simply lack a steady backdrop upon which to plan their businesses,” he said.