Prologis says warehouse glut is clearing as quarterly profit rises

Prologis, the world's largest owner of warehouses, reported higher third-quarter profit on Wednesday and told investors that a two-year slump in demand for industrial real estate is ending, as tenants that spent 2024 and 2025 working through bloated inventories are now running lean again.

The San Francisco-based real estate investment trust said core funds from operations, the industry's standard profitability measure, came to $1.60 per diluted share for the quarter ended September 30, up from $1.49 a year earlier, according to the company's earnings release filed with the Securities and Exchange Commission. Net earnings were $0.86 per diluted share, compared with $0.82 in the same quarter of 2025.

What happened

Prologis, which owns and manages logistics facilities leased to retailers, parcel carriers and manufacturers across 20 countries, said it signed 60 million square feet of leases during the quarter and completed or announced nearly $2.3 billion of acquisitions, developments and other transactions. Average occupancy across its owned-and-managed portfolio held at 95.1 percent, and tenant retention came in at 75.9 percent, according to the results posted to the company's investor relations site.

The company narrowed its full-year 2026 core FFO guidance to a range of $6.25 to $6.29 per share, from $6.22 to $6.30 previously, while trimming its net earnings guidance to $4.05–$4.15 per share from $4.40–$4.55. At the same time, it raised its outlook for same-store net operating income growth, a closely watched gauge of pricing power in the warehouse sector, to 7.00–7.50 percent for the year, up from 6.75–7.25 percent.

The numbers

Beyond the headline per-share figures, the filing showed total revenue of $2.39 billion for the quarter, up from $2.21 billion a year earlier, and adjusted EBITDA of $2.08 billion. Net effective rent change on new and renewed leases was 38 percent, meaning tenants signing or renewing leases are, on average, paying well above what the previous occupant paid, even as that figure has come down from the elevated readings of 2022 and 2023 when warehouse space was scarce. Cash rent change was 23.4 percent.

On the balance sheet, Prologis reported roughly $8.8 billion of available liquidity, a debt-to-adjusted-EBITDA ratio of 4.5 times and a weighted average interest rate of 3.3 percent on its share of debt, with $1.3 billion of new debt priced during the quarter at a 4.0 percent rate.

How the market got here

The results mark a turn in a cycle that has weighed on industrial landlords since 2023. Developers, anticipating a permanent jump in e-commerce demand from the pandemic years, built far more warehouse space than tenants ultimately needed, pushing national vacancy to roughly 1.5 billion square feet by late 2025, according to trade-press reporting that cited brokerage data. Retailers and logistics firms spent much of that stretch drawing down excess stock rather than signing new leases, and new construction starts fell sharply in response.

That supply correction appears to be working through the system. Brokerage firm Cushman & Wakefield recorded industrial net absorption of 114 million square feet in the first half of 2026, its strongest showing since 2023, while Colliers reported industrial construction activity nationally running about 10 percent above year-earlier levels, concentrated in Sun Belt markets such as Dallas-Fort Worth, Phoenix and Atlanta, according to a summary of the data published by the trade outlet CRE Daily. New construction completions, meanwhile, had fallen to a roughly 12-year low earlier in the year, leaving less space competing for tenants.

Who is affected

Prologis's results are widely read as a bellwether for the broader logistics economy because its roughly 1.3 billion square feet of leased space touches nearly every large retailer, manufacturer and parcel carrier operating in the United States. A tightening warehouse market has direct consequences for e-commerce companies and big-box retailers that lease distribution space, for the trucking and third-party logistics firms that move goods between facilities, and for the construction trades and industrial contractors who build and fit out new space.

It also matters to a wide swath of institutional investors. Prologis manages real estate on behalf of pension funds, sovereign wealth funds and other co-investment partners through its strategic capital business, which brought in revenue tied to the same leasing and rent trends described in the earnings report. Shareholders, for their part, are watching the company navigate a still-elevated interest-rate environment while continuing to expand its development pipeline.

Reaction

Prologis chief executive Daniel S. Letter, who took over the role at the start of 2026 after co-founder Hamid Moghadam stepped back to become executive chairman following four decades running the company, framed the quarter as evidence that the inventory correction has largely run its course.

"Customers are running lean on inventory, and excess capacity within their networks has largely cleared," said Daniel S. Letter, chief executive officer of Prologis, in the company's third-quarter earnings release.

Letter added that demand is being supported by e-commerce fulfillment needs, advanced manufacturing projects and the build-out of data center supply chains, a category Prologis has increasingly highlighted to investors as a source of long-term leasing growth. Chief financial officer Timothy D. Arndt said the company's balance sheet gives it "capacity and flexibility to continue investing in growth," even with borrowing costs still elevated relative to the pre-2022 period.

What happens next

Prologis's guidance implies a steady, rather than sharp, improvement in market conditions through the end of the year, with management projecting average occupancy of 95.25 to 95.50 percent for 2026 as a whole. The company also increased its planned development starts for the year to a range of $5.0 billion to $5.75 billion, up from $4.5 billion to $5.5 billion, signaling that it expects to resume building at a faster pace as the oversupply of recent years is absorbed.

The company is simultaneously working through the largest transaction in its history outside the United States: its roughly £14 billion agreed takeover of British industrial landlord SEGRO, a deal that SEGRO shareholders cleared at court and general meetings held in late September. That deal, which would expand Prologis's European footprint by nearly half, remains subject to court sanction and regulatory clearances and is expected to close in the first half of 2027. For now, investors and tenants alike are watching whether the leasing momentum Prologis described this quarter extends into the broader industrial sector, or proves to be concentrated in the largest, best-located warehouse operators.