Key Takeaways
- • Prologis achieved record lease signings of 228 million square feet in 2025, with e-commerce representing 20% of new leases, signaling sustained industrial real estate demand across all warehouse size categories.
- • The company projects net absorption of 200 million square feet in 2026 (versus 155 million in 2025), expecting vacancy rates to contract and rents to turn positive as the warehouse market enters an upcycle.
- • Fourth-quarter occupancy reached 95.3% (95.8% at quarter-end), the highest rate for Prologis' portfolio in 2025, with the company outperforming the broader U.S. market by 300 basis points for the full year.
- • Net effective rent change on multiyear leases hit 43.8% in Q4, with lease mark-to-market estimated at 18%, creating an estimated $800 million in future net operating income from rent reset opportunities.
- • 2026 guidance calls for core FFO of $6.00 to $6.20 per share (bracketing consensus at $6.13), assuming average occupancy of 94.75% to 95.75% and development starts between $3 billion and $4 billion.
Summary
Prologis, the San Francisco-based industrial real estate investment trust, signaled a significant inflection in the U.S. warehouse market during its fourth-quarter earnings call, projecting that key metrics including net absorption, occupancy, and rents will improve throughout 2026. The company stated that vacancy rates have already peaked and rents are turning positive in select markets, marking a transition from the oversupply conditions that characterized recent periods.
The company's operational performance in 2025 underscored the strength of underlying demand. Prologis achieved record lease signings covering 228 million square feet, with e-commerce accounting for one-fifth of this volume. Fourth-quarter lease starts totaled 43.8 million square feet, representing a 6% year-over-year decline, while average occupancy stood at 95.3%, declining 30 basis points year-over-year but marking the strongest quarterly occupancy rate of 2025. Notably, Prologis outperformed the broader U.S. market by 300 basis points for the full year. The company reported Q4 consolidated revenue of $2.09 billion, up 8% year-over-year and matching analyst expectations, with core funds from operations of $1.44 per share aligned with consensus.
Rent dynamics are accelerating in Prologis' favor. Net effective rent change on its portfolio of multiyear leases reached 43.8% in the fourth quarter, while lease mark-to-market—the reset of in-place rents to current market conditions—was estimated at 18%, representing an embedded $800 million in future net operating income. This substantial mark-to-market opportunity reflects the gap between legacy lease rates and current market pricing.
Looking ahead, Prologis expects net absorption to expand significantly to 200 million square feet in 2026 from 155 million in 2025, underpinned by supply constraints as new warehouse deliveries moderate. The company's 2026 guidance forecasts core FFO between $6.00 and $6.20 per share, bracketing the consensus estimate of $6.13. Management assumes average occupancy will range from 94.75% to 95.75% and plans development starts between $3 billion and $4 billion, positioning the company to capitalize on tightening market conditions while maintaining disciplined capital deployment.
The company's operational performance in 2025 underscored the strength of underlying demand. Prologis achieved record lease signings covering 228 million square feet, with e-commerce accounting for one-fifth of this volume. Fourth-quarter lease starts totaled 43.8 million square feet, representing a 6% year-over-year decline, while average occupancy stood at 95.3%, declining 30 basis points year-over-year but marking the strongest quarterly occupancy rate of 2025. Notably, Prologis outperformed the broader U.S. market by 300 basis points for the full year. The company reported Q4 consolidated revenue of $2.09 billion, up 8% year-over-year and matching analyst expectations, with core funds from operations of $1.44 per share aligned with consensus.
Rent dynamics are accelerating in Prologis' favor. Net effective rent change on its portfolio of multiyear leases reached 43.8% in the fourth quarter, while lease mark-to-market—the reset of in-place rents to current market conditions—was estimated at 18%, representing an embedded $800 million in future net operating income. This substantial mark-to-market opportunity reflects the gap between legacy lease rates and current market pricing.
Looking ahead, Prologis expects net absorption to expand significantly to 200 million square feet in 2026 from 155 million in 2025, underpinned by supply constraints as new warehouse deliveries moderate. The company's 2026 guidance forecasts core FFO between $6.00 and $6.20 per share, bracketing the consensus estimate of $6.13. Management assumes average occupancy will range from 94.75% to 95.75% and plans development starts between $3 billion and $4 billion, positioning the company to capitalize on tightening market conditions while maintaining disciplined capital deployment.
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