July 23, 2020
Prologis CEO foresees more retail-to-industrial conversions, but no ‘surge’

Expect to see some conversions of moribund or vacant commercial space into industrial warehouses for distribution, but not a "surge," Prologis Inc.'s leadership said...

Prologis CEO foresees more retail-to-industrial conversions, but no ‘surge’

July 21, 2020 | Tom Yeatts | S&P Global Market Intelligence

Expect to see some conversions of moribund or vacant commercial space into industrial warehouses for distribution, but not a “surge,” Prologis Inc.’s leadership said July 21.

Hamid Moghadam, chairman and CEO of the industrial real estate investment trust, said the glut of vacant big-box retail space, in particular, will afford some attractive redevelopment opportunities in the coming quarters, but he noted there are obstacles to conversions that will cap the number that come to market.

“Obviously those boxes are in the right location,” Moghadam said. “They’re in the middle of dense populations and high levels of income. So the locations are good, but there are internal dynamics that make it difficult to do [conversions].”

Among commercial property segments, industrial has been among the more resilient through the coronavirus pandemic, and it has even benefited as e-commerce spread through the retail economy.

Moghadam cited relatively steep retail property valuations — in some cases several hundred dollars per square foot — as well as reciprocal easement agreements and zoning as barriers to industrial property conversions.

“You need to convert from retail to industrial zoning, and that takes longer than you can imagine because neighborhoods don’t want trucks and traffic there,” he said.

Moghadam described industrial developers as still disciplined overall, with speculative development largely under control. However, there are a few locales, including Poland in the European market and Houston in the U.S., where developers are overreaching, he said.

“There is more product coming online in Houston than the demand warrants, but generally I would not say there is an overbuilding problem — or anywhere near it,” he said.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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