ProLogis (PLD), a leading global provider of distribution facilities, recently came out with its research report on the obsolescence faced by distribution facilities in Europe. The research report, titled “Obsolescence in Continental Europe’s Logistics Property Sector,” has explored the various causes of obsolescence in the prime distribution warehouse market of the region and has outlined the probable after-effects.
The distribution warehouse market in continental Europe emerged as a viable property investment sector during the mid-1990s, following the creation of the European Union in 1992. During this period, an increased number of companies passed through a transitional phase of leasing their warehouse premises from being outright owners. These structural trends gradually brought about the onset of obsolescence in properties built before 1995.
The research report by ProLogis revealed that majority of these pre-1995 warehouses were custom-made to suit the needs of specific occupants, and lacked the constructional facilities of the competitive market that materialized after the European Union was created in 1992. Furthermore, the companies mostly had one or more distribution warehouses in every country in which they operated. The growing stock of obsolete leased properties in Continental Europe was more pronounced in mature property markets. These properties are currently being retrofitted to suit alternative uses.
The report also divulged that with globalization easing out the geographical borders, modern distribution facilities that were more in-sync with the new supply chain prerogatives were increasingly preferred by the customers. Consequently, older smaller facilities that had fewer dock doors with lower ceiling clearances and narrow truck-turning areas gradually became obsolete. Presently, large state-of-the-art warehouses are in vogue, catering to the distribution requirements of a relatively big geographic region that often cuts across country borders.
ProLogis owns and manages interest in over 2,400 distribution facilities, service offices, and properties spanning 435 million square feet (including properties under development) of space. The company leases its industrial facilities to over 3,800 customers, which mostly include manufacturers, retailers, transportation companies, third-party logistics providers and other enterprises with large-scale distribution needs.
ProLogis integrates international scope and expertise with a strong local presence in markets to ensure accurate and seamless flow of goods to appointed destinations. The distribution facilities of the company function as processing centers for goods for its customers, enabling them to store adequate inventory to meet increased demand and mitigate the risks from a possible breakdown in the supply chain.
We maintain our ‘Neutral’ recommendation on ProLogis, which currently has a Zacks #3 Rank that translates into a short-term ‘Hold’ rating and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months. We also have a Neutral rating and a Zacks #3 Rank for First Industrial Realty Trust Inc. (FR), a competitor of ProLogis.
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