When you’re the size of Prologis, carving out even a small part of your portfolio for an alternative use can create a business that would make you a big player in other sectors.
The logistics giant is putting that to the test, recently launching a dedicated data centre arm thatcould create a $25B portfolio, making it one of the largest owners in the fast-growing sector.The expansion of its solar electricity generation facilities has the capacity to make it a top 10 global player.
And in the UK,Prologis is building a life sciences campus that has a potential end value of £500M ($638M).
Courtesy of Prologis
Prologis UK Head Paul Weston
Logistics is always going to be its core business. But Prologis is tapping into fast-growing sectors of the real estate world and the wider economy to boost its growth.
“We’ve got a 1.2B SF portfolio and $216B of assets under management. At that scale, you have to look at whether your buildings can have other high-value uses,”PrologisHead of UK Paul Weston toldBisnowat the UKREiiF conference in Leeds.
The largest and most immediate area of expansion is into data centres, a sector that has seen huge growth in real estate investor and developer interestover the past 18 months, led by private equity firms likeBlackstoneandStarwood.
The company hiredChris Curtis, founder of specialist developer Compass, as global head of data centres in March. In a May presentation, Prologissaid it has a pipeline of 20 schemes it is either building out orplanning,projects in which it will invest $7.5B. Those schemes wouldtotal about 3.1 gigawatts of power, the unit used to measure data centre capacity.
Over the longer term, the company has identified more than 100 opportunities to either convert existing logistics facilities to data centres or build entirely new schemes, including 25 in the UK. Its future investment could top more than $25B and produce 10 GW of capacity.
The schemes and sites it owns are well suited for data centres, Weston said: They are in the right location, have access to power—a key consideration for data centre occupiers — and have a similar footprint.
“The question for us is, do we go up the risk curve and build turnkey facilities for thehyperscalers?” Weston said.
The company primarily builds what amounts to a box for the occupier and leaves them to do almost the entirety of the internal fit-out. Building facilities and fitting them out would allow an occupierto move in quickly and offer Prologis higher returns. But there is also more risk of getting it wrong.
Prologis also has significant solar energy plans, aiming to put the flat roofs on buildings it owns to better use. Only 5% of its roofs have solar panels fitted, covering 61M SF in 16 countries. Those roofs have the capacity to generate 511 megawatts.
But in the next five years, the company plans to install panels that would allow for the generation of double that amount of electricity, Weston said.Overthe long term, Prologis has the capacity to generate between 6 GW and 7 GW of electricity, making it one of the 10 largest solar companies in the world based on generation, according to data from research consultancy Mercom.
Courtesy of Prologis
Prologis' 1000 Discovery Drive life sciences scheme in the Cambridge Biomedical Campus
Electricity generated now is being used to power schemes, and tenants are usingit tocharge delivery fleets, whichare becoming increasingly electrified, Weston said.
Even so, thesolar panelsoften produce more electricity than a scheme can use. Generation becomes a much more interesting business proposition when electricity can be sold back to the grid, Weston said.
But in countries like the UK, thatisnot always possible because the power infrastructure is not in place or energy might not be generated at the times of day it is needed most. Investment inbattery storagefacilities and technology would help on that front, he said.
In other areas of diversification, Prologis has made a push into UK life sciences development that is significantin relation to the size of the country's nascent sector.
When the company boughtLiberty Property Trustfor £13B in 2020, one of the assets it acquired was land zoned for life sciences at the Cambridge Biomedical Campus. Rather than selling it off, Prologis decided to build out a life sciences schemes itself, taking on Liberty's Andrew Blevins, who is now head of life sciences at Prologis UK.
The first phase of its development, the 103K SF 1000 Discovery Drive, became fully let in May. The company is pushing on with the second phase of what will eventually become a 400K SF campus, in which Prologis will invest £500M. When completed, the company will look at options that could include a sale, bringing in a joint venture partner or using the asset as the seed for a new vehicle.
Prologis is far from abandoning its bread-and-butter logistics business.
Weston said leasing in the UK market is improving and compares well to 2019 levels, although it is not back to the figures seen in 2020 and 2021 when the pandemic caused a spike in e-commerce. It has begun construction on a 93K SF scheme in Croydon, south London, that will take the value of its UK portfolio to £2B when it is completed.
“People had become used to schemes being fully leased before completion, and you probably have to build in some void periods now,” he said.
But there is a bright spot in the form of onebig beast that has turbocharged the logistics sector for the past decade.
“Amazon is on the move again, taking new space,” he said. “And where they go, others usually follow.”
