Real estate investment trust (REIT) giant Prologis (PLD 0.43%) reported its Q2 2025 earnings on Wednesday, July 16, reporting core FFO of $1.46 per share and occupancy at 95.1%, exceeding internal forecasts despite muted market absorption and modestly rising vacancies. Development starts reached a record $1.1 billion in the first half of 2025, with robust build-to-suit and data center momentum, prompting management to raise core FFO guidance to $5.75–$5.85 per share for FY2025 -- up $0.45 at the midpoint -- and increase development start guidance to $2.25–$2.75 billion for 2025.
The record leasing pipeline and continued success in energy and data center initiatives indicate resilience and strategic positioning for long-term growth despite persistent macroeconomic and policy uncertainty.
Prologis Reports Record Build-to-Suit Starts and Data Center Scale
First-half development starts totaled $1.1 billion, marking the strongest start to any year in company history. In Q2 2025, nearly 65% of $900 million in new development starts were build-to-suit projects across the U.S. and Europe. Capital deployment also featured continued expansion of the Austin, Texas, data center project, and substantial grid power procurement to serve both logistics and data center growth.
"Our build-to-suit starts for the first half total $1.1 billion, which is the largest start to a year that we have ever had. The strong demand by some of our biggest customers underscores our observation that many of them are moving beyond the noise and making significant capital investments into their business. $300 million of the starts relate to an incremental in our ongoing data center development in Austin, Texas, with a top hyperscaler."
— Tim Arndt, Chief Financial Officer
This record capital commitment signals both customer conviction in logistics infrastructure investment and Prologis' unique competitive advantage in capturing large-scale, long-term projects in high-barrier markets, with data centers and build-to-suit offerings anchoring future earnings and value creation.
The REIT Sees Historically High Leasing Pipeline Amid Deliberate Decision-Making
The leasing pipeline increased 19% year over year, reaching a record 130 million square feet, with particular strength in deals above 100,000 square feet and growing activity from third-party logistics (3PL) providers. While new lease velocity has decelerated, renewal demand remains robust, and utilization rates rose to 85%, approaching a two-year high.
"[W]here is some of the differentiation? What are the main hallmarks of this growth is concentrated growth above 100,000 square feet. So there are more larger customers in the pipeline. And then Tim also talked about 3PLs engaging in a greater way. [The] way they're working through their spare capacity and in some leading markets really beginning to need more space."
— Christopher Caton, Managing Director, Global Strategy & Analytics
This historically high and diversified pipeline reflects significant interest and pent-up demand, which management expects could translate into leasing activity as macro uncertainties subside, potentially positioning Prologis to outperform peers in capturing large-scale customer requirements when the decision-making environment improves.
Prologis Has Long-Term Rent Growth Anchored by Mark-to-Market and Supply Dynamics
Despite a current U.S. vacancy rate of 7.4%, which management highlights as near the cycle peak and historically consistent, supply constraints persist with low development starts and a market-to-replacement-cost rent spread exceeding 20%. The company's lease mark-to-market stands at 22%, enabling future cash flow uplift as below-market leases roll to higher current rents.
"I'm very comfortable when we take two, three, four years out given the escalation in replacement cost and you know, rates are not gonna go through the floor. So the rates times replacement cost gives you the rents that you expect in the long term. But I don't know what the path to that will be over the next quarter or two. It's just not the way we run our business."
— Hamid Moghadam, Chief Executive Officer
This structural rent-growth leverage, combined with normalized vacancy expectations and supply discipline, underpins sustained net operating income (NOI) growth and encourages a long-term investment horizon for Prologis shareholders, regardless of interim market choppiness.
Looking Ahead
Management tightened and raised guidance for 2025, now forecasting core FFO of $5.75–$5.85 per share (up $0.45 at the midpoint) for 2025, GAAP EPS of $3–$3.15, and average occupancy between 94.75%–95.25% for 2025. Same-store NOI growth is projected at 3.75%–4.25% net effective and 4.25%–4.75% cash, with development starts guidance raised to $2.25–$2.75 billion for 2025, while rent change for new and renewing leases should average in the low to mid-50% range for 2025. Management cited permanent NOI gains and strategic capital revenues as the primary drivers of this higher guidance.
