With a $110 billion market cap, real estate investment trust (REIT) Prologis (PLD +0.98%) is the industry giant when it comes to warehouses. That makes it an important company to watch in what is, generally speaking, a pretty boring sector. But the REIT has an interesting history of testing out new approaches when it comes to warehouse space. And it's making another big test as it builds a new property in Canada.
Going up rather than out
Prologis owns 1.1 billion square feet of warehouse space across four continents. With assets generally located in key global distribution hubs, investors should be watching this REIT closely even if they own one of its competitors. What's going on with this industry giant is likely to end up impacting the smaller names in the property niche.
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But there's an interesting fact about Prologis that shouldn't be overlooked. It owns over 11,000 acres of land on which it can develop new properties. The company estimates that this land bank could be worth as much as $38 billion if it were fully developed. Prologis isn't just a major owner of warehouses -- it is also a major developer of warehouses as well.
An example of this comes from a few years ago when it built a property in Seattle, Washington. What was so interesting was that the warehouse was located in a region with little available space. To deal with that, the company built up, creating a multi-floor warehouse that could act as a "last mile" distribution facility near a major city. Normally warehouses are one floor and have large footprints. Basically, Prologis was working to innovate with its development efforts. Others have since gone down the same vertical path.
Greening the warehouse
Prologis' most recent experimental development effort is taking place in Canada. This time around the company is playing around with the construction materials used in an effort to create a more environmentally friendly warehouse. From one point of view, this could be seen as the REIT jumping on the ESG theme. To some degree that's probably true -- but from a longer-term perspective, if customers want "greener" warehouses Prologis should be ready to provide them.
NYSE: PLD
Key Data Points
Generally, warehouses are built using steel and concrete. The current warehouse will be built using wood instead of steel and a product called Nexxite instead of concrete. The hope is that using wood will reduce carbon intensity by 62% versus steel, with Nexxite offering a 17% reduction compared to concrete. Prologis isn't the only company testing things out, either, with Europe having taken a leading role in alternative construction approaches. But bringing this to the large North American market is still a pretty big deal.
However, there's more going on here than just wood and Nexxite. Developing a new warehouse is a multi-year effort, so any information gleaned from new products or approaches will come over time. As such, with this Canadian project, Prologis is doing as much as possible all at once so it can start using improved approaches to development as soon as possible in other projects. For example, in addition to the warehouse structure, it is also adding electric vehicle charging technology throughout the structure and making the structure solar panel ready from day one, instead of trying to retrofit the building. These are smaller changes that could quickly and easily be implemented at other construction projects.
The big takeaway
At the end of the day, no single property in Prologis' portfolio is going to make or break the REIT. It's just too big. But that size allows it to experiment in interesting ways, like the multi-level warehouse in Seattle and now the Canadian warehouse pushing the boundaries on environmentally friendly construction techniques.
The long-term benefit in both cases, however, is really the same. The REIT learns what works and what doesn't, which helps it become a better developer and pushes the broader industry in what could be healthier directions. Investors should probably keep an eye on Prologis' development plans, and take keen interest when the REIT pushes the envelope on traditional construction approaches.
