The Biggest Real Estate Company in the U.S. Is Soaring -- Here's Why

Shares of industrial real estate leader Prologis (NYSE: PLD) spiked higher on Tuesday, with shares up by about 5% as of 11:30 a.m. ET. The massive real estate investment trust reported its fourth-quarter and year-end 2024 results, and it seems fair to say that investors are happy with what they're seeing.

Strong results from the industrial leader

The main reason for Prologis' move on Tuesday was its latest earnings report. For the fourth quarter, Prologis reported core funds from operations (core FFO -- the real estate version of "earnings") that handily beat analyst expectations and represented 10% year-over-year growth. The company's development pipeline continues to make excellent progress, both in its core industrial business and in its relatively young data center business.

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In addition, Prologis reported cash rent changes of 40.1% on both new and renewed leases. In short, industrial property rental rates skyrocketed during the pandemic, and as older leases reach maturity, there are opportunities to rapidly increase rental income.

Looking ahead, Prologis mentioned that it saw excellent leasing activity after the election, and the company expects core FFO to increase in 2025. With industrial property demand under pressure over the past year or so, this is quite encouraging.

Is an inflection point coming in 2025?

There have been significant headwinds affecting industrial real estate, and Prologis is still down by about 35% from its 2022 peak, even after today's move. In a nutshell, demand issues in the industrial real estate market have caused occupancy to fall by 150 basis points (1.5 percentage points) over the past year, and higher interest rates have put pressure on commercial property values.

However, Prologis CEO Hamid Moghadam expects tailwinds very soon and reiterated management's expectation of an "inflection point" soon. He also said that conversations with customers support this viewpoint. While there is no guarantee, a combination of falling interest rates and a strong U.S. economy could certainly make it happen.

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