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Industrial REITs point the way for direct market prices

The recent sharp drop in industrial REIT prices appears to have been tied to Prologis’ Q1 earnings call, which referred to especially weak leasing in Q1 and a cut to expected year-end net operating income. We aren’t too alarmed by either – slow Q1 absorption is likely to be made up over the year and we had expected rent growth to drop back again. That said, we continue to think valuations in the direct market are too high in the context of the interest rate environment and expect capital values to fall by another 15% in 2024-25.

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