Prologis raised its 2026 development budget to as much as $5.75 billion
CEO Dan Letter says tenants have used up their spare warehouse space, and Prologis is starting new buildings at a 6.6% yield while buying finished ones at 4.2%.
By Raymond de Clairmont · · 3 min read
Prologis CEO Dan Letter raised the company’s 2026 development starts forecast to $5.0 billion to $5.75 billion after it started $964 million of projects in the third quarter, 18.3% of them built for a specific tenant [1]. Letter said customers’ “excess capacity within their networks has largely cleared” [1].
Prologis also bought $702 million of buildings in the quarter and signed 60 million square feet of leases [1]. Its net effective rent change, which compares new leases with the ones they replace, was 38.0%, and its cash rent change was 23.4% [1].
Prologis raised its building and buying targets for the year
We calculate that the new starts forecast moves the midpoint up $375 million [1]. Prologis also raised its acquisitions range and lowered its planned sales, while Core FFO reached $1.60 a share, up from $1.49 [1].
| 2026 forecast | Before | After |
|---|---|---|
| Development starts | $4.5B to $5.5B | $5.0B to $5.75B |
| Acquisitions | $1.5B to $2.0B | $2.1B to $2.3B |
| Dispositions | $2.25B to $2.75B | $1.75B to $2.5B |
| Average occupancy | 95.25% to 95.75% | 95.25% to 95.50% |
| Core FFO per share | $6.22 to $6.30 | $6.25 to $6.29 |
Average occupancy was 95.1% for the quarter, Prologis kept 75.9% of tenants whose leases came up, and cash same-store net operating income grew 5.9% [1].
Prologis is buying buildings at lower yields than it builds them
The $702 million of acquisitions came at a 4.2% stabilized cap rate, and Prologis expects a 6.6% yield on this quarter’s development starts [1]. By our math, that is a 2.4-point gap in favor of building.
Realty Income, the net lease REIT, bought mostly industrial property last quarter at a 6.5% initial yield in the U.S. [4], as we covered in our Realty Income story.
How to use this
For businesses that lease warehouse or flex space
- Start renewal talks at least a year before your lease ends and get a written quote from a competing building. Prologis kept 75.9% of tenants whose leases expired last quarter [1], and a real alternative is what gives a tenant room to negotiate.
- Budget for a large increase at renewal instead of assuming your current escalator continues. Using a $10-per-square-foot rent as an example, a 23.4% cash increase like Prologis’s average [1] adds about $117,000 a year on a 50,000-square-foot space, we calculate.
For owners and developers of industrial and flex buildings
- Compare your in-place rents with current asking rents before you refinance or sell. Prologis reported a 38.0% net effective rent change [1], and a lease priced well below market is value a lender or buyer should credit you for in writing.
- Use Prologis’s numbers as a yield check on new projects. It started development at an estimated 6.6% yield and bought finished buildings at 4.2% [1], so a project whose expected yield sits near the price of buying an existing building leaves little margin for the cost and risk of building it.
For investors in private industrial deals
Two industrial raises that filed Form D notices on Oct. 21 show how far costs and minimums can differ between sponsors [2][3].
| Offering | Location | Raise | Sold at filing | Minimum | Sales commissions (est.) |
|---|---|---|---|---|---|
| Sealy Industrial II, DST | Shreveport, LA | $66.5M | $0 | $100,000 | $3,989,600 |
| Westbourne Flex, LLC | Medina, OH | $38.3M | $38.3M (24 investors) | $20,000 | $0 |
- Add up the upfront costs on the Form D before you compare yields. Sealy also estimates $5,840,100 of proceeds that may go to related persons [2], and we calculate its commissions and those payments at about 6.0% and 8.8% of the offering.
- Ask the sponsor which of those costs come out of your money before it buys property, and whether the two amounts overlap.
- Check whether a raise is already closed before you spend time on it. Westbourne reported its full amount sold, with a first sale on July 27 [3], so the useful question for that sponsor is when its next offering opens.
- Ask any industrial sponsor for the going-in cap rate and compare it with the 4.2% Prologis paid for stabilized buildings and the 5.1% it received on sales [1].
This is market commentary, not investment advice.
Sources
- [1]Prologis, Inc., Third quarter 2026 earnings release (SEC Form 8-K, Exhibit 99.2), Oct 15, 2026.
- [2]SEC EDGAR, Sealy Industrial II, DST, Form D notice of exempt offering, Oct 21, 2026.
- [3]SEC EDGAR, Westbourne Flex, LLC, Form D notice of exempt offering, Oct 21, 2026.
- [4]Realty Income Corporation, Realty Income announces operating results for the three and nine months ended September 30, 2026 (SEC Form 8-K, Exhibit 99.1), Nov 2, 2026.
