Prologis Sees Japan Profit Rising as Rents Increase

(Corrects the location of Prologis (PLD)’s headquarters in fourth paragraph in story published on July 28.)

Prologis Inc., the world’s biggest warehouse owner, said it expects profit in Japan to rise as rents at its properties in the nation will probably increase because of a shortage of new facilities.

Effective rents, or the amount tenants actually pay property owners, may surge as much as 10 percent in the next six to 12 months, said Miki Yamada, president of Prologis’s Japan operations in Tokyo. Demand has risen after some distribution centers in Japan’s northeastern region were damaged or destroyed following the March 11 earthquake and tsunami, he said.

“There is quite a strong demand for new large-scale modern facilities,” said Yamada in an interview in Tokyo on July 26. “While our main focus is providing a consistent new supply to the market, we see a better profit this year.”

Japan is Prologis’s biggest market in Asia, accounting for 10 percent of total assets. The San Francisco-based company plans to double holdings in Asia to a quarter of its total portfolio value as accelerating growth signals increased demand for industrial storage space, Co-Chief Executive Officer Hamid Moghadam said in an interview in June.

Prologis, which has 400 billion yen ($5.1 billion) of warehouse properties in Japan, was one of the first developers to restart construction of multi-tenant warehouses last year in Japan after halting development in 2008 when the collapse of Lehman Brothers Holdings Inc. exacerbated the global credit crunch.

Rental Recovery

The average vacancy rate for multi-tenant warehouses in greater Tokyo has more than halved to 6.2 percent in March since peaking at 20 percent in September 2009, according to Los Angeles-based CB Richard Ellis Group Inc. (CBG)

“A recovery in rents for logistic properties means that profitability of developers would gradually recover,” said Hideyuki Shinkai, a fund manager for Norinchukin Trust & Banking Co. in Tokyo.

Assets under development in Asia may rise 79 percent to $750 million by the end of the year, according to Prologis.

Rent fluctuation has been less volatile for industrial property owners. The average asking rent for warehouse space in Tokyo fell 3.5 percent to 5,480 yen per tsubo in 2010 from 2007, according to CB Richard Ellis. That compares with a 20 percent drop in the average rent for office buildings in Tokyo for the same period, according to Miki Shoji Co., a privately held office brokerage company. One tsubo, a standard measure of property area in Japan, is 3.3 square meters, or 35.5 square feet.

Prologis plans to start a private equity real-estate fund that will invest in Japan as early as next year as more investors are becoming interested in logistic properties, Yamada said, without elaborating because the company is still in the preparation stage. The new fund follows a previous $1.7 billion fund that started in 2005 and will end in 2013, he said.

The warehouse owner yesterday got a $500 million pledge from the Oregon Public Employees Retirement Fund to invest in industrial properties around the world over the next five years.

Prologis, which merged with AMB Property Corp. in June, had $44 billion of assets under management as of March 31, which is equivalent to 3,500 buildings, according to the company. Customers include DHL, the parcel service owned by Bonn-based Deutsche Post AG; Atlanta-based Home Depot Inc. (HD) and Tokyo-based Nippon Express Co.

To contact the reporters on this story: Kathleen Chu in Tokyo at Kchu2@bloomberg.net; Katsuyo Kuwako in Tokyo at kkuwako@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net