A highly customer-centric ethos and an unrelenting focus on technology and innovation has enabled Prologis, a real estate investment and trust, to become the largest owner of industrial warehouses and one of the most successful industrial REITs in the world today.
Today, more than 2.4% of the world’s gross domestic product (GDP) flows through Prologis’ warehouses and fulfillment centers, and the company has an impressive collection of more than $90 billion in assets under management spanning across four continents and 19 countries. While Prologis made several strategic plays early on by investing globally in the industrial property sector, much of the company’s recent success has been driven by a focus on e-commerce. Prologis deploys technologies that create operational efficiencies for a coveted customer-base of online giants like Amazon, FedEx, UPS, and others.
“Back in 2015, we started to see the undercurrent of disruption and change in the industry from e-commerce, and started looking at how technology is impacting our clients’ businesses,” said William O’Donnell, Managing Partner at Prologis Ventures.
O’Donnell, who leads the company’s venture investing arm, spoke to an eager crowd of entrepreneurs and proptech startups at the CREtech conference in Los Angeles last month, and shared glimpses into the company’s rapid expansion, its adoption of innovation, and culture. O’Donnell said he attributes Prologis’ fast-paced growth to the company’s unrelenting focus in three key areas: the adoption of technology and automation, the ability to remain nimble while scaling and, most importantly, a strong focus to solve customer pain points along operational and distribution supply chains.
“We knew that the cost of real estate was only one aspect of the business for our customers. For every $1 spent on rent, our customers were spending $10 on transport and $6 on labor. We knew we needed to solve for these problems,” said O’Donnell.
In its quest to help customers overcome pain points, Prologis has invested in smart warehouses capable of testing key activities that provide visibility into operations via IoT devices and applications, smart docking systems, telematics solutions, and even community workforce initiatives designed to address the consistent labor shortage of warehouse workers.
“The key to effectively deploying these technologies and other solutions has been the ability to remain small enough to be nimble, but to drive innovation on a massive level,” said O’Donnell.
To do so, Prologis has created an onsite lab, dubbed Prologis Labs, to test solutions with its customers. The newly built lab, which the company describes as a “sandbox environment”, tests digital supply chain, warehouse, labor, transport, and other next-gen tech solutions in collaboration with customers and provides a real-world environment to vet industry solutions.
The data collected throughout the company’s tech-infused infrastructure enables customers to benchmark performance and run their businesses more efficiently. By the end of last year, Prologis Labs had 63 experiments in the pipeline, each with a specific use case and business benefits. Currently, there are 16 ongoing experiments at the center and the company says pilot scoping with customers is also underway.
Despite its gargantuan growth, Prologis’ employee count has remained relatively small, with approximately 1,600 employees. “We are big when it comes to assets and small when it comes to people,” said O’Donnell, adding that it has been one of the keys to remaining nimble.
O’Donnell credits Prologis’ CEO Hamid Moghadam’s leadership and willingness to push for innovation as the primary factor in the company’s tremendous growth and transformation: “The risk-taking culture comes from the top, from our CEO. He wants us to innovate and find new ways to do things to better help our customers solve problems.”
Last year, to meet the increasing demand from customers for urban fulfillment centers, Prologis completed construction of the world’s first multi-story distribution center located near downtown Seattle and converted a second building located in the Bronx into a multi-story warehouse.
Prologis also completed an $8.54 billion acquisition of Denver-based industrial real estate investment trust DCT, met the highest sustainability standards in the industry, and delivered a solid balance sheet of $4 billion in liquid assets to shareholders in 2018.
In the first quarter of this year, Prologis topped earnings estimates, outperforming its own occupancy expectations. “We leased almost 43 million square feet, bringing occupancy at quarter-end to 96.8 percent,” said Tom Olinger, Chief Financial Officer for Prologis, during the company’s first quarter earnings call earlier this week.
“Occupancy did outperform our expectations. Our retention was quite good and quite high this quarter, but we are continuing to push rents,” Olinger added.
Moghadam re-iterated the company’s sharp focus on creating solutions that address customer pain points through partnerships on the company’s earnings call. “We are going to attack all those things that our customers need to basically operate our properties. These are projects and services that they need to fully utilize our services. We’re going beyond a roof and four walls in that sense,” Moghadam said.
“Are we going to be in those businesses ourselves? The answer is clearly no, but we will partner with vendors and other players that can help us execute that business plan,” Moghadam said.