Prologis Inc, a logistics real estate solutions provider, won the unanimous approval of the board of directors to buy Duke Realty Corporation, a real estate investment trust (REIT) that provides property leasing, development, and management, for $26 billion, including debt assumption. The board of directors of Duke Realty also unanimously approved the deal. The entire value of the stock is $23.71 billion. Under the terms of the transaction, Duke Realty shareholders will receive 0.475x of a Prologis share for each Duke Realty share they own. The deal, which is expected to close in the fourth quarter of 2022, is subject to other standard closing conditions.
Deal Rationale
As a result of this transaction, Prologis will gain properties in Southern California, New Jersey, South Florida and Dallas. In addition, the deal will provide the corporation with 11 million ft2 (one million m2) of undeveloped real estate. Prologis will retain some Duke personnel to manage real estate assets and fill unfilled roles at the merged firm.
Commercial Real Estate Sector: A Change of Way
The fears of a cool-down in demand for warehouse space owing to a decline in retailers' ecommerce activity after reaching a high during the pandemic exerted pressure on industrial real estate owners. Amazon wanted to sublet at least 10 million ft2 of warehouse space and terminate or renegotiate some leases. Walmart, Target, and Dick's Sporting Goods invested in ways to use their stores as mini-fulfillment hubs closer to their customers' homes.
Outlook
The Prologis-Duke Realty transaction demonstrates how the continued transition to ecommerce is increasing the demand for industrial space, allowing landlords to hike rents. Ecommerce, which requires more and varied types of warehouses for storing items and loading delivery trucks than brick-and-mortar businesses, pushed up industrial real-estate costs in recent years. Because investors were counting on growth, property prices increased faster than rents in many cities. Increasing interest rates in the US to combat the looming recession could damage warehouse landlords by causing property prices to fall as a result of pricey mortgages.
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