Prologis (PLD) Q4 2025: Data Center Starts to Make Up 40% of $5B Development Pipeline
Prologis enters 2026 with data center development poised to drive nearly half of new starts, marking a structural evolution in its business mix. Warehouse fundamentals are stabilizing globally, with net absorption outpacing supply in the U.S. for the first time since 2022. Strategic capital and energy initiatives are broadening the platform, but management signals caution on near-term FFO growth as deployment drag and normalization in rent change temper upside.
Summary
- Data Center Build-Out Accelerates: Nearly 40% of development starts in 2026 are projected to be data centers, signaling a business model shift.
- Warehouse Recovery Gains Traction: Net absorption outpaced completions in Q4, driving U.S. vacancy down and marking a demand inflection.
- Strategic Capital and Energy Expansion: New funds, a China REIT, and surpassing 1 GW of installed solar capacity diversify growth levers.
Performance Analysis
Prologis closed 2025 with momentum across multiple business lines, reporting strong leasing volumes and high retention rates. Occupancy averaged 95.3% in Q4 and finished at 95.8%, outpacing the broader U.S. market by 300 basis points. Net effective rent change reached 44% for the quarter, contributing $60 million of annualized net operating income (NOI) and pushing the annual net effective rent change above 50%. This embedded rent growth creates a substantial future earnings tailwind, with $800 million of NOI yet to be realized as leases roll to market.
Development activity remained robust, with $1.1 billion in new logistics starts in Q4 and $3.1 billion for the year—61% of which were build-to-suit projects, reflecting a deliberate focus on de-risked development. Asset recycling continued, with $900 million in sales and $625 million in acquisitions, generating a 150 basis point IRR spread. International markets, especially Japan and Latin America, contributed outsized occupancy and rent growth, while Europe posted its first quarter of positive rent growth in two years.
- Embedded Rent Growth Remains High: $800 million of future NOI is locked in, supporting long-term earnings visibility.
- Development Mix Shifts: Over 48% of Q4 starts were build-to-suit, and data centers are set to comprise 40% of 2026 starts.
- International Diversification: Japan outperformed the market by 600 basis points in occupancy, and Latin America maintained robust demand.
Same-store NOI growth exceeded guidance on both net effective and cash bases, while energy initiatives surpassed the 1 GW installed capacity milestone, setting the stage for further growth in essentials revenue.
Executive Commentary
"Our objective is straightforward: to continue widening the moat that differentiates Prologis. We do that through unmatched service, innovative solutions, and the mission critical reliability our customers depend on."
Dan Letter, Chief Executive Officer
"Momentum extended across the growth areas of our business as well. Our development platform, particularly in build-to-suits, continues to outperform, exceeding expectations and capturing meaningful market share."
Tim Arndt, Chief Financial Officer
Strategic Positioning
1. Data Centers: From Adjacent to Core
Prologis is rapidly scaling its data center business, with 1.2 GW in LOI or advanced negotiation and 5.7 GW of power access secured. Management expects data centers to represent 40% of new development starts in 2026, a substantial step up that leverages Prologis’ unique land bank and power procurement capabilities. The company’s approach blends powered shell (basic infrastructure leased to operators) and turnkey (fully built, ready-to-use) formats, with customer appetite shifting toward turnkey for speed and reliability. This transition positions Prologis as a critical infrastructure provider in the digital economy, not just a traditional warehouse REIT.
2. Warehouse Fundamentals: Inflection and Outperformance
U.S. logistics markets are showing early signs of recovery, with net absorption exceeding completions in Q4 and vacancy declining to 7.4%. E-commerce accounted for 20% of new leasing activity in 2025, the highest since 2021, as major retailers expand networks to meet delivery demands. International operations, especially Japan and Latin America, remain bright spots, driving portfolio resilience and smoothing regional cyclicality.
3. Strategic Capital Expansion: Vehicles and Partnerships
Strategic capital is a central growth lever, with two new investment vehicles launched in the U.S. and China (the China AMC Prologis Logistics REIT), and the U.S. Agility Fund anchoring the year’s fundraising. Private capital partners increasingly seek scale and transparency, and Prologis’ global platform and performance track record make it a partner of choice. Management is also evaluating a dedicated data center fund, with significant investor interest but no capital constraint at present.
4. Energy and Essentials Platform
Surpassing 1.1 GW of installed solar capacity, Prologis exceeded its four-year goal and is now focused on scaling this business line further. While current NOI contribution is modest relative to the core rental platform, management expects energy and essentials revenue to become a meaningful earnings driver as installed capacity and customer adoption increase.
5. Land Bank and Deployment Flexibility
With $42 billion in land bank opportunity and nearly 40% ready-to-go, Prologis has unmatched optionality to deploy capital across logistics and data centers as market conditions dictate. About two-thirds of 2026 logistics starts are slated for the U.S., up from prior years, with the remainder targeting high-growth nodes in Latin America and Europe.
Key Considerations
Prologis’ 2026 setup underscores a strategic pivot toward digital infrastructure, while maintaining operational leadership in global logistics. The company’s capital allocation, development pipeline, and customer relationships position it to capture value from secular trends in e-commerce and data demand.
Key Considerations:
- Data Center Scale-Up: Execution risk grows as the business shifts from warehouses to data centers, where power procurement and project complexity are higher.
- Warehouse Demand Recovery: U.S. absorption outpacing supply marks a turning point, but regional volatility (e.g., Southern California) requires continued monitoring.
- Strategic Capital Diversification: New funds and vehicles broaden the investor base, but fee streams and AUM growth will depend on sustained performance and market appetite.
- Energy Platform Monetization: Surpassing 1 GW is a milestone, but scaling revenue contribution remains a long-term challenge.
- Embedded NOI Tailwind: $800 million in embedded NOI underpins future earnings, but the pace of realization will hinge on market rent growth and lease roll dynamics.
Risks
Execution risk rises as Prologis accelerates data center development, where utility delays and capital intensity can impact returns. Warehouse market recovery is uneven, with pockets of oversupply and regional softness persisting. Deployment drag from lighter starts in prior years, normalization in rent change, and integration of new capital vehicles may temper near-term FFO growth. Macro factors such as tariff policy and interest rates remain planning assumptions, not impediments, but could still disrupt demand or capital flows.
Forward Outlook
For Q1 2026, Prologis guided to:
- Average occupancy between 94.75% and 95.75%, with a seasonal dip in Q1 before rebuilding.
- Net effective same-store NOI growth of 4.25% to 5.25%, and cash same-store growth of 5.75% to 6.75%.
For full-year 2026, management set guidance:
- Core FFO (excluding net promote) of $6.05 to $6.25 per share.
- Development starts of $4 to $5 billion (owned and managed), with about 40% in data centers.
- Strategic capital revenue of $650 to $670 million.
Management highlighted:
- Increased confidence in new data center starts and growing power pipeline.
- Expectations for market rent growth to return as absorption outpaces supply in 2026.
Takeaways
Prologis is pivoting decisively into data centers, leveraging its land and power access to redefine its growth trajectory. Warehouse fundamentals are stabilizing, but management is transparent about the near-term headwinds from deployment drag and rent normalization. Strategic capital and energy platforms are maturing, offering diversification but requiring continued execution discipline.
- Digital Infrastructure Is Now Core: Data centers will drive a material share of development, testing Prologis’ ability to execute in a more complex asset class.
- Warehouse Recovery Supports Stability: Demand inflection and embedded rent growth provide a buffer, but regional variation persists.
- Future Focus on Monetizing New Platforms: Investors should watch for progress in data center fund formation, energy revenue scaling, and realization of embedded NOI as key drivers of future upside.
Conclusion
Prologis enters 2026 with a structurally evolving business model, as data center development and strategic capital expansion reshape its growth profile. While warehouse fundamentals are stabilizing and embedded rent growth provides visibility, the company’s ability to deliver on new digital and energy platforms will define its long-term value creation.
Industry Read-Through
Prologis’ aggressive push into data centers signals a broader industry pivot, as logistics REITs seek to capture value from digital infrastructure demand. Warehouse market stabilization in the U.S. and outperformance in international markets suggest the worst of the logistics cycle is passing, but regional disparities remain. Energy and essentials revenue is emerging as a differentiator, and the success of new capital vehicles may set a template for other asset-heavy REITs seeking to diversify funding and fee streams. Investors should monitor how peers respond to the convergence of logistics, power, and data infrastructure, as the boundary between traditional real estate and digital infrastructure continues to blur.