Final Bid

Image source: Ian Luck - Shutterstock

What's going on?

Warehousing giant Prologis announced on Monday that it’s buying smaller rival Duke Realty.

What does this mean?

Prologis already controls about a billion square feet of warehouses and distribution centers for the likes of Amazon, Home Depot, and FedEx. But hungry for more, Prologis has been courting Duke Realty for a while now: the giant first approached its smaller rival back in November, and recently made an “insufficient” offer worth $24 billion last month. And its determination has paid off: the two companies just shook hands on an all-stock deal worth $26 billion, with Duke’s shareholders receiving almost half of a Prologis share for each of their existing ones (tweet this).

The deal – Prologis’s first in two years – will see the world’s biggest warehouse owner claim industrial real estate in some popular locations, from sunny Southern California to the vast land in Dallas, Texas. Prologis believes that could help it make up to $400 million in extra earnings every year. No wonder it was so persistent…

Why should I care?

The bigger picture: Buy, don’t build.
There’s a reason Prologis was so keen to sign the deal: the ongoing online shopping boom has sent demand for warehouses through the roof, leaving only 3.4% of US warehouses vacant in the first three months of this year. And while developers have rushed to start building more, rents are already soaring for existing locations. But Prologis is ahead of the curve: it can profit more from those higher rents much faster with this deal than it could if it built them from scratch.

Zooming out: Rent’s cheap.
Warehousing might be going strong, but other areas of the real estate market are cooling down. In fact, one of the biggest real estate investors in the world says the US and European markets are seeing a downward shift in prices as higher interest rates dampen demand: it said it’s even seen prices fall around 5 to 10% from last year in some areas.

Originally posted as part of the Finimize daily email.

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