Shares of Prologis Inc. experienced a decline on Tuesday following the disappointing drop in second-quarter occupancy for the fulfillment-center real-estate company. Despite reporting higher-than-expected profit and revenue, as well as a raised full-year earnings outlook, the company’s occupancy weakness overshadowed these positive aspects.

Occupancy Rate Declines

During the second quarter, Prologis Inc. reported an average occupancy rate of 97.5%, which is lower than the 98.0% rate in the previous quarter and the 97.6% rate from the same period last year. The company anticipates a continued increase in vacancies, projecting an occupancy rate of 97.0% to 97.5% by 2023.

Rising Rents Impact Occupancy

Prologis Inc.’s Chief Financial Officer, Tim Arndt, revealed that rents in lease agreements increased by 2.5% compared to the previous quarter. Consequently, the company expects a global full-year rent growth of 7% to 9%. Chris Caton, managing editor of global strategy and analytics, expressed satisfaction with slightly lower occupancies at around 98% while the company aggressively focuses on raising rents.

Balancing Rents and Occupancy

Prologis Inc. closely monitored the impact of rent increases on lease agreements. The company noted that the tradeoff between rents and occupancy resulted in an increase in the percentage of deals lost due to pricing, from roughly 10% to about 20%. However, this outcome was within their expectations.

Stock Performance and Outlook

As of the year-to-date, Prologis Inc.’s stock has gained 10.0%, outperforming the Real Estate Select Sector SPDR exchange-traded fund and the S&P 500 index.

Despite grappling with occupancy challenges, Prologis Inc. remains optimistic about its long-term prospects but acknowledges the need for strategic adjustments to balance rents and occupancy effectively.

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