Porter’s Five Forces Analysis of Prologis
|Headquarters||San Francisco, US|
US$ 5.9 billion, 2022
|Profit||US$ 3.46 billion, 2021
US$ 3.20 billion, 2022
|Competitors||American Tower Corporation ,Crown Castle International Corporation ,Brookfield Asset Management|
Headquartered in San Francisco, United States reaching the 629th place in the Fortune 500 List and 525thby Forbes Global 2000 Year 2022, leading International Industrial and Logistics Real Estate Company based in USA.The Company is present in 19 countries in 4 continents with the highest market value of US$ 126.34 billion as of FY 2022 declared by Statista.The company is serving a very wide umbrella of the society including customers, brokers, property owners, communities, municipality s, investors, start-ups and employees. The company generated a record revenue of US$ 5.97 billion in FY 2022 with net income of US$ 3.3 billion.
Today we are going over Porter’ Analysis of Prologis
Porter’s Five Forces Analysis
Porter’s Five Forces Analysis is used to determine the competition and profit margin in the Industry and guide the company’s to keep strategizing its operations in a better competitive position. It is invented by Professor Micheal E. Porter in 1979,at Harvard Business School.
Prologis Rivalry among Existing Competitors
- Prologis Business and Geographical Presentation :
The Prologis operates in all areas from acquisition to disposition of the property including leasing,management and disposition of the property.
The Company owns 1.2 Billion Square Feet globally with 5,495 buildings with 6,600 customers and 2,466 employees as of FY 2022.The Company has major company owned properties and business in operations in following regions:
- US with 782 million square feet property as buildings acquired are 3,803.
- Other Americas owns 80 million square feet property with 332 building acquired.
- Europe has 240 million square feet property with 1,087 buildings in possession
- Asia has 111 million square feet property with 273 building in possession.
- Prologis Business Segmentation and Revenue Analysis
The Prologis Company gave a record revenue of US$ 5.97 Billion in FY 2022 while US$ 4.75 Billion in FY 2021 which is a 26% increase. The Company is operating in two major business operations Rental and Development and Strategic Capital Investment and three business segments for reporting purpose.
- Real Estate Segment – Rental Operations in which the company deals with rental agreements only.This segment generated US$ 4.91 billion as Rental in FY 2022 while US$ 4.14 billion in FY 2021.
- Real Estate Segment – Development in which the company arranges joint ventures or scale up the operations by co-investment options.This segment generated US$ 0.029 billion as Rental in FY 2022 while US$ 0.026 billion in FY 2021 as Development Management and Other for reporting purpose.
- Strategic Capital SegmentThe segment allows Prologis to invest in Capital in Strategic Projects with big institution investors internationally also through wings of Prologis including Nippon Prologis REIT, Inc. and FIBRA Prologis Mexico. The Company as 8 unconsolidated joint investment ventures values at US$ 49.3 billion with a 488 million square feet as of FY 2022.
This segment generated US$ 1.03 billion as Rental in FY 2022 while US$ 0.59 billion in FY 2021.
- American Tower Corporation :The American Tower Corporation is one of the leading real estate and trust company which gave a record revenue of US$ 9.4 billion with a net income of US$2.6 Billion and Net Assets of US$ 69.9 Billion as of FY 2022.The Company has the following geographical presence including US ,Europe ,Africa and Latin America.
Prologis Threat of New Entrants
- Diverse Operating Model (Leasing Rentals ) and Institutional Customer Base:
The Company Prologis has US$ 1.20 billion spent as Rental Expenses in FY 2022 while US$ 1.04 billion in FY 2021.While the Capital Strategic expenses are US$ 0.30 billion in FY 2022 while US$ 0.207 billion in FY 2021.
Other than these there is complex model of joint-ventures and Strategic Capital Investment with Managed, Owned and Leased Properties which requires a heavy capital investment and also market brand, trust and connections to deal with Institution Investors and Financial Institutions for the arrangement of Lease.
- Heavy Capital and Research Investments: The Company has net assets of US$ 87.8 billion as of FY 2022 while US$ 58.48 billion in FY 2021.Other than Prologis is investing in researching the market trends for it’s better decision making and it’s customer’s better decision making.
Prologis Bargaining Power of Suppliers
- E-Commerce Services and Supply Chain Logistics and Researching Insights As the company Prologis itself providing supply chain and logistics services to its’s customers so it has developed. The company has in-house research team and facility for better decision making and efficient supply chain solutions.
Efficient Supply Chain is a core aspect of Prologis Operations.As E-Commerce market is expected to have massive and continued growth. Prologis predicted that the in-person experiences will be diminishing while more than 25% of the retails products are going to be sold over online or e-commerce channels by 2025.
- Policies for Supplier and IT Connected Supply Chain for Efficient Supply Chain: Prologis take special consideration for it’s supply chain efficiency. The Prologis has Code of Conduct comprises of Business Practices, Employment Practices and Environmental Practices for a better business policies adherence with a Digital Supplier Portal for an efficient operations management.
It has also predicted by Prologis Research Department that in the U.S the warehouse development rate will be decreased by record low in last 7 years while the rents will be increased by 10% overall.
Prologis Bargaining Power of Buyers
- Customer Portfolio and Market Leadership:The Company has top institutions among it’s customers portfolio.The Top 10 customers of Prologis are Industry Leaders including Amazon, Home Depot, FedEx,UPS, Geodis, Wal-Mart, NFI Industries, U.S Government, Wayfair and Pepsi.These Top 10 customers comprises of 16.4 NER* in the Category of Consolidated Real Estate Segment and occupied 86 million square feet property.
- Competitive Advantage Due to Diverse Business Model:Prologis is already offering diverse and unique product and services which are not easily available in the market so Prologis is enjoying competitive advantage amongst it’s buyers.
Other name worthy companies which are coming in Top 25 customer portfolio of Prologis are DHL, Best Buy, Berkshire Hathaway, Kellogg etc. So in a way the customers or buyers have not much better alternatives and already Prologis is marketing leading.
Prologis Threat of Substitute Products or Services
- Geopolitical Scenario and World Economic Outlook
Due to Geo-Political disturbance also after the COVID-19 recovery period and tense energy price hike with the supply chain issues due to closure of Russia Air Travel route the demand and supply is projected to slow down which may impact the business operations in unpredictable manner. As per World Economic Outlook the inflation rate was 3.4% in 2022 while it is projected to be 2.8% in 2023.
- Pre-Covid 19 Market Recovery – Real Estate Emerging Trends in 2023
In a research survey conducted by PWC they declared that from 10-20% of the office property should be removed or use for some other purpose as after COVID the remote working environment proved to be more cost effective and productive both for the employees and employers.
- Solar and EV Capacity Warehouse – Climate Change Effects
As with the climate change effects the market demands are becoming diverse like EV Capacity Warehouses will be in demand only in California 157,000 rapid charges are projected to be in demand by 2023 by a research done by a commission. Prologis already invested in Commercial EV Infrastructure with plan to install 1 gigawatt solar capacity by Year 2025.
- Forbes, Prologis, Available at Forbes
- Fortune 500, Prologis .Available at Fortune 500
- Prologis, Annual Report 2022
- Forbes Global 2000,Year 2022.Available at Forbes 2000
- Prologis Supplier Code of Conduct. Available at Prologis
- Statista (June, 7, 2022).Leading public real estate companies worldwide in 2022,by market value (in billion U.S. dollars)| Statista. [Online] .Availableat Statista
- Statista (March 16, 2023).Market capitalization of Prologis Inc in the United States from 2015 to 2022 (in billion U.S. dollars) | Statista. [Online] .Availableat Statista
- PWC,Emerging Trends in the Real Estate 2023,Work from home verses Return to office. Available at PWC
- World Economic Outlook. Available at World Economic Outlook
- Prologis, Global Insight and Research .Turning Date into Value .Available at Prologis
- Prologis,(December 8,2022) Supply Chain, Seven Supply Chain Predictions For 2023 .Available at Prologis
- Forbes, American Tower Corporation
Note:NER is calculated using the estimated total cash to be received over the term of the lease divided by the lease term to determine the average amount of cash rent payments received per year