Global supply-chain disruptions have become an ongoing issue that does not appear to be going away anytime soon.
Persistent obstacles such as port congestion and container shortages are exacerbating the problem. Furthermore, global aviation and maritime freight routes have become more expensive and less reliable as a result of the pandemic.
Additionally, China’s new Covid-19 lockdowns, as well as looming wage negotiations with West Coast dockworkers in the United States, suggest further difficulty ahead.
These issues may eventually push businesses to stockpile more items to avoid missing out on sales due to freight delays. This will very likely increase the need for warehouses.
Soaring Rental Rates
Rental rates have reached new highs due to a perfect storm of limited supply and strong demand. Last year, warehouse rents in the United States jumped by 11%. Then, in certain markets, annual lease increases were considerably larger. According to Segro (GB:SGRO), a European warehouse owner, rents in some parts of London soared as much as 30% last year.
Given the increased demand for distribution space due to a shortage of availability, leasing rates are projected to remain high in 2022. As a result, warehousing companies are currently well-positioned to profit from rising rental costs.
Below, we’ve highlighted two warehousing stocks that are well-positioned to profit from current market conditions.
Prologis (PLD)
Prologis is a leading industrial real estate investment trust (REIT) with operations and management across the Americas, Asia, and Europe.
The industrial real estate market is booming, with strong demand, rising rents, and new pipelines breaking records. Prologis is ideally-positioned to take advantage of its ability to provide modern logistics facilities at critical sites.
Furthermore, due to supply-chain disruptions, demand for warehouse space and lease activity is increasing. This could be beneficial to Prologis. In 2022, the business aims to boost rents by around 11% again.
The company will report its first-quarter earnings on April 19. According to experts, Prologis is expected to announce adjusted earnings of $0.68 per share for the first quarter. The figures represent a 41.7% increase from the year-ago quarter.
With a market capitalization of $124.8 billion, Prologis is up 56% over the last year. The company’s upcoming earnings results could provide a catalyst for the stock price to move higher.
Turning to Wall Street, Prologis stock earns a Strong Buy consensus rating based on 10 Buys and three Holds. The average PLD price target of $173.38 implies 2.8% upside potential over the next 12 months.
Duke Realty (DRE)
Duke Realty specializes in warehouse space and has a market capitalization of $23 billion.
The company recently began six speculative developments totaling 1.47 million square feet. With its solid ability to offer high-quality logistics facilities, the company is set to capitalize on the growing need for incremental inventory storage resulting from supply-chain interruptions.
Also, investors appear to be upbeat about DRE stock. According to TipRanks’ Stock Investors tool, investors currently have a Very Positive view of Duke Realty, with 8.4% of investors increasing their exposure to DRE stock over the past 30 days.
On TipRanks, Duke Realty has received a Moderate Buy consensus recommendation from Wall Street analysts based on four Buys and three Holds. The stock is currently trading at $59.52, with an average DRE price target of $64.83, representing a potential 9% increase from current levels.
Duke Realty is expected to report its first-quarter earnings on April 27. Wall Street analysts forecast Duke Realty to report adjusted earnings of $0.19 per share in the upcoming quarter, up 10% year-over-year.
A strong earnings report could act as a positive catalyst for the stock.
Conclusion
In the face of growing inflation and supply-chain bottlenecks, the logistics market should remain strong. As a result, both Prologis and Duke Realty stocks could be solid investments over the near term, as rising rents and strong worldwide trade could benefit both companies.
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