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With interest rates rising fast, property developers may be taking a second look at their future plans for speculative development. Prologis, the world’s largest logistics property developer, is slowing down its speculative investments. The Wall Street Journal’s Liz Young and Sabela Ojea report:

Prologis Inc. is pulling back on building new warehouses without tenants already signed on, as the world’s largest developer of logistics properties braces for a potential economic downturn.

The shift away from what is known in the real-estate sector as speculative projects reflects “a more cautious approach,” Tim Arndt, chief financial officer of Prologis, said on an earnings call Wednesday.

High inflation, which has been prompting the Federal Reserve to raise interest rates, the energy crisis in Europe and Russia’s invasion of Ukraine are creating headwinds that may dampen economic growth and logistics demand, according to the San Francisco-based real-estate investment trust. The overall warehousing sector, which has been booming during the pandemic as retailers respond to changing consumer purchasing patterns, is already showing signs of peaking, with overall leasing rates slipping last quarter.

“I am concerned about inflation. I think the Fed’s going to overdo it, whether we have a recession or not,” said Hamid Moghadam, the company’s co-founder and chief executive. Warehouse supply remains tight compared with demand, but Prologis will make decisions on new sites on a “deal by deal” basis, he added.

Prologis trimmed its plans for new development starts for this year to a range of $4.2 billion to $4.6 billion, from a projected range of $4.2 billion to $5 billion the prior quarter.

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“We’re definitely going to underperform the capacity of this industry,” Mr. Moghadam said. “The consumer’s in great shape. The consumer balance sheets are in great shape.”

Prologis is the world’s largest owner of warehouse space with a portfolio of about 1 billion square feet of industrial real estate in 19 countries and tenants that include Inc., FedEx Corp. and Home Depot Inc.

Mr. Arndt said leasing activity has softened somewhat compared with the height of the pandemic, although overall demand remains strong.

The average warehouse vacancy rate across the U.S. rose from 3% in the second quarter to 3.2% in the third quarter, the first increase in two years, although that remains far below the 5% rate during 2020, according to commercial real estate services firm Cushman & Wakefield.

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