Prologis Puts Power First As It Prepares $8B Data Center Push

Prologis, the most valuable of all U.S. REITs, plans to spend between $7B and $8B in the next five years launching its data center business. 

The logistics giant, which owns 1.2B SF of industrial space across 19 countries, is focusing much of its early efforts pushing into data centers on the procurement, production and storage of energy.

“Prologis will not be a utility or generate power like a typical utility, but a big part of our strategy, the central part of that, is acquiring large power,” Chris Curtis, who joined Prologis in March as the global head of its new data center business, told Bisnow in an interview this week.

Curtis said Prologis' initial focus will be split between developing properties and securing power, including the equipment necessary to generate power, such as substation transformers.

The strategy is a recognition that winning business as a data center developer is as much about guaranteeing the electricity keeps flowing as it is building a state-of-the-art property. And the push comes as predictions about a future where artificial intelligence is ubiquitous push up power consumption projections. 

The San Francisco-based firm has already secured 1.3 gigawatts of power commitments from utilities around the world and is in advanced negotiations for the procurement of an additional 1.5 GW, a spokesperson for the firm said.

Its global land bank spans 12,000 acres, and Prologis is looking at energizing up to 7,900 acres for data center development, rather than focusing on new acquisitions. It is pursuing build-to-suit deals with users rather than any speculative development, Curtis said.

Prologis has data center experience — the company says it made its first investments in the space in 1999 — and Curtis said the firm is leaning into its longstanding relationships in the market to win business. 

“Our customers are the largest technology companies in the world,” said Curtis, who co-founded Compass Datacenters. “I think they really see the value of a strategic partnership with Prologis because of our scale, capital markets acumen and portfolio of buildings.”

He declined to comment on any deals made since the March rollout of the new business line. 

Prologis brought in $2B in second-quarter revenue, an 18% dip from the same period a year earlier. But the firm still raised its annual earnings outlook, in part because demand for data centers gave executives “tremendous confidence in future growth,” Prologis CEO Hamid Moghadam said on the firm’s earnings call last week.

Curtis insisted the business line was created because of organic demand from existing clients and not because of any weakness in the broader industrial market, which has seen U.S. vacancy rise nearly 2 percentage points in the last year to 6.4%, according to Colliers. 

Even if it weren't for the waning demand for large industrial spaces, Curtis said converting some Prologis warehouses into data centers would be a key facet of its business plan. Demand is so strong in core data center markets that the capital expenditure to repurpose a distribution center can be easily justified, Curtis said.

“Conversions are absolutely possible, viable and profitable,” he said. “We're blessed to have 1.2B SF of buildings now, many of which are located in some of the core data center clusters and markets.”

Competition in the sector is strong, with rents up at least 20% year-over-year in the most competitive markets like Northern Virginia, Dallas, Silicon Valley and Chicago.

Curtis declined to say which markets Prologis is eyeing, only that the “traditional top-tier data center clusters are going to continue to grow.”

In the nation's largest data center market, Virginia's Loudoun County, Prologis is seeking to rezone 94 acres it owns that would allow it to develop up to 4M SF of new data centers, the Washington Business Journal reported.

Prologis is planning to build no more than 1.4M SF of data center space at the site, a spokesperson said. The plan could entail knocking down some of its warehouses that are close to fully leased.

The battle for data center business is expected to be driven as much by power needs as available land and past construction experience. Investment bank TD Cowen projects that data centers will account for 6% of all U.S. electricity usage by 2028, quadrupling over the course of a decade. Last year, data centers accounted for 2.3% of energy consumption. 

Morgan Stanley analysts have said the massive need for more power could fuel a “nuclear renaissance.” OpenAI founder Sam Altman has created a $3.7B business to join the decadeslong effort to unlock fusion energy while mulling the creation of his own data center business to help power the firm’s AI tools like ChatGPT. 

Prologis is focusing on renewable energy production through its Prologis Essential program, in part because it has committed to reaching net-zero emissions by 2040. Part of the effort to achieve that goal is the firm's team that provides rooftop and off-site solar and energy storage solutions. It also says it is designing all of its new construction to meet sustainable building certification standards. 

Its global projects have around 523 megawatts of solar power capacity, and the company is aiming to deploy a total of 1,000 MW of solar energy, storage and EV charging stations by the end of next year.

Prologis is frequently a utility company’s largest customer, Curtis said, and the firm has been leveraging those relationships to integrate its renewable capacity into the broader grid. 

It launched an energy storage project with Texas provider ERCOT in June to help power 1,700 households during peak usage periods, and it has six more projects in the pipeline with the private utility.

Curtis expects to make further energy infrastructure investments and partnerships as Prologis ramps up its data center segment. 

“We've already got a great deal of experience on our team on segments like battery storage, wind, solar and helping the utilities with their power needs,” Curtis said of his growing group of about 20 employees.

An ERCOT report last month projected that Texas' power demand will nearly double by 2030, driven largely by artificial intelligence and the data centers needed to support it. The revelation sparked concerns among lawmakers about the state's energy grid — this was before a tropical storm caused a debilitating Houston-area power outage this month — with some even discussing the possibility of banning data center construction.

Much of the forecast explosion in energy consumption is predicated on AI, which demands massive computing power, becoming integrated into daily life, creating a cultural shift on par with the adoption of the internet. 

Some skeptics have begun to question if that future is coming, with reports from Goldman Sachs, the Massachusetts Institute of Technology and others suggesting that AI hype has created a bubble in affected sectors like tech, chipmaking and data centers. 

Prologis expects to grow its data center segment with or without an AI revolution, Curtis said. Internet-connected products are already integrated into everyday life, and whether providing the cloud infrastructure of a Fortune 500 firm or connectivity to a smart toaster, it all passes through a data center. 

“I'm sure there'll be a slight adjustment, but fundamentally, the demand is there,” he said. “This stuff is so embedded in our lives, and so we feel bullish on continued demand for the foreseeable future.”

UPDATE, JULY 26, 9:45 A.M. ET: The story has been updated with more detail about Prologis' plans for a Loudoun County data center development.