Prologis’s REIT Leadership Faces Potential Challenges from Equinix and Realty Income

Prologis (NYSE: PLD) is a behemoth in the real estate investment trust (REIT) sector. As the largest REIT globally, it boasts a market cap of over $100 billion. This logistics real estate leader manages more than $200 billion in assets and owns interests in 5,900 buildings, totaling 1.3 billion square feet across 20 countries. Its warehouse properties are vital for supporting global trade and the burgeoning e-commerce industry.

Prologis may be at the top today, but two other REITs could outgrow it by 2035: Equinix (NASDAQ: EQIX) and Realty Income (NYSE: O). Here’s why they have potential to surpass Prologis in the next decade.

Equinix: A Data Center Giant with Growth Potential

Equinix is already among the largest REITs globally, with a market cap nearing $85 billion. It leads the data center REIT sector, operating 270 data centers across 35 countries.

Its data centers support increasing digitalization by providing essential infrastructure for cloud computing and AI applications. Strong demand for data center capacity continues to grow. McKinsey estimates that the world will need to invest an astounding $5.2 trillion in data centers for AI processing by 2030, alongside an additional $1.5 trillion for non-AI applications.

This demand enables Equinix to expand its global data center portfolio. Currently, the company has 56 significant projects underway in 24 countries, with more facilities expected in the future. Notably, Prologis has also ventured into data center development, utilizing some of its available land for this purpose.

Realty Income: Building a Diverse Portfolio

Ranked as the seventh largest global REIT, Realty Income boasts $59 billion in real estate assets spread across eight countries. It owns over 15,600 properties totaling 342 million square feet, leasing space to nearly 1,600 clients across sectors including retail (79.9% of base rent), industrial (14.4%), gaming (3.2%), and other (2.5%).

The company has steadily expanded, acquiring net lease REITs, purchasing portfolios, and engaging in sale-leaseback transactions. In the previous year alone, it invested $3.9 billion in property acquisitions and completed a significant $9.3 billion deal to acquire Spirit Realty.

Realty Income continues to diversify its portfolio, entering new markets over the years. For instance, it entered the U.S. industrial market in 2011, which now represents a $2 trillion investment opportunity. It has also expanded into the $8.5 trillion European market, U.S. casino properties worth $400 billion, and U.S. data centers valued at $500 billion. Altogether, these initiatives contribute to a total addressable market opportunity of $14 trillion.

In a strategy akin to Prologis, Realty Income is launching a private capital investment fund to enhance growth potential, gaining access to the $18.8 trillion U.S. private real estate market, which is ten times the public REIT market. This fund will enable further property acquisitions while generating additional management fee income.

Future Challenges for Prologis

While Prologis has grown to become the world’s largest REIT by building a robust logistics real estate portfolio, it recognizes the competitive threats from Equinix and Realty Income.

Prologis still exhibits strong growth potential. However, with the competitive landscape evolving, it may not remain the largest REIT over the next decade. Both Equinix and Realty Income are poised to challenge its leadership and represent attractive long-term investments.

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Matt DiLallo holds positions in Equinix, Prologis, and Realty Income. The Motley Fool also has positions in and recommends Equinix, Prologis, and Realty Income.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.