Prologis CEO Warns of Rising Construction Costs

Prologis delivered a standout performance last quarter, posting $856 million in development starts during the second quarter—an impressive figure with 62.7% of activity tied to build-to-suit projects. But as the dust settles on a strong showing, questions about the path ahead loom large.

Whether Prologis can keep building at this pace is uncertain, and the obstacles ahead are formidable. Speaking with Bloomberg TV, Prologis Chief Executive Officer Hamid Moghadam warned, “Construction costs are going to go up radically. We thought they were going to stabilize this year, but I think all of this immigration stuff is putting more pressure on construction.” Moghadam pointed out that labor costs comprise a significant share of overall expenses, and immigrants form a vital backbone of the industry’s workforce.

During the company’s latest earnings call on July 16, Citigroup’s Craig Allen Mailman pressed Moghadam about the outlook for the second half of 2025, especially concerning net absorption and the buildup of demand. Moghadam explained that short-term forecasts are fraught with uncertainty. “I don't really care about the next quarter, the following quarter, because it's so dependent on what comes out of Washington, and people make these decisions in the short term based on emotion,” he said.

Moghadam described a landscape shaped by both risk and opportunity. “I know that there is a shortage of labor coming up in the construction industry because of the immigration policies,” he noted, referencing shifting policies and their repercussions. At the same time, government spending on new chip plants and data centers is fueling further demand. “All this data center stuff, and all the stimulus that's kind of come in from ITCs,” Moghadam observed. “So, to make a long story short, I'm very comfortable when we take two, three, four years out, given the escalation in replacement costs and rates are not going to go through the floor.”

The impact of immigration policies isn’t limited to the construction labor pool. Multifamily landlords now find themselves entangled in immigration enforcement actions, as ICE demands tenant information. With the administration pushing to deport 3,000 people a day, disruptions to the labor supply have become a real threat in both commercial real estate and construction.

This growing tension only compounds the pressure from material and labor costs. According to data from the Bureau of Labor Statistics, the Producer Price Index for private capital investment construction in June 2025 was 1.6% higher year-over-year—a figure lower than the general rate of consumer inflation, and actually down 0.6% between 2023 and 2024. Yet this recent cooling follows back-to-back surges: a 10.3% jump from 2022 to 2023, and a staggering 19.2% increase between 2021 and 2022.

Amidst this uncertainty, Moghadam pulled no punches on what’s next. “So mid-2020s, in a year or two, how are you going to get pricing power?” he asked. “And when you do, it's going to be really above inflation in the short term because the pipeline hasn't started, construction costs have been going nuts, and I think they're going to continue to go up,” he said during the earnings call.