Good afternoon, everybody. Thanks for joining me. Bill Crow, I cover REITs and the lodging sectors for Raymond James. I think this is the third year that we have been really happy to present Prologis at our conference, and we appreciate y'all attending. It's been one of our top names, top picks for the past three or four years. I think as you go through this 20-25-minute presentation, you're going to find out why. Tim Arndt is with us. He's the CFO of the company, and over that short period of time that we've gotten to know each other, I got to tell you, he ranks as one of the top executives in my mind, within the REIT space. So I'm going to get out of the way.
Tim, if you want to go ahead, I'll just grab a seat over here.
All right. Well, thank you. Thanks, Bill. That's very nice of you. And hello, everybody. Yeah, I'm CFO at the company. I've been in the post for a few years, but I've been with the company for about 20 years. So I've seen a lot of change in REITs, but also in the logistics sector in particular. And I'll highlight a few of those things as we go through this discussion. I want to just start maybe with a brief description of Prologis. If you don't know, we are a global logistics REIT. We own warehouse and distribution facilities in 20 countries around the globe. Despite being in 20 countries, about 85% of our rents and NOI at our share are within the United States. However, we have $220 billion of real estate assets owned and managed, we call it.
We describe it in that way because we own a large majority of those assets wholly owned on our own balance sheet. But about $90 billion of those assets are owned in what we call Strategic Capital vehicles. These are either open-ended funds, joint ventures, a couple of public subsidiaries, but these are all ways to leverage multiple aspects of the capital stack for such a large amount of investment. That $220 billion of owned and managed real estate is 1.2 billion sq ft. Then in terms of growth, we have control of buildouts of about another 200 million sq ft or $40 billion from here. In addition to owning and leasing all of this real estate, we are very large developers as well, which I'll speak to in just a moment.
When you're thinking of us, and you'll see some logos in just a few minutes, you're thinking about large e-commerce players, Amazon, of course, and others, but large retailers, large 3PLs, third-party logistics providers, transportation, customers, etc. This is our customer base. I'm going to start with just a little bit of a conversation on supply and demand and logistics. This is a framework we've launched into in describing new demand from here. This is a complicated concept, I'll admit, but it's a way of speaking to there are a number of secular drivers out there that when we boil it down, we think for every unit of incremental GDP growth from here, the future is going to call for 20% more logistics space for that growth than it had in the past.
A little hard to get your head around, but it's for a few factors. One is just the way spending and buying habits are changing from goods and services and also demographically as younger generations are moving into their more robust buying years. Online versus offline, we'll talk about this, I think, in a few slides as well. But I will tell you very quickly, if you're unfamiliar conceptually, it takes much more warehouse space, 3 times more warehouse space to execute the same amount of retail sales in the e-commerce channel than it does in a traditional brick-and-mortar store. And e-commerce, the penetration into e-commerce from traditional retail continues to move about 1% per year. So as more and more e-commerce adoption is occurring, more and more logistics space is getting swallowed up. And then inventory per sale, there's just larger inventory needs from customers, not only for resiliency.
We saw some of those safety stock and stockout issues through COVID. We've seen customers learn some new lessons and want to strive for a tighter supply chain on that basis. But there's also just a proliferation in terms of product variety and the sheer number of SKUs that are being stored and offered to consumers. So all of those factors together are leading to these longer-term secular drivers. You see a bunch of names. And what we've done here is we've categorized them into, what are the areas of that drive demand in logistics? And I'll go kind of fast, but there's everyday kind of cyclical spending, basic daily needs. There are a number of customers who are continually in a state of supply chain reconfiguration. Home Depot is the name I would highlight there.
They've been very big in revamping their supply chain, modernizing it to be more catered to e-commerce and also to their professional network. That's a well-quoted example. E-commerce itself, and then secular changes. You know, we're seeing new drivers emerge from the EV battery industry, the ecosystems that surround that manufacturing and assembly, even here in the United States. So there are varied uses. You see a few of the names sit in a few of these categories and have multiple reasons for their continued demand. Today we sit in a place where we had exceptional demand. We call it net absorption in our space through COVID. You can see that in 2021 and 2022. It has relaxed as a lot of that space is getting absorbed and things have normalized.
But we see in the coming 2 or 3 years levels of net absorption of demand that will be a little bit above long-term trend. You can see that long-term trend, of course, includes the GFC. If you look across the teams there, the new demand as a level of our standing stock out there in our markets is pretty much in line. So I would call that relatively normal. And then on the supply side, the light blue line here is new construction starts, where the dark green is completions. If you map them, you'll kind of see that it takes about a year or a year and a half to develop one of our facilities. I will say that's from putting the shovel in the ground and delivering the building.
The lead time and titling and preparing the land in advance of that does add some additional time. That's, that's important. I'll touch on it in just a moment. The point is, there was a lot of excitement over logistics, clearly through COVID. We saw a lot of starts come into, into our markets. There was a more favorable cost of capital, lower, lower financing rates at the time. There was ability to get a lot of construction done. Contrasted with where you look at that light blue line on starts, how it has really plummeted in, in the last year in particular.
This is really great news for our sector because while there is a large amount of completions getting delivered into our markets right now, and that's weighing on occupancy to a degree, the fact that around the corner in two or three quarters from now, we're going to see this dearth of new supply come in and the supply demand dynamics are going to look very favorable for owners at that point. This is how we see that resulting vacancy rate map out. You see, we would call average vacancy in logistics about 6%, so 94%-95% occupancy, roughly. The sector in our markets in the U.S. has been exceptionally tight, about 97% occupancy over the last few years.
These are levels we never really thought we would see in logistics, our portfolio alone being over 98% occupied and in many markets and product categories just fully sold out, just not having any availability in certain markets and certain space sizes. That's relaxed a little bit. It's getting a bit more normal. But you can see that our view is that in 2025 and 2026, we're going to see vacancies begin to decline again as we see that intersection of normalized demand and then once again this dearth of new supply coming into our markets. What does that mean for market rent growth? That's ultimately what drives our business. And I won't ask everyone to do the R-squared off this thing, but it definitely is showing that, you know, at 6% or 7% vacancy, you're going to lose some pricing power.
But below that level, which is where we are and are going to continue to head, you get some pretty robust pricing power. In 2022, our markets experienced 30% annual market rent growth, which was just, I want to say ridiculous. I mean, it was crazy. We've always thought about strong single-digit market rent growth would be great in our space. We've had a few years where it got to double-digit, but 30% was really exceptional. I want you to combine that thought with the fact that leases in our space tend to be about 5-6 years in length. So what it means is that many of our leases have not yet renewed to that uptick that I described in 2022. They're still on an old lease. Let's imagine that lease rate was established in 2020. It is awaiting renewal.
A large part of that mark-to-market has not yet come through our P&L. We actively measure this. We report on it. We call it our lease mark-to-market, which is how much higher across all of our spaces in our portfolio, we aggregate it all, are available market rents compared to what's in place. And that number is 57% higher. So the average lease, you know, upgrade that we're going to have when we renew them over the coming years will be 57% more. And you'll see in a few slides, that's about $2.4 billion of additional rent we'll start to bring into our P&L as these leases roll. And that's a figure that's without any continued market rent growth from here, which is not our forecast. But if we just said, let's just call it for right now, what will the rents increase by?
That would be the figure that will become EBITDA, will become dividends, etc. So just a few more things on Prologis. I highlighted a few of these numbers upfront. Our equity market cap, just to blend into that, is about $126 billion. We're relatively low levered for REIT. We have about $30-$35 billion on top of that that would constitute our enterprise value. On that equity cap, we're about S&P 70, just FYI, in terms of where we sit. We have, I like, I think it's true to say the best REIT balance sheet. I say that with confidence as being measured by credit spreads out in the markets. There's a lot of REIT issuers, a lot of liquidity and transparency into what fixed income investors pay for credit.
And we've commanded the lowest borrowing spread, really, of any REIT for about five years running, A3 rating with Moody's, A flat with S&P. And, we're just in really good standing there, which becomes important later. I'll describe in terms of how we fuel our growth because we have a lot of debt capacity and investment capacity, on that basis and due to that strong, that strong base. The other thing I'll highlight, you get a sense of where we are in the globe from here. There's this number off to the right, 2.8%. So we have had a study commissioned, where we estimate that 2.8% of global GDP passes through a Prologis building. It's just a way of thinking about our scale. It's a way of thinking about data that we have.
We've found many new businesses and opportunities available to us by right of having such incredible scale, which I'll describe in a few minutes, but a pretty incredible figure. I'm actually going to skip that one. Just a few more elements on our scale. So one element that is actively measured in REITs is going to be, well, what is it costing you to run this platform? By right of having such a large portfolio and being very mindful about the number of markets and growth that we have in front of us, we've managed to have one of the lowest cost structures amongst any REITs. You see Prologis here operating just north of 20 basis points for every dollar of AUM compared to other logistics REITs and other blue chip REITs, generally. Another element of scale would just be a few highlights of our balance sheet.
What I manage the balance sheet by, more than anything, is debt to EBITDA at that 4.6 times. We would probably be very comfortable within our rating at about 6 times debt to EBITDA. That's literally probably $10 billion-$15 billion of incremental debt that we could fund without that ratio really even moving and living comfortably within our rating. So we've got a lot of, a lot of room for growth in that regard. In terms of our operations, up top, we've had a small adjustment to occupancy since year-end, which we telegraphed to the street. We had exceptionally high occupancy at year-end, 97.6%, around 96.8% now. We think this will average around 97% for the year. Again, I would put that in the context of 95% being quite normal. And then the next line there, rent change on signing.
So this is for all of the leases that renewed in each of these two periods. How much higher was that lease than its prior lease? And if you let me round very liberally, you can see, you know, at 78% or 73%, we're nearly doubling the rent on customers. That's what's happened, to market rents in most all of our spaces in the last five years since they last had a rent setting. This is analogous to the 57% that I mentioned earlier. It's just that the leases that are rolling right now are going to be the ones that are above average, above 57%. And obviously, the leasing that we've conducted most recently is going to be very close to market. So that's how that is spread out.
And then at the bottom here, if you follow us, we measure a few things very actively and report on them to give some more forward-looking indicators on how we think about the business. We conduct surveys with customers that measure both a sentiment indicator, which is what sits on the left here, the IBI Activity Index, where any reading above 50%, this is a diffusion index, is going to indicate growth and portend for growth in their segment or industry. We're sitting at 58% here. So that's a very good reading. And then space utilization, this is not occupancy, but this is an assessment of within our buildings how much of the space is being utilized. Because we like to read into that as a source of, is there some shadow supply here? Will customers need to take more space, less space?
We've had a little bit of an uptick, I'm sorry, downtick, you could see towards the end of that chart. That was the depletion of some inventories that we had seen, by right of a strong holiday season. And we had predicted we would see that rebound to the 80%, 84% is where we, I'm sorry, 85% at the end of February here. So we're recovering pretty well there as well. So we tend to focus, I haven't really touched on this yet, but we tend to focus on the consumption markets in the 20 countries that we operate in. So if you think of a supply chain, there's the production end of where things are actually manufactured, ultimately to where they're consumed.
And if we think of our consumption markets as being the larger, more vibrant 24-hour cities, this is going to be New York, Los Angeles, Tokyo, Mexico City, Dallas, Chicago, London, Paris, etc. That's where we focus most of our markets. And, we have a very infill strategy thereafter. That goes all the way back to our founding almost 40 years ago now, not really with probably a recognition that e-commerce was going to be so, important 40 years later, but more because we knew that well-located, more infill logistics facilities were probably more likely to become something else. Maybe they will become an apartment, an office building, something down the road. There's the cheapest house on the block way of thinking. And by right of that, we've always had that preference in our investing and thus, have one of the more infill, location strategies.
So if we look at that in terms of a few things here, retention, which is, you know, if when a lease comes up for a customer, do you retain that customer in your space or do you lose them? In logistics real estate, a good rule of thumb is that you retain about 75% of your tenants where you can. And then rent change, which we just spoke to, you see our strategy is, as we compare it to other logistics REITs, has outperformed due to both that market and submarket selection and also just, I think, our approach with our customers. Okay, I know I'm going fast here, but so this is crystallizing rent growth.
So what you're looking at here is in the two green bars, as you go out here, we have market rent growth as it occurs every year creates new potential rent. And as I said, you have to wait for the new leasing event to actually capture that rent. So the sum of the two green bars measures what is the incremental potential that has been developing over the last several years of extreme market rent growth. And then the darker green is just showing, well, how much are you crystallizing in every year for the leases that are rolling? And this is performed on a cumulative basis.
And what the interesting story here is, I think, is that despite us having a very meaningful uptick in the top line and same store growth of revenues, the overall bar continues to march upwards as market rent growth continues to grow despite the harvesting of those then available market rents. So over the period here, we've measured that we've realized $1.7 billion of this incremental rent, but there's still $2.4 billion remaining to harvest from here. This is a snapshot of how we think some of these metrics will look over the coming few years. We think market rent growth will be below this average. This is an annual average over the next three years of 4%-6%.
We think this year it'll be a little bit below that, meaning the next two years will be stronger as we see that dearth of new supply coming to our markets. We see average occupancy staying quite strong here between 96% and 97%. Then you see a few views of same store growth thereafter, very strong in the high single digits. We're a very large developer. This goes back about 20 years. We've invested about $46 billion into development. Our annual development volumes in terms of new starts is on the order of $4 billion. That's about our guidance; this year that would take place in all of our markets. One thing that's unique about our business model is that what we do is we develop these assets on our balance sheet.
Typically, you see, on the bottom row, the number that's circled here, the margin, we have this history of earning about a 29% profit margin on all that development. So, $13.4 billion of value creation across this period. One way that we harvest that value is after we develop the asset on our own balance sheet. We offer it at appraised value, at fair market value, now that it's stabilized to one of those co-investment vehicles that I described up top. They are investors in real estate that is just core and operating in nature. They are not the developers. And it gives Prologis this ability to recycle capital year in and year out, harvesting this gain, getting capital back for the following year's development, and then adding a fee stream on top of it.
Because I'll show you in just a moment, the Strategic Capital business itself is not just a source of capital for all of this, but it's a revenue center for the company as well. In terms of the outlook for continued development, you see a snapshot of where our land bank is across many of our markets. Again, this constitutes about $40 billion of investment from here. I mean, that would, if you use my run rate, that would take 10 years to fully build out. I have a guess that we'll build it a bit faster than that because I think our starts volumes will begin to increase over time. But that's another 224 million sq ft.
Just that land bank, not that this is important, but just for context, just that land bank is larger than any other logistics REIT in terms of what its buildout would become. An avenue of development. So I talked about higher and better use and building out, redeveloping our facilities to become things different than logistics. One thing that has certainly emerged and is very topical, well, in the entire market, but in REITs lately, is data centers. And obviously, all the excitement around AI and the need for data centers and power and the power consumption that they're going to command has brought a lot of need for new facilities into the market. We have always identified data centers as a logical higher and better use candidate for our facilities.
What you really need is a building or a piece of land somewhere for the facility to sit. But then you need some connection to fiber and the information flow, but also power. The name of the game right now, as you probably are all aware, is really, can you procure the power that these data centers are going to require? And we either have power or we are actively engaged in getting power in about 60 of these locations today. So we've mapped out a large opportunity here. We've given some indication of what we think will occur in the next five years. I would highlight that this is not Prologis entering a new segment of real estate. Our intentions here are more to create the value through the development and entitlement activities. We would also conduct this.
It's our plans to do mostly in a build-to-suit format, which is to say pre-leased to one of the hyperscalers would be the main objective here, but then to exit those properties. We don't necessarily want to be owning these properties. This is just a good value creation capital recycling exercise for us to really take advantage of. So in terms of outlook and development for the next three years, you get a sense of where it is, how it is. We would develop somewhere between $3.5-$6 billion annually over the next three years, which is a combination of our bread and butter logistics development, as well as what we think we can conduct in higher and better use conversions. Strategic Capital.
So just to explain strategic capital a bit more, you can see how much capital is provided from this business on our $219 billion of total AUM. Below that, $60 billion comes from third parties. We match it with our own $30 billion. So we are a co-investor in these vehicles, about 30%. You can do the math. That's a very high level of co-ownership with these LPs. So there's a lot of alignment of interest in that regard. And one thing that it does is that it heightens our returns within the vehicle. We earn fees. We earn asset management fees, property management fees, leasing fees, etc. So we can spread out our capital, invest in more properties, diversify our holdings in that, in that way, but also have this fee stream that sits on top of it.
As I mentioned, it's a very important model to the overall capital recycling framework. A lot of people wonder how the AUM and our Strategic Capital business will increase from here. These are the 3 drivers of overall AUM increase that we see in the next 3 years. It's going to be base valuation uplift of our properties, new assets that we contribute into the vehicles, as well as third-party acquisitions out in the market should give something like a 9%-12% CAGR on the AUM growth, which is the ultimate driver of fees within all that vehicle, all those vehicles. And then, lastly, I mentioned earlier that, you know, all of the scale that we've been able to develop has delivered a few new businesses that we're taking advantage of. One of them, we call Essentials. There's a few avenues of Essentials.
One is, we call it operating Essentials. Operating essentials, think of, you know, historically in our sector, when you lease a logistics facility from us or any of our competitors, you're basically leasing a completely empty box. There's no racking in it. You may be surprised to learn, but there's no racking. There's no forklifts. There's no Wi-Fi or IT infrastructure, nothing. And we've kind of learned, gosh, on our scale, we can procure a lot of these things on behalf of our customers, give them a better moving and operating environment, but also create a profitable business for ourselves. So that's one element of essentials. Another is energy. And so, you know, if you think about green energy and solar power, one of the best places to generate solar power is on the roofs of warehouses. And I'm sure you've seen some of these installations.
Historically, we have done that off the side of our desk, I would say. But in light of ESG efforts and the need for more power, also the economics around solar improving, both in terms of cost of the materials, but also the price of power and also incentives and things like the IRA here in the U.S. or other financing incentives available in other geographies has made solar a very attractive business to us. We, I guess it's not on here, but we believe our energy investments ought to generate IRRs between 12%-14%. Today, we are generating a little over 500 MW of power on our roofs. We aim to have that be about 1 GW by the end of 2025. And we'll keep marching thereafter to about 7-8 GW, I think by the end of the decade.
Mobility is the other piece of this. EV, think about fleet charging. This is not for the employees in the parking lot. This is for all the trucks pulled up to the dock doors. That is a very logical place to charge EV and delivery vehicles, as well as hub locations. So there's a lot here on the mobility front that we're also, we're not just installing equipment, we're actually providing charging as a service for our customers. Our presentation has some details on how that all will roll out over the next few years. And maybe I'll just end here, which is to say, you know, we're really proud of our business model. We've got an incredible track record of earnings growth. You see a five-year track record, on an earnings basis of about 12%, how it compares to a number of other indices.
And then similarly, on dividend growth, we've had very exceptional just cash flow growth as a REIT. You know, we need to distribute these earnings. So that's provided very good uplift there, as well. So I went fast there.
No, I guess if nothing else, I hope you all leave here knowing that all commercial real estate is not bad real estate right now, right? It's hard not to look at this presentation and get excited about what comes over the next year and 5 years and 10 years. What do you think folks are focused on? Southern California is a negative and supply is a negative. And you're generating these tremendous same-store results. So what do you view as what's, what should we be watching in the negative to make sure you're, you're still heading for those same goals?
I think the main thing that could be a surprise. It would surprise me. But the main thing we might worry about is just an aggregate level of demand. If it softens in some way, did my mic go off? It feels like it did. I think my mic went off, sir, but I'll speak loudly. So, because I think the supply picture is very contained. I think our development picture, we've got control of land. We know where we want to build. We know our customers. So the various areas, you know, the one that could be out of our control is, you know, is there some reason there's an aggregate softening of demand that could throw some of this off course?
We really don't see it because I think the secular trends are more e-commerce, more e-commerce adoption to get service levels in, not just from the Amazons, but think about everybody competing with Amazon. They need bigger and better functioning supply chains closer into the consumption centers. They're not making any more land. The land that is available, NIMBYism doesn't want it to be warehouses. They want it to be something industry or something more interesting. So, you know, the combination of all those factors over the long term has us, you know, I think unconcerned on that basis. But in the shorter term, maybe we're just watching that. Okay. Tim, thank you very much. I mean, it's a really good story. We appreciate you coming back to the Ray Jay Conference each year. And would you join me in thanking Tim for the presentation? Thank you.