After years of global economic volatility and trade tensions, the logistics real estate market is showing signs of recovery. But is this a temporary cyclical rebound or a sustainable structural transformation? The Prologis Industrial Business Indicator (IBI) report provides crucial insights into this pivotal question.
Part I: The IBI Index – A Demand Turning Point Signal
1.1 Understanding the IBI Index
The Prologis IBI is a proprietary metric tracking warehouse customer activity through key indicators including net absorption, new lease signings, project pipelines, and facility utilization. Scores above 50 indicate market expansion, while sub-50 readings signal contraction.
1.2 Q3 IBI Analysis: The Significance of 53
The third-quarter IBI reading of 53 exceeds 2024's average, marking a critical inflection point. Three components demonstrate broad-based recovery:
- Net absorption: Positive net absorption reflects growing demand as businesses expand operations
- New leases: Increased leasing activity indicates companies actively securing additional space
- Project pipelines: Expanding development pipelines show developer confidence in market fundamentals
Part II: Recovery Drivers – Multiple Tailwinds
2.1 Renewed Business Confidence
With trade tensions easing, companies are shifting focus from short-term uncertainty to long-term growth strategies and supply chain investments.
2.2 Industry Leaders Driving Demand
Essential sectors including food/beverage, e-commerce, and healthcare accounted for most record lease signings in Q3, providing market stability:
- Food sector benefits from population growth and premiumization trends
- E-commerce continues expanding fulfillment networks
- Healthcare demand grows with aging populations and medical advancements
2.3 Utilization Reaching Critical Levels
Average warehouse utilization reached 84% in Q3, approaching 85% in October. This efficient space usage indicates improving economic activity and prepares businesses for future expansion.
Part III: Inventory Strategies – Precision Management
Despite demand recovery, companies maintain lean "just-in-case" inventory approaches with average utilization below historical peaks. This creates potential for rapid demand spikes should consumer activity accelerate unexpectedly.
Part IV: Cyclical vs. Structural Outlook
Current recovery appears primarily cyclical due to economic uncertainty and high carrying costs. However, structural factors including persistent supply chain risks may drive companies to rebuild inventory buffers, potentially exceeding demand projections.
Part V: Vacancy and Construction Dynamics
The market shows stable 7% vacancy rates as it absorbs recent deliveries. With new construction starts below 2017-2019 averages, tightening market conditions appear likely.
Key Implications
For Businesses
Companies should monitor market indicators closely, maintain flexible inventory strategies, and secure quality logistics space during current favorable conditions.
For Investors
The evolving supply-demand balance presents opportunities in logistics real estate assets, particularly in essential industry segments demonstrating stable demand.
While current recovery appears cyclical, structural supply chain considerations may drive sustained growth. Market participants should prepare for potential acceleration in logistics space demand.