San Francisco – Amid ongoing global trade tensions and economic uncertainty, the logistics real estate market has demonstrated remarkable resilience. The latest Industrial Business Indicator (IBI) index from Prologis (NYSE: PLD), the global leader in logistics real estate, reveals that demand is emerging from its trough, marking a critical inflection point that heralds a new growth cycle.
IBI Index: The Barometer of Logistics Real Estate
Prologis' IBI serves as a comprehensive survey of customer activity in warehouse space and is widely regarded as a leading indicator for the logistics real estate sector. Tracking leasing activity, utilization rates, and expansion plans, the index provides valuable insights into supply-demand dynamics and future trends.
The Q3 IBI activity index reached 53, signaling market expansion (readings above 50 indicate growth). This rebound follows several quarters of contraction, with notable improvements in net absorption, new lease signings, and project pipelines – all exceeding 2024 averages.
While the recovery shows promise, Prologis cautions that supply chain activity has moderated after peaking in early 2025 due to trade volatility, suggesting the recovery will follow a non-linear trajectory. Large corporations and e-commerce leaders currently drive demand, with other industries expected to follow as economic conditions stabilize.
Three Key Drivers of Demand Recovery
Melinda McLaughlin, Prologis Global Head of Research, identifies three primary factors behind the improved real estate demand:
- Strategic Corporate Adjustments: Businesses are moving beyond uncertainty to make structural supply chain investments that support growth. Prologis recorded record leasing activity and build-to-suit agreements in Q3, particularly from large enterprises and essential industries (food/beverage, e-commerce, healthcare).
- Operational Efficiency Gains: Rising utilization rates within existing facilities indicate healthy business operations and expansion plans.
- Improved Market Conditions: Moderated rents and reduced new supply have created favorable leasing environments, prompting businesses to expand their logistics footprints.
"Just-in-Case" Inventory Strategy: Balancing Opportunities and Risks
Prologis observes that clients continue to maintain lean "just-in-case" inventory strategies, with average utilization below traditional expansion periods. McLaughlin views this as cyclical rather than structural, noting current caution stems from economic uncertainty and high carrying costs. As the cycle turns, businesses may gradually rebuild inventory buffers, particularly given persistent supply chain disruption risks.
Market Outlook: Supply-Demand Dynamics
The report forecasts stable vacancy rates near 7% in the near term, while construction pipelines continue declining below 2017-2019 averages. McLaughlin notes: "As recent deliveries are absorbed, vacancies should stabilize. However, new construction starts remain well below pre-pandemic levels. Once this limited new supply is absorbed – particularly for modern, well-located facilities – and with reconstruction costs elevated, rent growth may accelerate as demand improves and space becomes scarce."
Investment Considerations
Analysis of the IBI index and market trends suggests investors should:
- Focus on core markets with strong economic fundamentals
- Prioritize modern, strategically located logistics assets
- Monitor macroeconomic conditions and adapt strategies accordingly
- Implement robust risk management frameworks
The Prologis IBI index indicates the logistics real estate market is transitioning toward renewed growth. While challenges remain, strategic corporate investments, operational improvements, and balanced market conditions suggest promising prospects for the sector.