San Francisco, California — The latest Industrial Business Indicator (IBI) report from Prologis, the global leader in logistics real estate, reveals a pivotal turning point in warehouse demand during the third quarter following signs of recovery in leasing activity during Q2. The closely watched report shows key metrics including net absorption, new lease signings, and project pipelines all exceeding 2024 averages, suggesting the market is gradually emerging from the shadow of trade uncertainties.
IBI Index: A Barometer of Customer Sentiment
Prologis defines the IBI as a survey of warehouse customer activity designed to gauge market sentiment. Tracking leasing activity, expansion plans, and future expectations, the index provides participants with critical insights into industry trends. The Q3 IBI activity index reached 53, surpassing the peak volatility seen earlier this year and indicating steady recovery for the logistics real estate sector.
While the recovery remains uneven, expansion by large corporations and e-commerce companies is driving growth, with other industries expected to follow. Prologis emphasizes that these sectors have demonstrated strong expansion intentions in recent months, fueled by sustained consumer demand and ongoing efforts to optimize supply chain efficiency.
Multiple Factors Driving Demand Improvement
Melinda McLaughlin, Prologis Global Head of Research, identifies several factors behind the improved demand compared to 2024 averages: "First, customers are taking action while paying less attention to trade 'noise' as their businesses continue growing and structural investment needs in supply chains persist," she explained. "Prologis signed record leasing volumes in Q3 along with more build-to-suit agreements, particularly from large customers and essential industries like food/beverage, e-commerce, and healthcare."
McLaughlin's analysis highlights several key drivers:
- Strengthened customer confidence: Businesses are adapting to trade uncertainties while refocusing on growth and supply chain optimization.
- Structural investment needs: E-commerce growth, supply chain complexity, and efficiency demands continue driving long-term warehouse requirements.
- Favorable market conditions: Slight rent adjustments and reduced new deliveries present attractive leasing opportunities.
Rising Utilization Rates: Inventory Normalization Accelerates
Prologis observed continued growth in utilization rates, averaging 84% in Q3 and approaching 85% in October. This suggests effective inventory management across supply chains as customers maximize existing space. Notably, businesses maintain "just right" inventory strategies with utilization below traditional expansion periods, indicating potential for strong supply chain response to unexpected consumption growth.
Vacancy Rates Stabilize as Construction Pipeline Tightens
The report projects stable vacancy rates around 7% in the near term, reflecting balanced market conditions. Meanwhile, construction pipelines continue shrinking with new development starts below 2017-2019 averages.
"Vacancy should remain stable as recently delivered projects continue leasing, but the construction pipeline is tightening rapidly," McLaughlin noted. "Starts remain well below pre-pandemic levels, and speculative construction has slowed significantly. Once this new supply is absorbed, markets will tighten again—particularly for modern, well-located facilities. With replacement costs still high, rent growth will likely accelerate as demand improves and available space becomes scarce."
Industry Perspective: Strong Fundamentals Meet Innovation Imperatives
Industry experts consulted for this analysis agree that despite global economic challenges, logistics real estate fundamentals remain strong. E-commerce growth, resilient supply chains, and efficiency demands continue supporting warehouse needs.
"Logistics real estate serves as the lifeblood connecting producers, distributors and consumers in the modern economy," commented a senior industry advisor. "Despite trade tensions and economic uncertainty, demand persists due to e-commerce expansion and consumer expectations for rapid delivery."
However, experts caution that macroeconomic conditions, geopolitical risks, and technological disruption require close monitoring. One analyst emphasized that future success will depend on innovation and sustainability, highlighting three critical trends:
- Automation and smart technology: Automated storage systems, autonomous vehicles, and AI are transforming operations.
- Sustainability: Green buildings, energy efficiency, and renewable power are becoming essential components.
- Customized solutions: Diversifying customer needs demand tailored approaches across industries.
Regional Variations: Emerging Markets Show Promise
The report also underscores significant regional differences. Emerging markets demonstrate substantial potential as infrastructure improves and consumer spending grows, while mature markets focus on asset upgrades and operational refinement.
"Emerging markets represent important engines for logistics real estate growth," observed an emerging markets investment specialist. "However, challenges like inadequate infrastructure, policy instability, and cultural differences require careful navigation."
Looking Ahead: Navigating Opportunities and Challenges
As global economic recovery progresses and new technologies emerge, logistics real estate will undergo profound changes in demand patterns and operational models. Industry leaders stress that continuous innovation and adaptation will be essential for competitive success.
The Prologis IBI Index serves as a valuable tool for understanding market dynamics, though it should be considered alongside other data points for comprehensive decision-making. With strong fundamentals but evolving challenges, the logistics real estate sector appears poised for transformation in the coming years.