The logistics real estate sector is showing surprising resilience amid global trade tensions, according to the latest Industrial Business Indicator (IBI) report from Prologis, the world's largest logistics real estate company. The findings suggest warehouses - often overlooked as the unglamorous backbone of modern commerce - are experiencing renewed demand as businesses adapt to shifting economic conditions.
IBI Index Signals Market Acceleration
The third-quarter IBI activity index reached 53, crossing the critical 50-point threshold that indicates market expansion. This composite metric tracks three key indicators:
1. Net Absorption: Measures the change in occupied warehouse space, with positive numbers indicating decreasing vacancy rates.
2. New Lease Signings: Tracks the volume of new warehouse rental agreements being executed.
3. Proposal Pipeline: Gauges potential future demand through active leasing discussions.
All three indicators surpassed their 2024 averages, suggesting what Prologis researchers describe as a "measured recovery" rather than a dramatic rebound. The report notes supply chain activity peaked in early 2025 before trade volatility caused a temporary pullback.
Three Drivers Behind the Warehouse Demand
Prologis Global Research Head Melinda McLaughlin identifies three primary factors fueling the warehouse revival:
1. Strategic Stockpiling: Companies in essential industries - particularly food and beverage, e-commerce, and healthcare - are expanding storage capacity as a hedge against supply chain disruptions. The report notes record leasing volumes and increased requests for customized facilities.
2. Operational Efficiency Gains: Warehouse utilization rates climbed to 84% in Q3, approaching 85% in October, indicating businesses are optimizing existing space before expanding further.
3. Favorable Market Conditions: Slight rent reductions and dwindling new construction have created what McLaughlin calls "a window of opportunity" for tenants to secure quality space.
The "Just-in-Case" Inventory Strategy
While utilization rates rise, companies maintain conservative "just-enough" inventory approaches rather than the bulk stockpiling seen during previous expansion periods. This balanced strategy aims to:
- Minimize capital tied up in inventory
- Increase supply chain responsiveness
- Reduce exposure to demand fluctuations
However, the report warns this lean approach leaves little buffer for unexpected demand surges, potentially straining logistics networks during peak periods.
Cyclical Recovery or Structural Shift?
McLaughlin characterizes the current demand increase as primarily cyclical rather than structural: "Businesses remain cautious given economic uncertainties and high carrying costs. As conditions improve, we anticipate inventory buffers will gradually rebuild, particularly where supply chain vulnerabilities persist."
Market Outlook: Tightening Supply Ahead
The report projects vacancy rates stabilizing near 7%, while construction pipelines continue shrinking below pre-pandemic levels. McLaughlin notes: "With new starts lagging and speculative development slowing, modern facilities in prime locations could see renewed rent growth as demand improves."
This supply-demand dynamic favors warehouses featuring:
- Advanced automation capabilities
- Strategic transportation access
- Sustainable design elements
The Future Warehouse: Smarter, Greener, More Automated
Looking beyond current market conditions, the report suggests next-generation warehouses will increasingly incorporate:
Robotics: Automated guided vehicles and robotic picking systems to boost efficiency.
AI Optimization: Machine learning for inventory management and logistics planning.
Renewable Energy: Solar panels and other green technologies to reduce environmental impact.
These technological advancements are transforming warehouses from simple storage spaces into sophisticated logistics hubs that power modern commerce.