The global logistics real estate market is showing signs of recovery after a period of contraction, according to the latest Industrial Business Indicator (IBI) report from Prologis, the world's leading logistics real estate company. The third-quarter IBI activity index reached 53, crossing the critical 50-point threshold that separates market expansion from contraction.
IBI Index: The Barometer of Logistics Real Estate
The Prologis IBI Index serves as a comprehensive measure of warehouse sector activity, tracking five key metrics:
- Net Absorption: The difference between newly leased and vacated space
- New Leasing Volume: Total area covered by new lease agreements
- Project Pipeline: Number of developments in planning or construction
- Rent Growth: Percentage increase in warehouse rents
- Vacancy Rate: Proportion of unoccupied logistics space
"The Q3 reading suggests we're seeing the early stages of market recovery," said Melinda McLaughlin, Prologis Global Head of Research. "Multiple factors are converging to drive this turnaround."
Drivers of Market Recovery
Corporate Strategy Shifts
Businesses are moving from reactive to proactive supply chain investments:
- Implementing supply chain diversification to reduce regional dependencies
- Building resilience through increased inventory buffers
- Accelerating digital transformation of warehouse operations
Sector-Specific Demand
Essential industries are leading the recovery:
- Food & beverage companies expanding cold storage capacity
- E-commerce firms optimizing last-mile distribution networks
- Healthcare providers securing pharmaceutical storage space
Operational Efficiency Gains
Warehouse utilization rates climbed to 85% in October as companies:
- Optimized existing space through denser storage configurations
- Added value-added services within warehouses
- Improved supply chain coordination with partners
Inventory Management Evolution
While utilization rates improve, most tenants maintain "right-sized inventory" strategies:
- Average utilization remains below pre-pandemic peaks
- Companies balance storage needs against holding costs
- Supply chains remain vulnerable to demand surges
"The lean inventory approach works until it doesn't," McLaughlin noted. "Any unexpected demand spike could strain these optimized systems."
Market Outlook
Key projections for coming quarters:
- Vacancy rates stabilizing near 7%
- Construction starts below historical averages
- Rent growth acceleration likely as demand outpaces supply
The shortage of modern, well-located facilities may create supply constraints in 2024-2025 as available space gets absorbed.
Strategic Implications
For tenants:
- Prioritize locations near consumption hubs
- Invest in automation to offset labor challenges
- Develop flexible inventory strategies
For investors:
- Focus on premium assets in supply-constrained markets
- Diversify across geographies and property types
- Monitor rebuilding costs impacting new supply
The logistics real estate sector continues evolving from simple storage spaces to sophisticated supply chain nodes, with the IBI Index serving as a critical diagnostic tool for market participants navigating this transformation.