The third-quarter IBI activity index reached 53, signaling positive momentum in net absorption, new lease signings, and project pipelines compared to 2024 averages. This improvement suggests the sector may be turning a corner after facing significant headwinds from economic volatility and supply chain disruptions.
Multiple Factors Driving Demand Recovery
Melinda McLaughlin, Prologis' global head of research, attributed the demand rebound to several converging factors. "Businesses are making structural investments in their supply chains despite trade policy noise," McLaughlin noted. "We're seeing record leasing activity and increased build-to-suit agreements, particularly from large customers in essential industries like e-commerce, food and beverage, and healthcare."
Utilization rates have climbed to 84% in Q3 and approached 85% in October, indicating effective inventory management across supply chains. McLaughlin emphasized that while companies maintain leaner "right-sized" inventory strategies due to economic uncertainty, this approach appears cyclical rather than a permanent structural shift.
Market Fundamentals Stabilizing
The report projects vacancy rates will stabilize around 7% in the near term, reflecting balanced market conditions. Construction pipelines continue to tighten, with new project starts remaining below pre-pandemic (2017-2019) averages. This supply constraint, combined with rising demand, could accelerate rental growth for modern, well-located facilities.
"Speculative development has slowed significantly," McLaughlin observed. "As this limited new supply gets absorbed—particularly for high-quality assets in strategic locations—market conditions should tighten further, supporting stronger rent growth given high replacement costs."
Industry Experts Cautiously Optimistic
Commercial real estate analysts view these developments as evidence of the sector's underlying strength. The logistics property market has demonstrated remarkable resilience during recent economic turbulence, supported by e-commerce growth and corporate efforts to build more resilient supply chains.
While challenges remain—including elevated construction costs, labor shortages, and geopolitical risks—the long-term outlook appears favorable. Essential industries continue to drive demand, and the limited new supply pipeline suggests improving fundamentals for property owners and investors.
The IBI findings align with broader commercial real estate trends showing industrial properties outperforming other asset classes. As businesses prioritize supply chain efficiency and inventory positioning, strategically located logistics facilities remain critical infrastructure supporting global trade flows.