The logistics real estate market is experiencing a significant inflection point, according to the latest Industrial Business Indicator (IBI) report from Prologis. This proprietary metric serves as a barometer for warehouse and distribution center activity, offering valuable insights into market dynamics and future trends.
Demand Shows Promising Turnaround
After showing signs of increased leasing activity in the second quarter, the logistics sector witnessed a notable improvement in demand during the third quarter. The IBI Activity Index registered at 53, signaling improving market sentiment. This positive shift manifests in several key metrics:
- Increased net absorption of existing logistics facilities
- Rising volume of new lease signings
- Healthy pipeline of development projects
Trade Volatility and Market Resilience
While the IBI indicates some moderation in supply chain activity following a peak in early 2025 due to trade fluctuations, Prologis analysts emphasize the market's underlying strength. The recovery appears to be led by large corporations and e-commerce companies, with other industries expected to follow suit.
Melinda McLaughlin, Prologis Global Head of Research, identifies several factors driving the improved demand compared to 2024 averages:
- Proactive client strategies addressing trade uncertainties
- Record leasing volumes, particularly in essential industries
- Improved facility utilization rates
- Favorable market conditions including adjusted rents
Utilization Rates and Inventory Strategies
Third-quarter data shows utilization rates climbing to 84% on average, approaching 85% in October. This reflects companies' efforts to optimize inventory management while maintaining conservative "right-sized inventory" approaches below traditional expansion levels.
McLaughlin notes this trend appears more cyclical than structural, with businesses maintaining cautious inventory positions due to economic uncertainty and high carrying costs. However, analysts anticipate inventory rebuilding as economic conditions improve, particularly given ongoing supply chain disruptions.
Market Fundamentals Remain Strong
The report projects vacancy rates stabilizing around 7% in the near term, while construction starts continue to decline below 2017-2019 averages. This tightening supply pipeline, coupled with reduced speculative development, suggests potential for renewed rental growth as demand improves.
Modern, well-located facilities are expected to command premium positioning in the market. With replacement costs remaining elevated, analysts anticipate accelerating rent growth as available space becomes increasingly scarce.
Looking Ahead
The Prologis IBI paints an optimistic picture for logistics real estate, demonstrating resilience despite trade uncertainties. As businesses continue to invest in their supply chains and optimize operations, the sector appears well-positioned for sustained growth. The combination of improving demand fundamentals and constrained new supply creates favorable conditions for market participants.