The logistics real estate market, once overshadowed by trade tensions, appears to be seeing early signs of revival. The latest Industrial Business Indicator (IBI) report from global logistics infrastructure leader Prologis provides valuable insights into market recovery patterns and future trends.
IBI Index: Signals of Demand Rebound
The Prologis IBI serves as a survey measuring customer sentiment toward warehouse activities. With a Q3 reading of 53, the index indicates improving market conditions. This recovery stems from three key metrics showing healthier growth compared to 2024 averages:
- Net absorption: The difference between newly leased and vacated space
- New lease signings: Total area covered by new rental agreements
- Project pipeline: Planned future developments
The recovery appears uneven, led primarily by large corporations and e-commerce firms, with other industries expected to follow gradually.
Drivers Behind the Market Recovery
Prologis Global Research Head Melinda McLaughlin identifies several contributing factors:
1. Increased Corporate Activity
Businesses are moving beyond trade uncertainty, focusing instead on growth strategies and structural supply chain investments. This shift has translated into active searches for optimal logistics solutions.
2. Record Leasing Performance
Prologis achieved historic leasing volumes in Q3, including significant build-to-suit agreements. Essential industries like food/beverage, e-commerce, and healthcare drove much of this demand.
3. Improved Space Utilization
Average utilization rates reached 84% in Q3, approaching 85% by October, signaling operational improvements and business confidence.
4. Favorable Market Conditions
Modest rent adjustments, reduced new project deliveries, and more attractive lease terms have created a tenant-friendly environment.
The "Just Right" Inventory Approach: Temporary or Permanent?
Companies continue maintaining leaner inventories than traditional expansion periods would suggest. McLaughlin views this as cyclical rather than structural: "Current economic uncertainty drives cautious inventory management. As conditions stabilize, we anticipate buffer rebuilding—especially given persistent supply chain disruptions."
Market Outlook: Stabilization with Emerging Opportunities
The report forecasts stable vacancy rates around 7%, with construction starts remaining below pre-pandemic (2017-2019) averages. McLaughlin notes: "The development pipeline is tightening rapidly. Once existing supply gets absorbed—particularly for modern, well-located facilities—rent growth may accelerate given high replacement costs."
Challenges and Opportunities
While trade tensions and economic uncertainty persist, several growth drivers emerge:
- Sustained e-commerce expansion
- Supply chain optimization needs
- Growing cold storage requirements
- Increasing urban last-mile delivery demands
Strategic Considerations
The market's transitional phase presents both potential and challenges. Investors should prioritize premium facilities in supply-constrained markets, while tenants can leverage favorable conditions to secure optimal locations and terms.
Future Trends
Industry evolution will likely feature:
- Smart warehouse technologies
- Sustainable development practices
- Customized facility solutions
- Integrated logistics ecosystems