As global trade patterns undergo complex transformations, the warehousing and logistics sector is adapting its strategies to navigate new challenges and opportunities. The latest Industrial Business Indicator (IBI) report from Prologis provides crucial insights into this evolving landscape, signaling a pivotal turning point for logistics real estate demand.
The Prologis IBI Index: A Barometer for Logistics Real Estate
The Prologis Industrial Business Indicator (IBI) serves as a comprehensive survey of warehouse customer sentiment, measuring activity levels across the storage sector. By tracking key metrics including net absorption, new lease signings, and project pipelines, the index offers a reliable assessment of the sector's overall health. Widely regarded as the industry benchmark, the IBI provides valuable predictive insights into market demand shifts and future trends.
IBI Findings: An Emerging Demand Inflection Point
The third quarter of 2025 saw the IBI activity index reach 53, marking a significant inflection point for logistics real estate demand. This upward movement reflects notable improvements across all core metrics compared to 2024 averages. Following peak supply chain activity in early 2025 due to trade volatility, the index experienced temporary moderation. Prologis analysts emphasize that market recovery follows a non-linear trajectory, currently led by major corporations and e-commerce firms, with other sectors expected to follow.
Key Drivers of Market Recovery
Melinda McLaughlin, Prologis Global Head of Research, identifies several factors propelling the improved real estate demand:
- Proactive Client Strategies: Businesses are implementing structural supply chain investments to address trade uncertainties while supporting operational growth, moving beyond passive observation to concrete action.
- Leasing Performance: Record-breaking lease signings and increased build-to-suit project agreements in Q3 demonstrate robust demand for high-quality, customized logistics facilities, particularly from large clients and essential industries.
- Utilization Gains: Rising facility utilization rates (averaging 84% in Q3, approaching 85% in October) indicate improving operational efficiency and confidence in future growth.
- Favorable Market Conditions: Moderate rent adjustments coupled with reduced new supply have created advantageous leasing opportunities, motivating clients to secure appropriate storage space.
Inventory Strategies and Supply Chain Responsiveness
While businesses continue implementing "just-right" inventory approaches—maintaining utilization below traditional expansionary period averages—this conservative strategy presents potential responsiveness challenges should consumer demand surge unexpectedly. Companies must balance inventory levels with operational agility to effectively navigate market fluctuations.
Cyclical vs. Structural Inventory Trends
McLaughlin characterizes current inventory management practices as primarily cyclical rather than structural. Economic uncertainty and elevated carrying costs currently drive cautious approaches, but anticipated economic expansion will likely prompt inventory buffer rebuilding—particularly given persistent supply chain disruptions. Businesses must remain flexible in adjusting inventory strategies to address evolving market conditions.
Vacancy and Construction Outlook
The report projects stable vacancy rates around 7% in the near term, with construction starts remaining below 2017-2019 averages. As the existing pipeline gradually leases up and new project starts slow significantly—particularly speculative developments—market conditions are expected to tighten considerably. This tightening, combined with persistently high replacement costs, may accelerate rental growth as demand improves and premium space becomes scarce.
Future Prospects for Logistics Real Estate
The IBI findings confirm a decisive inflection point in logistics real estate demand. Despite ongoing trade uncertainties and economic volatility, businesses are actively pursuing structural supply chain investments. As market fundamentals strengthen and supply constraints emerge, the sector appears poised for renewed growth opportunities. Modern facilities with strategic locations and operational efficiency will command particular competitive advantage in this evolving landscape.
Supplementary Information: Logistics Real Estate Fundamentals
Logistics real estate encompasses specialized properties supporting supply chain operations, including warehouses, distribution centers, and cross-dock facilities. These assets serve as critical nodes connecting production, distribution, and consumption networks—with optimized logistics infrastructure reducing transportation costs, improving inventory turnover, and shortening delivery cycles to enhance overall business competitiveness.
Market Influencers
Key factors shaping logistics real estate demand include:
- Macroeconomic conditions
- Trade policy developments
- E-commerce expansion
- Technological advancements
- Demographic shifts
Sector Evolution
Emerging industry trends point toward:
- Smart facility integration
- Sustainable development practices
- Customized solutions
- Multifunctional urban logistics hubs
Investment Considerations
While offering substantial growth potential—particularly from e-commerce expansion and global supply chain development—logistics real estate investments face cyclical economic risks, interest rate sensitivity, policy uncertainties, and intensifying competition.