In an era of global economic uncertainty and persistent trade friction, logistics real estate — the critical infrastructure supporting worldwide commerce — faces both challenges and transformation. The latest Industrial Business Indicator (IBI) report from Prologis, the global leader in logistics real estate, reveals shifting market dynamics that may signal a turning point for the sector.
Market Reaches Inflection Point
The Prologis IBI report indicates that after showing growth in leasing activity during the second quarter, the third quarter marked a significant inflection point for logistics real estate demand. Key metrics including net absorption, new lease signings, and project pipelines all outperformed 2024 averages, suggesting the first signs of market recovery.
The IBI index, which measures warehouse customer activity, registered at 53 for Q3 — above the 50-point threshold that separates expansion from contraction. However, the recovery path appears nonlinear, reflecting the complex interplay of global trade patterns and economic uncertainty.
Large corporations and e-commerce giants are leading the demand surge, with other industries expected to follow. This uneven recovery creates both opportunities and challenges for logistics providers who must tailor solutions to diverse client needs.
Multiple Factors Driving Improvement
Melinda McLaughlin, Prologis Global Head of Research, identifies several interconnected factors behind the market's improvement:
"Clients are moving forward despite trade policy noise because their businesses continue growing and require structural supply chain investments. We saw record leasing volume in Q3, particularly from large customers in essential industries like food/beverage, e-commerce, and healthcare. Utilization rates are climbing as clients expand within existing spaces, reflecting healthier operations."
Three key drivers emerge:
1. Strategic supply chain investments: Companies are prioritizing efficiency and resilience upgrades despite macroeconomic uncertainty.
2. Essential sector leadership: Industries with stable demand profiles are driving most current activity.
3. Favorable market conditions: Moderating rents and reduced new supply create advantageous leasing environments.
Inventory Caution and Utilization Trends
Utilization rates climbed steadily through Q3, averaging 84% and approaching 85% by October. While this indicates inventory moving efficiently through supply chains, companies maintain conservative "just-right" inventory strategies — keeping utilization below traditional expansion levels.
This cautious approach reflects both economic uncertainty and improved inventory management capabilities. However, it leaves supply chains vulnerable to demand surges, as minimal buffer stocks could amplify disruptions.
McLaughlin views this primarily as cyclical behavior rather than a structural shift:
"Current inventory management reflects high uncertainty and carrying costs. As conditions improve, we expect buffer stocks to rebuild — especially given ongoing supply chain fragility."
Supply Dynamics and Future Outlook
The report forecasts stable vacancy rates near 7%, reflecting balanced market conditions. However, new construction starts remain below pre-pandemic (2017-2019) averages, suggesting future supply constraints.
McLaughlin notes:
"The development pipeline is tightening rapidly. With speculative construction down significantly and replacement costs high, we anticipate accelerating rent growth as demand improves and quality space becomes scarce."
This outlook presents both opportunities and challenges:
Opportunities: E-commerce growth, supply chain modernization, and emerging markets create expansion potential.
Challenges: Trade uncertainty, conservative inventory strategies, and potential rent inflation could constrain growth.
The Road Ahead
The logistics real estate sector stands at a pivotal moment. While trade tensions and economic headwinds persist, structural shifts in commerce and supply chain management are creating new opportunities. Companies that can navigate this complex landscape — offering flexible, technologically advanced solutions while maintaining cost efficiency — will be best positioned for long-term success.
As the industry evolves, several key trends are emerging: increasing automation, sustainability initiatives, customized facility designs, collaborative supply chain models, and global network expansion. These developments promise to reshape logistics real estate in fundamental ways, creating both challenges and opportunities for industry participants.