The latest Industrial Business Indicator (IBI) report from Prologis reveals a pivotal shift in logistics real estate demand during the third quarter. This report not only captures current market sentiment but provides deep insights into future trends.
IBI Index: Signaling a Demand Inflection Point
Prologis's IBI index, which surveys customer warehousing activity, recorded a reading of 53 in Q3, indicating a significant turning point. This growth was primarily driven by substantial improvements in net absorption, new lease signings, and project pipelines—all exceeding 2024 averages.
While the report notes that supply chain activity peaked in early 2025 before moderating due to trade volatility, the overall recovery isn't linear. Large corporations and e-commerce companies are leading this resurgence, with other industries expected to follow.
Key Drivers of Demand Growth
Melinda McLaughlin, Prologis Global Head of Research, identifies several factors contributing to improved real estate demand compared to 2024 averages:
- Corporate Actions: Businesses are proactively addressing trade uncertainties, requiring structural investments in supply chains to support ongoing growth.
- Leasing Performance: Prologis achieved record lease signings in Q3, including increased build-to-suit agreements. Major clients and essential industries (food & beverage, e-commerce, and healthcare) were primary drivers.
- Utilization Improvements: Customers expanded within existing spaces, indicating strong operations and rising utilization rates.
- Market Conditions: Slight rent corrections and reduced new deliveries created more favorable leasing conditions.
Utilization Rates: Reflecting Lean Inventory Strategies
Prologis observed continued utilization growth, averaging 84% in Q3 and approaching 85% in October. This suggests inventory is moving efficiently through supply chains, with customers filling additional capacity.
Notably, clients maintain "Just Enough" inventory strategies, with average utilization below traditional expansion periods. This means any unexpected consumer demand spikes could trigger strong supply chain reactions.
Cyclical vs. Structural: The Future of Inventory Management
McLaughlin views current trends as more cyclical than structural. Businesses are cautiously managing inventories due to economic uncertainty and high holding costs. As economic cycles shift toward expansion, inventory buffers are expected to rebuild—especially given ongoing supply chain disruptions that justify maintaining larger stockpiles.
Vacancy and Construction: Market Outlook
The report forecasts stable vacancy rates around 7% in the near term, reflecting balanced market conditions. Meanwhile, construction pipelines continue shrinking, with new starts remaining below 2017-2019 averages.
"With recent deliveries still being leased, vacancy should remain stable temporarily," McLaughlin added. "But construction pipelines are tightening rapidly. New starts are well below pre-pandemic levels, and speculative building has slowed significantly. Once new supply is absorbed, markets will tighten again—particularly for modern, well-located facilities. With replacement costs still high, rent growth could reaccelerate as demand improves and space becomes scarce."
Deeper Data Analysis
To better understand market dynamics reflected in the IBI index, we examine key metrics through an analytical lens:
1. IBI Index and Macroeconomic Correlations: Time series and regression analyses reveal how the index relates to GDP growth, PMI, and retail sales data. Strong correlations with consumer spending help predict logistics demand shifts.
2. Industry-Specific Leasing Patterns: Variance analysis shows e-commerce dominates leasing volume, while healthcare commands premium rents—information crucial for targeted leasing strategies.
3. Utilization and Inventory Strategies: Cluster analysis demonstrates how JIT (Just-In-Time) adopters maintain lower utilization than VMI (Vendor-Managed Inventory) users, suggesting opportunities for flexible space solutions.
4. Vacancy and Construction Cycles: Granger causality tests indicate new project starts typically precede vacancy increases, helping time investment decisions.
5. Rent Growth Drivers: Multivariate regression confirms location as the primary rent determinant, followed by facility quality—valuable insights for pricing strategies.
Conclusion
The Prologis IBI index signals a critical inflection point in logistics real estate demand. Despite trade uncertainties, corporate expansion continues, utilization rises, and tightening supply could reignite rent growth. Comprehensive data analysis enables more informed investment and leasing decisions.
Future Considerations
Key areas to monitor include:
- Trade policy impacts on supply chains
- E-commerce evolution and its logistics implications
- Warehouse automation and smart logistics technologies
- Sustainable practices in logistics real estate development