The industrial real estate sector has long served as a barometer for broader economic health, with demand fluctuations often preceding macroeconomic shifts. Recent data from Prologis, the global leader in logistics real estate investment trusts, reveals a significant inflection point in warehouse demand during the third quarter following a second-quarter leasing rebound. This transition reflects structural transformations reshaping the logistics industry.
The Prologis Industrial Business Indicator: A Market Compass
The Prologis Industrial Business Indicator (IBI) represents a proprietary metric analyzing customer warehouse activity and market sentiment. This composite index serves as a reliable gauge for industrial real estate market vitality and future direction. With 50 as the expansion/contraction threshold, the IBI incorporates multiple key metrics including net absorption, new lease signings, and project pipelines to comprehensively assess market conditions.
Key components of the IBI include:
- Net absorption: Measures genuine demand for warehouse space, indicating corporate expansion intentions
- New lease commitments: Reflects market confidence and future business trajectory
- Development pipeline: Signals developer optimism about future supply requirements
Q3 IBI Findings: An Emerging Inflection Point
The third-quarter IBI reading of 53 marks a pivotal transition in warehouse demand patterns. This shift manifests through three primary indicators:
Increased net absorption demonstrates growing corporate demand for logistics space as businesses expand distribution networks. Rising new lease volumes indicate renewed market confidence, with companies securing additional capacity for anticipated growth. Simultaneously, expanding development pipelines reveal developer optimism about sustained demand.
While these metrics show improvement compared to 2024 averages, Prologis cautions that supply chain volatility may create nonlinear recovery patterns, particularly after early 2025 peak activity.
Demand Drivers: Structural Shifts in Supply Chain Strategy
Melinda McLaughlin, Prologis Global Research Head, identifies four primary factors propelling current demand:
Corporate supply chain restructuring continues as businesses implement structural investments to enhance efficiency and flexibility amid trade uncertainties. Essential industries—including food and beverage, e-commerce, and healthcare—maintain robust demand for modern logistics facilities. Market conditions have improved through rental rate adjustments and constrained new supply, creating favorable leasing environments. Additionally, rising facility utilization rates signal improving operational efficiency across client portfolios.
Inventory Management Evolution: From Lean to Resilient
The logistics sector observes a strategic pivot from "just-in-time" to "just-enough" inventory approaches. This transition emphasizes supply chain resilience over pure efficiency, with companies maintaining sufficient buffer stock to mitigate disruption risks. However, current utilization rates remain below traditional expansionary periods, suggesting potential pressure points if consumer demand surges unexpectedly.
McLaughlin characterizes this shift as primarily cyclical rather than structural, noting that inventory strategies may revert toward expansionary patterns as economic conditions stabilize.
Market Outlook: Stabilization With Future Tightening
Prologis anticipates stable vacancy rates near 7% in the near term, with constrained new development gradually absorbing available space. However, with speculative construction activity significantly below pre-pandemic levels and replacement costs remaining elevated, the market may face renewed tightening—particularly for modern, well-located facilities. These conditions could accelerate rental growth as demand improves and premium space becomes scarce.
Implications for Global Logistics Markets
While focused on U.S. market dynamics, Prologis' analytical framework offers valuable insights for international logistics real estate. The report highlights opportunities in structural demand sectors including advanced manufacturing, e-commerce, and cold chain logistics. Operational efficiency improvements through technology adoption and strategic market positioning emerge as critical success factors in competitive environments.
The IBI report provides stakeholders with critical intelligence for navigating evolving logistics real estate markets. By analyzing these indicators, businesses can optimize real estate strategies to support growth objectives in dynamic economic conditions.