Key indicators show market expansion continues, but challenges remain as companies must adapt strategies
San Francisco — May 15, 2024 — Prologis, the global leader in industrial real estate, today released its latest Industrial Business Indicator (IBI) report, providing an in-depth analysis of the U.S. industrial property market's performance amid complex economic conditions. The report demonstrates that despite challenges including rising costs and financing difficulties, overall demand remains robust, with market activity gradually returning to pre-pandemic levels — showcasing remarkable resilience.
Market Expansion Continues Amid Volatility
The Prologis IBI, a customer sentiment survey tracking warehouse user activity, registered 56.2 in April. Readings above 50 indicate market expansion, which Prologis considers a normal expansionary level. While Q1 saw a stronger reading of 59.7, the final two months of the quarter experienced increased volatility, with March's figure dropping to 52.8 — a 30-month low — reflecting economic uncertainty triggered by banking sector instability. The subsequent rebound underscores the industrial real estate market's capacity to withstand external shocks.
Key Market Indicators
Strong Rent Growth
Rents increased 4.4% in Q1, driven by intense competition for premium logistics space. This sustained demand for high-quality warehouse facilities, particularly in strategic locations, continues to push rental rates upward as e-commerce growth and supply chain complexity increase.
Historically Low Vacancy Rates
The Q1 vacancy rate stood at 3.7%, significantly below historical averages. This scarcity of available space intensifies competition and maintains upward pressure on rents, requiring companies to plan strategically to secure suitable facilities.
Healthy Demand Absorption
Net absorption reached 60 million square feet (MSF) in Q1, returning to pre-pandemic levels. The April IBI reading translates to an annualized absorption rate of approximately 242 MSF, signaling market stabilization after pandemic-era volatility.
High Utilization Rates
With Q1 utilization at 85.6% (84.9% in April), the market shows minimal "shadow space" — indicating efficient use of existing facilities but potentially foreshadowing increased demand for new space.
Construction Slowdown
New project starts have declined 40% from the Q1-Q3 average pace due to rising costs and financing constraints, potentially limiting future supply and exacerbating space competition.
Market Outlook
Prologis anticipates 10% rent growth in coming months, adjusting its 2023 forecasts to project 275 MSF of net absorption and 445 MSF of deliveries. A company spokesperson noted: "Macroeconomic headwinds may delay some decisions, potentially pushing 2023 demand into 2024. We expect U.S. vacancy rates to rise to about 4% by year-end — still well below historical averages — before declining to approximately 3% by late 2024 as new supply drops significantly."
Strategic Implications for Market Participants
For Occupiers
- Optimize facility networks: Align warehouse locations and specifications with business strategy to enhance efficiency
- Strengthen supply chains: Improve transparency and control to mitigate risks
- Embrace digital transformation: Leverage IoT, AI and automation to upgrade operations
- Address labor challenges: Develop competitive workforce strategies amid tight labor markets
For Investors
- Monitor market shifts: Adjust strategies for changing economic conditions
- Diversify portfolios: Balance exposure across regions and asset types
- Focus on quality: Prioritize well-located assets with strong fundamentals
- Adopt long-term perspective: Industrial real estate typically rewards patient capital
Sector Trends Reshaping Demand
The report identifies several transformative forces:
E-commerce evolution: Requires larger, more flexible facilities with advanced automation capabilities to handle growing order volumes and complex fulfillment needs.
Supply chain resilience: Companies increasingly prioritize nearshoring and regional distribution networks, altering geographic demand patterns.
Sustainability focus: Environmentally conscious occupiers favor energy-efficient buildings with lower carbon footprints, accelerating green construction practices.
Conclusion
The Prologis IBI report illustrates the industrial sector's fundamental strength as it transitions toward more sustainable growth patterns. While challenges persist — particularly regarding construction costs and financing — the market's underlying demand drivers remain intact. Companies and investors who adapt to evolving conditions while maintaining focus on strategic locations, operational efficiency and technological advancement will be best positioned to succeed in this dynamic environment.
As the global economy continues evolving, industrial real estate appears poised for continued expansion, supported by e-commerce growth, supply chain modernization and the ongoing need for efficient logistics infrastructure.