As the frenzy of e-commerce promotional seasons fades and warehouse inventories gradually thin, not all storage facilities are experiencing the same degree of contraction. While vacancy rates climb in some warehouses, others remain bustling—some even considering expansion. What's driving this divergence?
Prologis, the global leader in logistics infrastructure, recently released its Industrial Business Indicator (IBI) report, revealing nuanced shifts in the U.S. warehouse market and forecasting future trends. This analysis examines the report's key findings and provides strategic insights for investors, businesses, and industry professionals.
Prologis IBI: The Warehouse Market Barometer
The Prologis Industrial Business Indicator (IBI) serves as a survey of warehouse customer confidence, reflecting their operational activity levels. By tracking leasing activity, space utilization, expansion plans, and overall business sentiment, the IBI measures the sector's health. Readings above 50 indicate market expansion, while those below 50 signal contraction—establishing the IBI as a crucial industry benchmark.
July IBI Reading: Growth Moderates Amid Continued Expansion
The latest report shows a July IBI reading of 60.6—firmly above the 50-point expansion threshold. However, Prologis considers 56-62 the range representing healthy consumption activity, suggesting growth momentum is slowing. This indicates the market remains in expansion but may be entering an adjustment period.
Key Insights: Structural Shifts Reshape Warehouse Market
The IBI report reveals five critical trends signaling structural transformation:
1. Development Slowdown Tightens Future Supply
Speculative warehouse construction starts plummeted 28% compared to Q2 2023, foreshadowing tighter space availability in 2025-2026. Soaring construction costs, interest rates, and permitting challenges collectively constrain development velocity.
Impact: Tightening supply may drive rental rate increases and complicate facility searches, particularly for prime locations. Businesses should prioritize proactive leasing strategies.
2. Utilization Pressures Elevate Efficiency Focus
While the utilization rate climbed to 84.9%—matching Q2 averages—it remains below the 85.5%-85.6% long-term expansion benchmark. Companies increasingly maximize existing footprints before expanding, reflecting intensified operational efficiency efforts.
Impact: This trend may slow demand growth but could accelerate adoption of automation and optimized inventory systems, creating opportunities for technology providers.
3. Leasing Activity Poised for Rebound
Retail sales growth and inventory restocking are driving strategic expansion, with Prologis forecasting 180-200 million square feet of leasing over the next 12 months. Businesses demonstrate more measured growth approaches, emphasizing location strategy and facility specifications.
4. New Supply Plummets
Second-half deliveries are projected to decline sharply, with only 70 million square feet of unleased space coming online. Speculative starts totaled just 46 million square feet in Q2—12% below recent peaks.
5. Vacancy Rate Peak Imminent
Vacancies are expected to peak within 3-6 months as completions drop 42% from first-half levels. Prologis anticipates 2024's average vacancy rate stabilizing around 6%, then declining in 2025 alongside strengthening rents.
Expert Perspective: Consumer Resilience Underpins Demand
Melinda McLaughlin, Prologis SVP of Research, notes current consumption and restocking patterns continue supporting warehouse activity, though consumer weakness bears monitoring. "Summer IBI readings reflect robust goods movement through U.S. warehouses, fueled by retail sales and supply chain trends," she observed.
Regarding the 28% construction start decline, McLaughlin explained this aligns with expectations of pipeline contraction: "Speculative starts have declined since Q4 2022 as rising rates increased capital costs while construction expenses compressed developer margins."
Despite suboptimal utilization and reduced new space (46 million sq. ft. versus 60 million average), leasing inquiries and site tours have actually increased since early 2024. McLaughlin projects gradual 2025 improvement assuming a "soft landing," with double-digit port throughput and ongoing restocking absorbing excess capacity.
Strategic Recommendations for Market Participants
For Investors:
- Prioritize long-term trends like e-commerce growth and sustainability
- Focus on geographically strategic assets near transportation hubs
- Invest in modern facilities with automation and energy efficiency
- Diversify across locations and tenant types
For Businesses:
- Optimize existing space through layout improvements and technology
- Conduct regular needs assessments aligned with business cycles
- Select tailored solutions (owned, leased, or outsourced facilities)
- Implement sustainable warehouse practices
For Professionals:
- Stay current on industry knowledge and technological advancements
- Develop specialized skills in warehouse management and logistics
- Cultivate professional networks across the supply chain
- Deliver customized client solutions
Conclusion: Cautious Optimism Amid Transformation
The Prologis IBI reveals a U.S. warehouse market undergoing dynamic realignment. While facing near-term challenges like utilization pressures and vacancy fluctuations, fundamental strengths endure—consumer resilience, constrained supply, and efficiency innovations collectively support long-term prospects.
Market participants who monitor evolving conditions and implement adaptive strategies will be best positioned to navigate this transitional period. As e-commerce evolution, supply chain complexity, and sustainability imperatives continue reshaping the sector, only those embracing innovation and operational excellence will thrive in the competitive landscape ahead.