Amid global trade tensions and economic uncertainties, the logistics real estate market has drawn significant attention. After undergoing a period of adjustment, is this once-booming sector showing signs of recovery? The latest Industrial Business Indicator (IBI) report from Prologis reveals crucial turning points in the market and provides valuable insights into future trends.
IBI Index: A Leading Indicator of Demand Recovery
The Prologis IBI index, serving as a barometer for customer warehousing activity and market sentiment, recorded a score of 53 in Q3—a critical signal indicating market activity has crossed the expansion threshold (50 points). This improvement manifests in several key metrics:
- Net Absorption: The positive net absorption (new leased space minus vacated space) outperformed 2024 averages, signaling growing demand.
- New Lease Signings: Record leasing activity, particularly build-to-suit agreements, reflects renewed market confidence.
- Project Pipeline: Increased development projects demonstrate optimism about future demand.
Large Enterprises and E-commerce: Leading the Recovery
The current rebound is primarily driven by large corporations and e-commerce firms. These players possess stronger financial capabilities and more resilient business models, enabling them to expand during uncertain times. E-commerce companies, in particular, continue to demand modern warehousing space to support growing online retail needs.
Prologis predicts other industries will follow suit as economic conditions stabilize, creating a broader market recovery.
Key Drivers of Demand Revival
Four interconnected factors are fueling market improvement:
- Restored Client Confidence: Businesses are making strategic supply chain investments despite trade volatility.
- Record Leasing Activity: Essential industries (e-commerce, food/beverage, healthcare) are securing space aggressively.
- Improved Facility Utilization: Current utilization rates of 84-85% indicate efficient operations with room for expansion.
- Favorable Market Conditions: Moderate rent adjustments and reduced new supply create advantageous leasing opportunities.
Cyclical vs. Structural Trends: Short-Term Rebound or Long-Term Growth?
Prologis Global Research Head Melinda McLaughlin notes the recovery appears more cyclical than structural. Companies maintain lean "just enough" inventory strategies due to economic uncertainty, but this presents expansion potential if consumer demand surges unexpectedly.
Structural challenges remain, including the need for technologically advanced, sustainable facilities to meet evolving industry standards.
Vacancy Rates and Construction: Balancing Supply and Demand
The report projects stable vacancy rates around 7%, with new construction starts below pre-pandemic (2017-2019) levels. McLaughlin warns: "Once existing supply is absorbed—particularly for modern, well-located facilities—the market could tighten rapidly, accelerating rent growth."
Strategic Recommendations for Stakeholders
Investors should prioritize:
- High-growth regions with strong infrastructure
- Automation-ready, sustainable facilities
- Long-term value appreciation potential
Businesses must focus on:
- Supply chain optimization
- Strategic facility selection
- Adaptability to market shifts
The Prologis IBI index suggests the logistics real estate market is at an inflection point. While challenges persist, improving fundamentals and constrained future supply create favorable conditions for sustained recovery.