Logistics real estate demand hits an inflection point, reports Prologis Industrial Business Indicator

Following indications of increased second quarter leasing activity, amid tariff- and trade driven-uncertainty, the third quarter brought an inflection period for demand, driven by various metrics, according to the new edition of the Industrial Business Indicator (IBI), which was recently issued by San Francisco-based real estate investment trust company Prologis.

Prologis defines the IBI as a survey of customer sentiment focused on customer activity in warehousing. The third quarter IBI Activity Index reading came in at 53, with the inflection period coming from net absorption, new lease signings, and the proposal pipeline each at healthier levels in the third quarter compared to the 2024 average. And it added that the IBI reading showed a decline, as “supply chain activity peaked early in 2025 due to trade volatility,” adding that the recovery is nonlinear, paced by large and e-commerce companies pacing growth that is expected to be followed by other sectors.

As for what is driving improved real estate demand compared to the 2024 average, Melinda McLaughlin, Global Head of Research for Prologis, told LM that activity is picking up for a few different reasons.

“First, customers are taking action and looking through the trade ‘noise,’ as their businesses have continued to grow and structural supply chain investments are needed,” she said. “Prologis signed a record leasing volume as well as more build-to-suit agreements in Q3, with larger customers and essential industries (e.g. food/bev, e-commerce, healthcare) leading the way. Utilization is trending higher as customers expand within existing footprints, signaling healthier operations. Finally, market conditions are helping as rents have corrected modestly and with fewer new deliveries coming, customers are acting while availability and terms remain favorable.”

Regarding utilization, Prologis observed that the utilization rate increased through the third quarter, with an 84% average and approaching 85% in October, when inventories worked through supply chains and customers filled up extra capacity.

What’s more, it added that customers are continuing to leverage what it called “just enough” inventory strategies and maintained lower average utilization than what is traditionally viewed as expansionary, with any upside surprise to consumption potentially resulting in a strong supply chain response.

As to whether this could be the sign of an emerging secular trend, McLaughlin said that it sees it as more cyclical than structural.

“Companies are managing inventories carefully right now because both economic uncertainty and holding costs are high. As the cycle turns toward expansion, we expect some rebuilding of inventory buffers, especially given the level of persistent supply chain disruption that argues for maintaining more stock on hand.

Looking at vacancy, the report said that vacancy is expected to remain at or near the mid-7% in the near-term, which it said reflects a stabilizing market environment, and it also said that thew construction pipeline continues to shrink, with new development starts are below the 2017-2019 average.

“Vacancy should hold steady for now as recent deliveries continue to lease up, but the construction pipeline is tightening quickly,” said McLaughlin. “Starts are well below pre-pandemic levels, and speculative construction has slowed sharply. That sets the stage for the market to tighten again once this new supply is absorbed, especially for modern, well-located facilities. With replacement costs still high, rent growth could reaccelerate as demand improves and new space becomes scarce.”