Industrial real estate leasing activity rises amid trade uncertainty, notes Prologis

As tariffs and trade policy continued to create uncertainty, there were indications of increased industrial real estate leasing activity in the second quarter, 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 second quarter IBI Activity Index came in at 52.7 (a reading of 50 or higher indicates growth is occurring), which, the firm said, reflects slower growth, with both import flows and retail sales remaining “volatile” sequentially, adding that after a surge in pre-buying ahead of tariff implementation, retail sales saw a leveling off, as well as a slowing in big-ticket purchases.

The July IBI Utilization Rate was at 83.7, with utilization averaging 85% in the second quarter. It explained that utilization is expected to be volatile in the near-term, with shifting trade policies disrupting typical import patterns, while shifting upward overall, with companies growing into excess capacity. Total

“Import volumes and inventories grew in the first half of the year as customers front-loaded stock in anticipation of tariff-related disruptions,” said Prologis. “July’s utilization rate dropped, likely temporarily, as robust June retail sales (likely to continue into July, given early reports of healthy Prime Day revenues across merchants) emptied shelves and choppy import patterns delayed restocking.”

Chris Caton, Managing Director, Global Strategy and Analytics at Prologis, said that utilization rates have risen this year as a consequence of increased utilization of supply chains and pre-buying of inventories ahead of expected tariffs.

“In the second half of the year, utilization trends will be a product of offsetting trends of continued overall growth in supply chain utilization and capacity, while some de-stocking of inventories through the back-to-school and holiday retailing seasons,” he said.

In terms of leasing activity, the report noted that it saw a recovery in May and June, with the firm’s customers looking through near-term volatility to long-term operational strategies and supply chain needs.

To that end, it observed that customers are moving forward with network buildouts and are also remaining active in the market, as evidenced by the number of tenants in the market, proposal volumes, and signed leases seeing second quarter gains.

“Leasing volumes have reflected renewed demand across key customer segments,” said Prologis. “The wait-and-see approach to new leasing by some customers means demand is getting pushed out to the second half of 2025 and beyond.”

And Prologis noted that leasing related to just-in-case inventory strategies, new nearshoring and reshoring activity in manufacturing and international companies leasing activity has accelerated, highlighting the need to move forward in network planning.

Prologis’s Caton said that inventory strategy is part of a larger decision-making calculus by supply chains and the firm’s customers.

“We produced a framework in a recent white paper, which explained many customers are leasing space as a consequence of the growth and scale of their businesses, to improve service levels to compete and win new business, all while managing costs,” he said. “The near/re-shoring dynamic is leading to greater lease signings across the Sunbelt and Midwest (e.g., Texas, Georgia), in addition to a spike in preliminary interest/tours along the Northern Mexico border.”

What’s more, Prologis said that competition for high-quality space will intensify over the coming quarters, with deliveries expected to decline by 30% annually in the second half of this year, according to industry estimates.

When asked about the expected decline in deliveries, Caton said the primary factor is because development economics remain difficult, citing how high replacement cost rents, rising material and labor costs, tighter lending and lengthening entitlement timelines have slowed speculative starts and the pipeline has slowed.

“Consequently, new deliveries will fall in 2025, reflected in our development starts tracking through 2024, showing a slowing in new speculative groundbreakings,” he added.

Assessing supply risk, Prologis noted it is largely in the past for the majority of U.S. markets, as speculative development starts are off by more than 75% from its highs and mark what it called a broad-based pullback in new construction—along with market rents exceeding replacement cost rents by more than 20%. It also added that prime space options are available in select locations but are expected to lessen, with the pipeline of new deliveries slowing and competition for quality product rises.

“Customers within logistics real estate have a window to act to secure quality real estate, but that window is already beginning to close as a consequence of ongoing demand and diminished new deliveries,” said Caton. “There is variability across markets, submarkets and sizes, with the window to act becoming more challenging over 2026. Competition for quality space will intensify, especially in high‑barrier development markets.”