Global logistics rents see first decline in more than a decade, Prologis report reveals

A recently released report issued by San Francisco-based real estate investment trust Prologis highlights a trend not seen in the global real estate market for several years: declining rents.

The report, titled “2024: Market Rents Reset After Years of Performance,” found that global logistics rents fell by 5% in 2024, with the U.S. and Canada collectively down 7% and Europe down 1%. Prologis attributed the declines—marking the first negative change since the global financial crisis of 2007-2009—to normalizing market conditions following the historic growth observed during the pandemic. The report also noted that an influx of new supply, combined with positive but subdued demand driven by economic, financial market, and supply chain uncertainty, led to rising vacancy rates in several global markets.

Furthermore, Prologis pointed out that by year-end 2024, market rates in the U.S. were 59% higher and in Europe were 33% higher compared to year-end 2019. However, leases rolling in 2025 are still expected to face significant increases in most locations.

“Globally, industrial rents are undergoing a correction after years of exceptional growth driven by the post-pandemic surge in demand for logistics space,” Melinda McLaughlin, Global Head of Research at Prologis, told LM. “Elevated levels of new supply delivered in 2023 and early 2024 have led to increased vacancies in supply-heavy markets. At the same time, subdued demand—largely influenced by economic uncertainty—has delayed leasing decisions and reduced net absorption, placing downward pressure on rental rates. However, this trend is not uniform across all markets. Regions such as Mexico, the U.S. Southeast, and Texas, benefiting from favorable demographics, as well as Brazil, supported by strong local consumption, recorded rental rate increases in 2024.”

When asked whether subdued demand (and its drivers) for global logistics real estate would persist through 2025, McLaughlin predicted that net absorption would increase globally. She noted that the U.S. is expected to see the strongest year-over-year growth of 30%, driven by an outperforming economy and reduced uncertainty following interest rate decisions and the election outcome.

“Leasing activity accelerated since the middle of Q4 2024 and has remained elevated,” she said. “However, elevated sublease availabilities point to some spare capacity, and net absorption will increase throughout the year as companies outgrow their existing facilities.”

Prologis also presented outlooks for various regions, including:

U.S.: Improving demand should absorb excess vacancies, particularly as new development has fallen to a cycle low. As vacancies peak, rents could return to growth by late 2025.

Europe: Demand conditions vary by country. Geopolitical risks and slower economic growth may weigh on growth; however, an earlier pullback in new construction should keep vacancy rates relatively low through this “mini cycle.”

Asia: Economic challenges may continue to hamper expansion in China, while Japan’s stable economic conditions should support solid demand.

Latin America: Markets benefiting from nearshoring (Mexico) and robust local consumption (Brazil) are poised for continued demand. However, Mexico may face a near-term slowdown in decision-making due to USMCA renegotiations.

Prologis noted in the report that a significant gap currently exists between market rents and replacement cost rents, which is curbing new construction starts. This gap stands at 15% in the U.S. and varies globally. As a result, construction starts are down an estimated 30% in 2024, as developers require rents at or above replacement cost to break even.

Addressing the 15% gap in the U.S., McLaughlin said that it is restraining new construction.

“As occupiers demand more space than the market can supply, while development profit remains below the level needed to justify the risk, upward pressure on market rents will build,” she said. “This dynamic should ultimately narrow the gap between market rents and replacement cost rents.”