Logistics real estate demand has reached an inflection point, with key metrics like net absorption and new lease signings improving in the third quarter, according to a report from Prologis.
The warehouse operator’s Industrial Business Indicator Activity Index slowed slightly to an average reading of 53 in the third quarter (October stood at 52.8).
The quarterly report, issued on Tuesday, showed an increase in customer demand, even though some indicators are still shaking off a lull following the inventory pull forward earlier this year as customers sought to bypass new tariffs.
“The demand outlook has clearly become more constructive, with customers increasingly advancing strategic leasing decisions,” the report said. “As in a typical real estate cycle, these actions reflect growing confidence and a reassessment of network priorities by the most well-resourced and resilient customers.”
Warehouse space utilization improved throughout the third quarter, but the 84% average was 100 basis points lower than in the second quarter. Utilization improved to 84.7% in October.
Upstream companies, like manufacturers and wholesalers, front-loaded goods earlier in the year, leading to higher utilization rates in the quarter when compared to retailers. But the trend is expected to reverse as merchandise moves downstream ahead of the holiday season.
Net absorption of 47 million square feet in the period was 64% higher than in the second quarter but remained below the historical pace of 59 million square feet. New lease signings were 10% higher in both the second and third quarters when compared to the first quarter.
“With proposal volumes still high, this dynamic supports continued healthy absorption into 2026,” the report said. “Customer sentiment and a reacceleration in decision-making underscore a behavioral shift toward ‘looking through the noise’ on trade and refocusing on growth and structural supply chain reconfiguration.”
Recent leasing activity has favored large customers in nondiscretionary verticals like food and beverage, e-commerce and healthcare.
The industry’s vacancy rate is expected to remain around the mid-7% mark, without significant further decline, due to improving demand and shrinking new supply.
The spread between replacement-cost rents and market rents widened to roughly 20% in the U.S., which “discourages speculative development, especially in higher-cost markets, reinforcing a more measured pace of speculative deliveries through the near term.”
Market rents declined just 1% in the quarter.
“Scarcity is emerging in certain markets and size categories, while groundbreakings of new speculative logistics buildings remained well below pre-pandemic levels through Q3,” the report said.
Last month, Prologis (NYSE: PLD) reported consolidated revenue of $2.21 billion for the third quarter, which was up 9% year over year. Average occupancy slid 110 bps y/y to 94.8% but improved to 95.3% to close the quarter. New leases commenced represented a record 65.6 million square feet, a 29% y/y increase.
Outgoing CEO Hamid Moghadam expressed strong optimism about the future, saying the current environment is “one of the most compelling setups I’ve seen in 40 years,” on a quarterly call with analysts last month.
He predicted that when the market stabilizes, rents will be much higher than they are today. Moghadam, who will retire as CEO at the end of the year but will continue to serve as executive chairman, estimated rents could reset as high as 40% above in-place rates.
Freight Fraud Symposium
Double brokering. AI deepfakes. Identity theft. Freight fraud is an existential threat to the industry. Get ahead of it.
Supply Chain AI Symposium
Past the hype. Join operators, founders, and enterprise leaders figuring out how to deploy AI in supply chain.
Future of Rail Symposium
Reshoring is rewriting freight demand. Join shippers, rail executives, and government officials to shape the next decade.
Double brokering. AI deepfakes. Identity theft. Freight fraud is an existential threat to the industry. Get ahead of it.
Rock & Roll Hall of Fame • Cleveland, OH Register NowPast the hype. Join operators, founders, and enterprise leaders figuring out how to deploy AI in supply chain.
The Old Post Office • Chicago, IL Register NowReshoring is rewriting freight demand. Join shippers, rail executives, and government officials to shape the next decade.
The Signal at Chattanooga Choo Choo • Chattanooga, TN Register Now