P
rologis' latest Industrial Business Indicator (IBI) highlights challenges in the US logistics market. The third quarter IBI Utilization Rate came in at 84.4%, below the normal range of 85-86% and indicating spare capacity.

    The report notes that new logistics real estate demand is subdued, despite solid GDP growth, due to existing space available for occupancy. Average market rents declined by around 3% in Q3, led by drops in Southern California, as prolonged decision-making timelines and sluggish demand prompt owners to offer concessions and lower headline rents on new leases.

    Vacancy rates are expected to remain near their cyclical peak through mid-2025, with developer starts down 20% year-to-date compared to pre-pandemic levels. Vacancies were at or near peak in Q3 at 6.8%, but improvement in demand is anticipated against a backdrop of falling new supply.

    Completions decreased by 33% quarter-over-quarter in Q3 and will remain low through 2025, while net absorption was off 34% compared to normal levels in Q3. Development starts are down 20% year-to-date compared to pre-pandemic levels, with the pipeline of space under construction at its lowest level since 2017.

    According to Melinda McLaughlin, Global Head of Research for Prologis, it may take some time for excess capacity to be absorbed due to cautious sentiment and heightened market fluidity. However, in a soft-landing scenario where consumption remains healthy and space givebacks stabilize, utilization is expected to recover to normal levels within two-to-four quarters.