Third-quarter IBI signals a demand inflection

Prologis’ latest Industrial Business Indicator (IBI) showed an inflection in demand during the third quarter, with the IBI Activity Index registering 53. The report attributes this turning point to improvements in net absorption, new lease signings and the proposal pipeline, all of which were healthier in Q3 than the 2024 average.

The IBI also noted a prior decline tied to supply chain activity that peaked early in 2025 amid trade volatility, and described the recovery as nonlinear, driven initially by large firms and e-commerce companies before other sectors follow.

What the IBI measures

Prologis defines the Industrial Business Indicator as a survey capturing customer sentiment and behavior related to warehousing and logistics activity. The metric tracks trends such as leasing, absorption and the pipeline of potential deals to gauge market momentum.

Factors behind the uptick in leasing

Prologis’ Global Head of Research, Melinda McLaughlin, explained that several factors are contributing to stronger real estate demand compared with the 2024 average. Operators are looking past trade-related uncertainty, making structural supply chain investments as business activity grows.

Prologis recorded a quarterly record in leasing volume and an increase in build-to-suit agreements in Q3. Larger customers and essential industries led the activity, supported by modest rent corrections and fewer new deliveries that left availability and terms attractive to occupiers.

• Essential industries leading leasing activity
• Food and beverage
• E-commerce
• Healthcare

Utilization trends and capacity fill

Utilization of existing facilities rose through the third quarter, averaging about 84% and edging toward 85% in October as inventories moved through supply chains and occupiers used extra capacity. That higher utilization is being driven in part by customers expanding operations within their current footprints rather than by widespread new-site expansions.

Inventory approaches and upside risks

Customers continue to favor a "just enough" inventory approach, maintaining lower average utilization than would typically signal broad expansion. Prologis cautioned that an upside surprise in consumption could prompt a rapid and significant supply chain response if demand exceeds these conservative inventory positions.

Cyclical view on the current trend

McLaughlin characterized the recent improvement as more cyclical than structural. Companies are keeping inventories tight because economic uncertainty and holding costs remain elevated. As the cycle shifts toward expansion, Prologis expects some rebuilding of inventory buffers, particularly given persistent supply chain disruptions that encourage keeping more stock on hand.

Vacancy, construction pipeline and near-term outlook

The report projects vacancy holding around the mid-7% range in the near term, reflecting a stabilizing market. Prologis also noted that the construction pipeline is contracting: new development starts are running below the 2017–2019 average and speculative construction has slowed sharply.

McLaughlin said recent deliveries should continue to lease up and keep vacancy steady for now, but the rapid tightening of the development pipeline means the market could firm again once current supply is absorbed—especially for modern, well-located facilities. With replacement costs still elevated, rent growth has the potential to accelerate as demand improves and new space becomes scarcer.