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Prologis IBI report shows undercurrent of industrial real estate activity heading back to pre-pandemic levels

The most recent edition of the Industrial Business Indicator (IBI), which was issued by San Francisco-based real estate investment trust company Prologis, presented what could be viewed as a somewhat mixed outlook for the industrial real estate sector, in terms of vacancy, rents, and space utilization, among other factors.

Prologis defines the IBI as a survey of customer sentiment focused on customer activity in warehousing. The April IBI reading came in at 56.2 (a reading of 50 or higher indicates growth is occurring), which is viewed as a normal expansionary reading for activity, according to Prologis, following a 59.7 first quarter reading, which saw the last two months of the quarter showing broader market volatility as well as revealed resilience, with March decreasing to its lowest level in 30 months, at 52.8, amid economic uncertainty and financial market volatility driven by bank failures.

Key data points in the April IBI included:

  • first quarter rents increased 4.4%, paced by persistent competition for prime logistics space;
  • the first quarter vacancy rate came in at 3.7%;
  • 60 million square-feet (MSF) was absorbed in the first quarter, with competition for space continuing as demand returned to more normal levels and in line with pre-pandemic tallies (the April IBI reading equates to an annual run rate of around 242 MSF, Prologis said);
  • the utilization rate came in at 85.6, for the first quarter, and 84.9% in April, which Prologis said points to a lack of shadow space; and
  • construction starts were down 40% compared with the average pace of starts from Q1 to Q3, due to increased costs and a lack of financing

A Prologis spokesperson told LM that April’s IBI bounce back was driven by improvement in macro variables like retail sales and demonstrated its resilience to market uncertainty and bank failures, which coincided with the lower IBI in March. 

As for the 3.7% first quarter vacancy rate, the spokesperson explained that “vacancy remains well below its historical average, which produces competition for space and puts upward pressure on rents.”

In the coming months, Prologis explained it expects rents to increase by 10% for the year.

“We’re refining our forecast for 2023, given the data so far this year—specifically, 275 MSF of net absorption and deliveries of 445 MSF,” it said. “Macroeconomic crosscurrents may lead to some delayed decision-making, which could push demand from 2023 into 2024. The U.S. vacancy rate should drift up to the low-/ mid-4% range by year-end, well below the historic average. New supply should drop off sharply in 2024, raising the potential for demand to outpace supply and pulling the vacancy rate down to the mid-3% range by year-end 2024. TMS (true months of supply) is poised to drift higher later this year and then retreat below 30 into 2024, consistent with re-accelerating rent growth.”

And the Prologis spokesperson said that the company expects the IBI Activity Index to remain in the mid- to high-50s range as destocking comes to an end and companies revert to more normal seasonal patterns.

Article Topics

Industrial Real Estate
Utilization Rate
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About the Author

Jeff Berman's avatar
Jeff Berman
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review and is a contributor to Robotics 24/7. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis.
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