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:
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.