Prologis says Q3 marked ‘inflection’ for logistics real estate market

Core Insights - Logistics real estate demand has reached an inflection point, with improved metrics in net absorption and new lease signings in Q3 [1][2] Demand and Utilization - Customer demand has increased, despite some indicators recovering from a lull due to earlier inventory pull forward [2] - The demand outlook is more constructive, with strategic leasing decisions reflecting growing confidence among resilient customers [3] - Warehouse space utilization improved to 84.7% in October, although the average for Q3 was 84%, which is 100 basis points lower than Q2 [3] Absorption and Lease Signings - Net absorption was 47 million square feet in Q3, 64% higher than Q2 but below the historical pace of 59 million square feet [5] - New lease signings were 10% higher in both Q2 and Q3 compared to Q1 [5] Market Dynamics - Upstream companies front-loaded goods earlier in the year, leading to higher utilization rates compared to retailers, but this trend is expected to reverse as merchandise moves downstream for the holiday season [4] - The industry's vacancy rate is projected to remain around mid-7% due to improving demand and limited new supply [7] - The spread between replacement-cost rents and market rents has widened to approximately 20% in the U.S., discouraging speculative development [7] Emerging Trends - Scarcity is emerging in certain markets and size categories, with new speculative logistics building groundbreakings remaining below pre-pandemic levels [8] - Recent leasing activity has favored large customers in nondiscretionary sectors such as food and beverage, e-commerce, and healthcare [6]