Prologis Finds Logistics Customers Are Taking Wait-and-See Approach
The logistics market is navigating a period of transition shaped by macroeconomic and policy uncertainty, as customers make more deliberate and forward-looking decisions focused on long-term success. Despite near-term volatility, the long-term structural drivers of the sector remain intact, and demand is poised to reaccelerate when greater economic clarity emerges, according to Prologis' Q2 leasing activity report.
Customers continue to expand into existing space, pushing the Prologis Industrial Business Indicator (IBI) utilization rate higher. The report said utilization is expected to remain volatile in the near term as shifting trade policies disrupt import patterns. Utilization dropped in July in what the firm said was likely a temporary response to robust June retail sales that emptied shelves and delayed restocking as import patterns remain uncertain. However, utilization will generally trend upward as companies grow into excess capacity, said the report.
The IBI Activity Index showed slower growth in activity through July due to volatile import flows and retail sales. Retail sales leveled off and big-ticket purchases slowed following a surge in pre-buying ahead of tariff implementation. The logistics sector’s diversity adds resilience to demand, with about 40% of companies driven by basic daily needs while 30% are driven by structural trends including e-commerce, healthcare and advanced manufacturing, said Prologis.
Leasing activity recovered in May and June as customers focused on long-term operational strategies, although the pace of decision-making remains extended, said the report. The wait-and-see approach to new leasing by some customers means demand is getting pushed out to the second half of 2025 and beyond.
Those who are leading activity include large-scale users with greater access to capital that are committing to build-to-suit developments and enhancing footprints to support future growth, said Prologis. Speculative development starts have declined by more than 75% from peak levels, reflecting a broad-based pullback in new construction.
“With market rents exceeding replacement cost rents by more than 20%, the economics of new development remain challenging, limiting future speculative groundbreakings,” said Prologis. “This dynamic is creating a short-term window of opportunity for customers. Prime space options are available in select locations, but these are expected to diminish as the pipeline of new deliveries slows and competition for quality product increases.”
Source: GlobeSt/ALM