Logistics Demand Hits Four-Year High as Supply Tightens
In the second quarter of 2026, demand for logistics space reached its highest level in four years, as absorption of 66 million square feet exceeded completions and rents rose, according to a new Prologis report. At the same time, this trend is putting pressure on supply and forcing more customers to consider build-to-suit facilities that meet their specific needs.
From the developers' perspective, the prospects for the rest of the year look good, with vacancy expected to decline by 30 bps by year-end and Prologis's IBI Activity Index well above the break-even point of 50. The index measures customer sentiment and operational activity in industrial warehouses and logistics facilities. A score higher than 50 indicates an expansion is underway.
Demand is widespread regardless of industry, size category or location, the report found. E-commerce and essential goods provide a solid foundation, and new growth is coming from advanced manufacturing. Companies involved in data center construction, defense and new global supply chains are hunting logistics space. While cyclical sectors like housing, autos, furnishings and appliances have yet to recover fully, they will be a fresh source of demand when economic conditions improve.
However, there were also signs of caution about inventory management. For example, although leasing and net absorption improved in 2Q 2026, the IBI Utilization Rate, which reflects how fully logistics and warehouse customers are using their available physical space, wobbled between 81.8% and 84.5%.
"Companies are rebuilding inventories selectively, with stocking concentrated in manufacturing and high-tech supply chains that have lifted volumes overall," Prologis stated. Retail and wholesale inventories remained near historic lows relative to sales.
Nevertheless, prime logistics space is becoming harder to find, the report found. Absorption of 220 million square feet this year is likely to exceed the 205 million square feet of completions expected. Bulk-space vacancy is 60 bps below the overall market rate, and little is under construction. Bulk-leasing activity is 10% to 15% higher than the 2025 average – creating a risk that the most desirable spaces will become increasingly scarce.
Limited new supply and little availability helped push rents up 70 bps between 1Q and 2Q 2026. This makes the need to plan early critical, especially for large, well-located facilities, Prologis warned.
Meanwhile, the fact that market rents are some 20% lower than replacement-cost rents, and that development costs are high, is discouraging new construction. "With few existing large-format options, more customers are considering build-to-suit facilities tailored to their operational requirements," Prologis noted.
Texas, the Southeast, the Midwest and the Bay Area are currently among the strongest markets. However, coastal markets could catch up in time as occupancy recovers, barriers to supply keep deliveries very limited and market rents move closer to replacement-cost levels.
Source: GlobeSt/ALM