The industrial real estate market continues to progress through a mini-cycle as vacancy rates begin peaking and occupiers move cautiously to expand supply chain networks, according to a Prologis analysis.
Industrial utilization ticked up in January to 85.3% from 84% during the fourth quarter, according to the Prologis Industrial Business Indicator (IBITM). Factors that lowered space utilization through the end of the year included strong holiday sales that reduced warehouse inventories more quickly than they could be replenished. However, industrial sublease availability remains above historical norms, reflecting persistent excess capacity in some locations, said Prologis.
During the fourth quarter, the IBI Activity Index showed a strong flow of goods through U.S. warehouses, growing 3.5% year-over-year in sales of retail goods and 15% to 20% year-over-year growth in import volumes.
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“Customers report they are growing into existing capacity, supported by January increases in both the Utilization Rate and the IBI Utilization Index, which asks if customers are using space,” said the report. “At the same time, the IBI Activity Index reflected elevated throughput, averaging an expansionary reading of 59 during 2024 and inching up to nearly 60 in January.”
Vacancies are peaking in the sector, and completions are expected to decline by more than 35% in 2025 after falling 38% in 2024. This should put downward pressure on the vacancy rate as new supply falls short of new demand, said Prologis.
Industrial rents were down 2% during the fourth quarter, a slower decline compared with 3% during the third quarter. Southern California again recorded the most pronounced rent decreases, but rents remained largely resilient with several markets posting positive rent growth heading into 2025. Prologis said it expects rents to rise again around mid-2025 in most markets.
Across the country, industrial real estate leasing activity accelerated following the November election, including in key industries such as e-commerce, and fast-moving consumer goods and food & beverage companies. Prologis said signs of demand diversification surfaced across industries, markets and size categories during the fourth quarter. Demand for industrial space was particularly strong in the Sun Belt, and activity broadened in other areas including Toronto, New Jersey and Pennsylvania.
Net absorption was positive in the industrial sector, although muted, with big-box demand driving most of the absorption. During the fourth quarter, net absorption was the highest it has been in more than 18 months for facilities under 250,000 square feet, the report found. Prologis said it expects a 20% annual increase in net absorption this year along with declining vacancy.
“The market remains favorable to occupiers in the near term before conditions tighten through the year,” said Prologis.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
