The U.S. industrial market is beginning to find its footing again, even as geopolitical tensions and cautious business behavior linger in the background.
A new report from Prologis suggests logistics demand is strengthening enough to signal an early-stage recovery, with activity holding steady despite what the company describes as "fresh uncertainty" tied to conflict in Iran and the broader Middle East. The company characterizes 2026 as an inflection point, with momentum "boosted by new and ongoing structural forces."
Prologis' Industrial Business Indicator Activity Index, a measure of logistics demand, has remained in the 55-to-60 range, indicating expansion. The strongest gains came from manufacturers, which posted a reading of 60 over the past six months, while other user groups averaged 56. That divergence underscores how industrial demand is increasingly tied to production-heavy sectors, particularly advanced manufacturing and data infrastructure.
Regionally, that shift is most visible in the Southwest, Midwest and Northern California, where clusters of manufacturing and data center activity are driving above-average growth.
Retail and service users are also regaining momentum. Their activity index has climbed to around 57, a notable improvement from the 48-52 range seen in the third and fourth quarters of 2025. According to Prologis, this reflects stable consumer spending and a continued reshuffling of inventory from wholesale channels to retail shelves, as companies adjust after earlier tariff-driven stockpiling.
Even so, caution remains a defining theme. Warehouse utilization is sitting at 84%, below its long-term average, as companies keep inventories lean. The inventory-to-sales ratio in February was six percentage points below 2019 levels and is now at its lowest point since 2021. That restraint is also showing up in trade flows, with imports up just 1.2% year-over-year so far in 2026.
Yet underlying demand appears stronger than those conservative behaviors suggest. Net absorption reached 45 million square feet in the most recent period, or 225 million square feet on a seasonally adjusted annual basis, which Prologis said is "near historical expansionary averages." At the same time, sublease availability declined by 10 basis points in the first quarter as "customers grew into their networks."
That combination points to a market that has quietly worked through much of its excess space. If confidence improves, the existing capacity could quickly support higher inventory levels without requiring a new wave of construction.
Supply-side dynamics are reinforcing that setup. New deliveries are expected to fall to 190 million square feet in 2026, marking a decade low, as the development pipeline has shrunk to just 1.7% of total stock. With fewer new buildings coming online and demand broadening across user types, vacancy rates are expected to decline by year-end.
Early signs of tightening are already emerging. Traditional retailers and large corporate users are returning to key gateway markets such as New Jersey and the Inland Empire and rent growth has turned positive for the first time since 2023.
Taken together, the data suggest a market that is no longer contracting but not yet fully accelerating. The recovery appears to be led by structurally driven demand—from manufacturing reshoring to data center expansion—rather than a broad-based surge in consumption. That distinction may shape how quickly and how unevenly the next phase of industrial growth unfolds.
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