The IBI Activity Index fell slightly to 56.3 in April, down from an average of 58 during the first quarter. Macro drivers have been solid: core retail sales grew 1.1% month-over-month in March and 4.5% year-over-year. Adding to demand drivers, the more logistics-intensive e-commerce channel outperformed with 2.7% month-over-month and 11.3% year-over-year growth.2
The IBI utilization rate stabilized around 85% in March and April, up from a Q4 low of approximately 83%, as operators used more space in existing facilities. Despite a strong rise in import volumes, sales outpaced inventory growth, pushing down the inventory-to-sales ratio to 1.24, approximately -3% below the 2019 average.4 This points to further need to build inventories, particularly for wholesalers.
Net absorption of only 26 million square feet underperformed the macro climate.4 IBI readings and macro data suggest logistics real estate demand growth should be higher than what was realized in Q1. Two temporary factors are at work:
New deliveries fell 35% in Q1 from the prior quarter as the historic wave of completions winds down. Together with the precipitous fall in new groundbreakings, the construction pipeline decreased by more than half year-over-year. Looking forward, still-tight construction financing and still-high construction costs should keep new supply under pressure through the near term, even as we expect demand growth to improve in the coming quarters.
Logistics market conditions are rebalancing, yielding new growth opportunities for customers in select locations and size categories, after a period of unprecedented scarcity and competition for space. This opportunity could be short-lived, however, given the rapid fall in new supply and leading indicators that suggest an accumulation of pent-up demand. Prologis Research expects the U.S. vacancy rate to peak in the mid-6% range during 2024 and gradually fall to the mid-5% range in 2025. Customers that led the market in securing space during similar past periods are already actively leasing. We continue to recommend advance planning and early action to take advantage of this stage of the logistics real estate mini-cycle.
1. Prologis Research.
2. U.S. Census.
3. U.S. Census. Note: Inventory-to-sales ratio excludes gas and auto.
4. Source: CBRE, JLL, Cushman & Wakefield, Colliers, CoStar, CBRE-EA, Prologis Research.
This material should not be construed as an offer to sell or the solicitation of an offer to buy any security. We are not soliciting any action based on this material. It is for the general information of customers of Prologis.
This report is based, in part, on public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. No representation is given with respect to the accuracy or completeness of the information herein. Opinions expressed are our current opinions as of the date appearing on this report only. Prologis disclaims any and all liability relating to this report, including, without limitation, any express or implied representations or warranties for statements or errors contained in, or omissions from, this report.
Any estimates, projections or predictions given in this report are intended to be forward-looking statements. Although we believe that the expectations in such forward-looking statements are reasonable, we can give no assurance that any forward-looking statements will prove to be correct. Such estimates are subject to actual known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those projected. These forward-looking statements speak only as of the date of this report. We expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein to reflect any change in our expectations or any change in circumstances upon which such statement is based.
No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of Prologis.
Prologis’ Research department studies fundamental and investment trends and Prologis’ customers’ needs to assist in identifying opportunities and avoiding risk across four continents. The team contributes to investment decisions and long-term strategic initiatives, in addition to publishing white papers and other research reports. Prologis publishes research on the market dynamics impacting Prologis’ customers’ businesses, including global supply chain issues and developments in the logistics and real estate industries. Prologis’ dedicated research team works collaboratively with all company departments to help guide Prologis’ market entry, expansion, acquisition and development strategies.
