Prologis Anticipates Industrial Rents Will Increase 10% This Year

The industrial sector experienced a moment of worry several weeks ago amid the mounting economic and financial sector turmoil. That moment appears to have passed, based on Prologis’ Industrial Business Indicator, which moved back into expansionary territory in April with a score of 56.2, after falling to its lowest level in 30 months for March.

Prologis, too, apparently is feeling sanguine about the sector, tweaking its forecast to a 10% increase in rents for the year, given that there has been 275 million square feet of net absorption and deliveries of 445 million square feet to date.

Prologis’ research also reported that the utilization rate stabilized in the 85% to 86% range, which is considered good for logistics users. The rate averaged 85.6% in the first quarter of this year and was close but a slightly lower 84.9% for April, which translates to an absence of shadow space.

It also found that the true months of supply (TMS) number—the time it would take to absorb available supply at the current demand run rate–increased to 30 months, up five months from the fourth quarter. The markets and submarkets with the biggest construction pipelines should have the largest TMS increases and lead to variations in availability, as well as rent growth, depending on locations.

“Macroeconomic crosscurrents may lead to some delayed decision-making, which could push demand from 2023 into 2024,” Prologis concluded. “The U.S. vacancy rate should drift up to the low-/mid-4% range by year-end, well below the historic average.”

If supply drops off sharply in 2024, it may raise the potential for demand to outpace supply and pull the vacancy rate down to the mid-3% range by year-end 2024. Also affecting the longer-term prospects next year is a 40% drop in construction starts due to increased costs and a lack of financing. Prologis suggests customers may face a narrow window to act as projects get done this year but decrease next year, particularly in highly desired locations.

Some markets are also expected to experience more interim vacancies due to an abundance of speculative space under construction. Such possibilities include Dallas, Phoenix, Savannah and Austin. Beside such markets, vacancy rates may remain below 2019 levels, in part due to the existence of few unleased buildings available.

Source:  GlobeSt.