Logistics real estate rents will rise 10% this year, with vacancies expected to drift upward into the low to mid-4% range from levels of 3.7% at the end of the first quarter, according to a forecast by the research arm of logistics development giant Prologis Inc.
Rapidly rising interest rates have resulted in a 40% drop in year-over-year construction starts compared with mid-2022 as businesses stepped away from deals because of higher costs. Vacancies will rise in 2023 as the existing construction pipeline is spoken for, according to the report. However, the cutback in starts will impact supply greatly, leading to another downtick in vacancies and uptick in rates during 2024, said the report, published Thursday.
“The current environment has impacted construction development more than demand thus far,” the report stated. “As a result, it’s imperative to think ahead, particularly in the most sought after markets where vacancies will remain lower with new supply forecasted to drop off heading into 2024.”
Competition for space continued in 2023, even as demand has returned to more normal levels, according to the report. Users absorbed 60 million square feet in the first quarter, a pace in line with pre-pandemic levels.
Prologis’ (NYSE: PLD) Industrial Business Indicator, which tracks overall business sentiment, hit its lowest level in 30 months in March due to concerns about financial market volatility and overall economic uncertainty.
The index rebounded to 56.2% in April, a normal expansionary reading, according to Prologis.