- Industrial rents would need to climb 27% in aggregate before most new logistics development makes financial sense, which keeps speculative construction limited, Prologis Research says.
- Demand is broadening beyond core logistics to data center suppliers and advanced manufacturing, while Q3 absorption reached 63 million square feet and vacancy fell another 10 basis points.
- Prologis expects lower vacancy and higher rents in 2027 as tenants compete for a shrinking pool of well-located space, with market rents up 1.5% through the first nine months.
Prologis Research says new logistics projects mostly won’t pencil until industrial rents rise about 27% from today’s levels, GlobeSt reports.
That hurdle is holding back spec construction while demand widens, and Prologis forecasts tighter occupancy and rising rents next year.
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The Replacement-Cost Gap
Replacement-cost rents are what a developer needs to take on the risk. Against today’s market the shortfall averages 27%, though a few submarkets and building sizes show a smaller shortfall or even a surplus, per Prologis.
Tenants needing space have shifted to build-to-suits, which make up 17% of 2026 starts so far, inside the 15%-to-20% band Prologis treats as typical for an expansion.
More obstacles: pricey capital, limited land and slower power and water infrastructure work.
Demand Broadens
Prologis’ Industrial Business Indicator Activity index read 59.4 in October, essentially flat from 59.5 in Q3, and third-quarter logistics absorption totaled 63 million square feet.
Data centers and advanced manufacturers are claiming more of the leasing pie, and manufacturing activity ran nearly five points ahead of retail. E-commerce accounts for 21% of U.S. new leasing through nine months, and advanced manufacturing plus data-center suppliers add 17%.
Rate-sensitive, housing-related industries such as building materials and appliances remain below normal, which Prologis sees as room for growth.
Rents Are Moving Higher
Over 30% of 2026 leasing was new deals, which Prologis reads as a signal for 2027 demand. Vacancy slipped a further 10 basis points in Q3.
Rents climbed for a third quarter running, gaining 50 basis points in Q3 and 1.5% year to date. The rebound spans both hot and sluggish markets.
Why It Matters
Tight supply favors existing owners. Prologis itself said it expects $5 billion to $5.75 billion of development underway by year-end, which we covered in our Prologis development brief, but the broader pipeline remains restrained by costs.
Regional data fits the story: New Jersey industrial deliveries fell 58% in Q3, per our report on New Jersey industrial, while net absorption in the northern and central part of the state hit 3.2 million square feet.
What’s Next
Prologis advises customers to plan ahead, because competition for space and costs tied to network expansion are rising. Watch whether higher rents close the gap to replacement cost and bring new starts back.
