According to the 2024 Prologis Logistics Rent Index, logistics real estate rents in the U.S. and Canada saw a 7% decrease in 2024, marking a continued effect from the waning demand impact of the COVID-19 pandemic. The decline was particularly noticeable in Southern California, where rents dropped over 20% following significant increases between 2020 and 2022, driven by high demand. Excess supply in certain markets, such as Dallas and Phoenix, also contributed to the rent reduction.
The Prologis report attributed the downturn in rents to several factors, including delayed decision-making, consolidation efforts, limited access to capital, and ongoing supply chain uncertainties, which suppressed absorption rates. As a result, businesses were able to leverage existing capacity, reducing the need for new space.
For the U.S., this marked the first annual decline in logistics rents since the global financial crisis of 2007-2009. However, the report noted that by the end of 2024, market rents were still 59% higher than five years earlier, meaning leases entering 2025 will likely see continued rent increases in most locations.
The report also highlighted a shift in leasing activity towards Class A properties, as tenants sought higher-quality facilities. As a result, rents for Class B and C properties declined in an effort to remain competitive.
Looking ahead, Prologis expects warehouse demand to pick up again in 2025, with tighter availability as building completions slow down. The report cited factors such as improved economic growth, a shifting trade environment, onshoring and nearshoring trends, and the need for bulk space amid fewer available properties as potential drivers for increased leasing activity.
Third-party logistics providers (3PLs) are expected to be a significant driver of demand in 2025. A CBRE report indicated that outsourcing distribution operations will remain a key strategy for retailers and wholesalers, as it offers flexibility, capital preservation, and allows companies to focus on core business areas like product development, sales, and customer service. CBRE projected that 3PLs will maintain a share of approximately 35% of overall industrial leasing activity in 2025.
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