Logistics Real Estate Rents to Rebound in 2025, 2026
Demand for newer properties, high replacement cost rents, and limited supply are poised to drive a "moderate recovery in market rents in 2025 and stronger gains in 2026," according to a recent report by Prologis.
In 2024, annual market rents for logistics real estate declined globally for the first time since the 2007-2009 financial crisis. Prologis' annual rent index revealed a 5% drop, driven by a 7% decrease in the U.S. and Canada and a modest 1% decline in Europe. Southern California, a market that experienced significant rent growth during the pandemic, suffered a notable drop of over 20% in 2024.
Despite the downturn, rents in the U.S. and Europe remain elevated compared to pre-pandemic levels. Houston, San Antonio, and Nashville were the top U.S. markets for rent growth last year, while newly constructed facilities commanded rents 100 basis points higher than older properties.
Construction activity declined significantly in 2024, with new construction starts and deliveries falling 33% and 29%, respectively. This slowdown has contributed to the current imbalance between market rents and replacement cost rents, which could support higher prices in the future.
Logistics property vacancies were 7.1% in the U.S. and 4.8% in Europe in the fourth quarter of 2024. The influx of new supply and subdued demand due to economic uncertainty pushed vacancy rates upward.
However, vacancies are expected to decline in 2025 as project completions fall by 38%. Net absorption, the difference between leased and vacated space, was 13% below pre-pandemic levels globally in 2024. As multiyear leases renew this year, rents are projected to increase significantly to reflect the sharp jumps over the past few years.
Improved economic growth, demand for newer properties, and the need for space amid limited availability are expected to drive leasing activity in 2025. This will contribute to a moderate recovery in market rents in 2025 and stronger gains in 2026.