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Annual market rents on logistics real estate fell in 2024 for the first time since the 2007-2009 global financial crisis, according to a Tuesday report from warehouse operator Prologis. The company’s outlook for 2025, however, calls for a modest recovery.
Prologis’ (NYSE: PLD) annual rent index showed global rents were off 5% in 2024 – the combination of a 7% drop in the U.S. and Canada, with just a 1% dip in Europe. The biggest deterioration was seen in Southern California, a market that saw industry-leading rent growth during the pandemic, where rents were off more than 20% last year. Excluding that market, global rents were off just 2%.
“Cautious decision-making” ahead of the U.S. presidential election and higher interest rates were cited as the primary headwinds to leasing activity in the year.
This was the first decline in logistics rents in the U.S. and Canada in more than 15 years. Even with the down year, market rents are 59% higher in the U.S. and 33% higher in Europe than they were at the end of 2019.
Houston, San Antonio and Nashville, Tennessee, were the top U.S. markets for rent growth last year. Newly constructed facilities had rents 100 basis points higher than older properties.
New construction starts fell 33%, and new property deliveries were down 29% last year. Market rents remain 15% below replacement cost rents, which could drive prices higher this year.
“Declining market rents, restricted capital access, elevated construction costs and difficulty accessing critical infrastructure slowed new projects,” the report said. “Fewer completions ahead will allow market conditions to rebalance and allow market rents to narrow the gap with replacement cost rents.”
Logistics property vacancies were 7.1% in the U.S. in the fourth quarter and 4.8% in Europe.
“An influx of new supply – coupled with positive but subdued demand rooted in economic, financial market and supply chain uncertainty – pushed vacancy rates up in most markets across the globe.”
Vacancies are forecast to fall this year as project completions drop again by 38%.
Net absorption – leased space less the amount of space vacated – was 13% below pre-pandemic levels around the globe in 2024 (down 30% in the U.S.) “as users leveraged existing capacity.” However, multiyear leases renewing this year will still see “a significant increase in most locations” as those rents catch up with the sharp jump in rents over the past few years.
“Improved economic growth, the need to navigate a shifting trade environment, on/nearshoring, and the need to secure bulk space amid fewer availabilities could drive leasing activity in 2025,” the report said.