Older logistics properties take a hit as tenants favour high-end facilities
Rents for logistics real estate in the US and Canada fell in 2024 for the first time since the COVID-19 global crisis, dropping by 7%, according to the Prologis Logistics Rent Index.
The decline comes after years of rapid increases fuelled by the pandemic-driven demand for e-commerce and warehousing.
Much of the drop was driven by Southern California, where rents fell by more than 20% after doubling from 2020 to 2022. Excess supply also played a role in other key markets like Dallas and Phoenix, where vacancy rates ticked up as companies delayed expansion plans.
“Delayed decisions, consolidation efforts, limited capital access, and ongoing supply chain uncertainties suppressed absorption rates,” the report stated, noting that many companies are opting to maximize existing warehouse space instead of leasing new properties.
Not all properties were affected equally. High-quality Class A warehouses remained in demand, with rental growth in newer facilities outpacing older spaces by about 100 basis points. Meanwhile, owners of aging Class B and C properties were forced to cut rents to attract tenants.
Despite the drop in 2024, warehouse rents remain significantly above pre-pandemic levels. Prologis reports that rents at the end of 2024 were still 59% higher than five years ago, meaning tenants renewing leases in 2025 could still see substantial price increases.
While rents cooled in 2024, industry analysts anticipate a possible rebound in 2025. A slowdown in new warehouse construction could tighten supply, while improving economic conditions and shifts in global trade policies may reignite demand.
“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,” Prologis said in the report.
CBRE predicts that third-party logistics providers (3PLs) will continue to lead leasing activity, accounting for nearly 35% of warehouse demand next year. Retailers and wholesalers are increasingly outsourcing distribution to 3PLs as a way to manage costs and improve flexibility.
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“Utilizing 3PLs allows for more inventory flexibility, a key component to retailer success in times of uncertainty,” CBRE noted. “It also allows companies to focus on core business competencies that drive revenue, such as product development, sales and customer service.”
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