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  • Writer's pictureRealFacts Editorial Team

Industrial Development Lags Current and Future Demand


Industrial building

As the global economy continues its recovery from the tumultuous times brought about by the pandemic, the industrial sector finds itself facing a unique set of challenges. Despite robust demand and resilient consumption activity, industrial development lags behind current and future needs, setting the stage for a potential supply crunch in the coming years.


According to industry leader Prologis, their Industrial Business Indicator Activity Index for April reflected a level of activity consistent with demand generation. However, this was juxtaposed with a concerning trend of reduced industrial construction, painting a picture of dwindling supply amidst growing demand. The index, standing at 56.3 in April, saw a decline from the first quarter average of 58, indicating a potential slowdown in activity.


Macro drivers such as solid retail sales growth, particularly in the e-commerce sector, have been fueling demand for industrial space. However, the pace of industrial construction fails to keep up, raising concerns about future supply shortages. With facilities utilization hovering around 85%, up from the previous quarter but still below typical levels, the need for additional warehouse space becomes increasingly apparent.


A key issue highlighted by Prologis is the discrepancy between sales and inventory growth, leading to a decrease in the inventory-to-sales ratio. This suggests a pressing need for businesses, particularly wholesalers, to build up their inventories, further exacerbating the demand for warehouse space.


Looking ahead, Prologis predicts a peak vacancy rate in the mid-6% range for 2024, which is projected to decrease to the mid-5% range in 2025. This tightening of vacancy rates reflects the growing competition for industrial space and the challenges faced by businesses in securing suitable facilities to meet their operational needs.

 

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