Prologis: US Industrial Market Has Record-Low 16-Month Supply

Prologis has introduced a new metric it says more accurately measures “true” months of supply of industrial space by comparing vacancies in existing facilities—plus unleased space in the pipeline—to trailing net absorption. 

Based on this new metric, which Prologis is calling True Months of Supply (TMS), Prologis reported this week that the US industrial market currently has a record-low 16-month supply based on data from the 30 US markets Prologis tracks.

Prior to 2021, the months of supply metric had never dipped below 32 months. A measure of less than 50 months is a strong indicator of rent growth throughout the market.

In a webinar introducing TMS on Wednesday, Prologis forecast TMS to average 20 months in 2022; the logistics leader projected industrial rent growth of 22% in the US this year, with vacancy rates holding at a record-low 3.3%.

Prologis said it will use the new metric to calculate its Industrial Business Indicator (IBI) Activity Index, which registered a reading of 65 across US markets in Q1, equivalent to annual demand for space of 320M SF.

According to Prologis, the traditional calculation of industrial supply needed to be adjusted to factor in the rate of vacancies in the development pipeline, a significant percentage of which is pre-leased.

 “Traditionally, months of supply for logistics real estate is calculated as the total development pipeline vs. net absorption. This can send inaccurate signals in markets with very low vacancies,” Prologis said, in a release unveiling the TMS metric.

“TMS correlates to real estate leasing conditions. This measurement accurately captures supply/demand dynamics by comparing all vacant spaces (existing plus unleased space in the development pipeline) to trailing net absorption,” Prologis said.

Prologis will now apply 3-month trailing averages to the weighted economic variables it uses to calculate the quarterly IBI Activity Index. It says the TMS metric has an 80% or higher correlation with rent growth.

Prologis said construction delays and materials shortages slowed deliveries and absorption of new industrial space in Q1; new supply was lower than expected at 68M SF, the 88M SF of space absorbed during Q1 was 27% lower than the absorption in the fourth quarter.

Prologis this week lowered its projection for warehouse completions in 2022 at 375M SF; it estimates that 360M SF of net absorption will be required for demand to keep pace with supply.