Industrial real estate is settling down into a more sustainable rate of growth, according to the international industrial real estate giant Prologis.

The Industrial Business Indicator (IBI) is a statistical tool developed by the company’s research staff that attempts to capture a moving target. IBI activity shows resiliency by staying above average but has moderated, the Prologis researchers found.

Third-quarter IBI activity decreased 620 Basis Points (BPS) from the second quarter to 60.2 in October. Logistics users continued to expand their networks and absorbed 90 MSF of space in the third quarter, which is on par with absorption from the prior quarter, Prologis says.

Utilization of space increased as inventory build has continued. Prologis researchers note that another driver is the lack of new supply and low vacancy rates that hinder expansion into new space.

The utilization rate held steady at 86% through October, up 40 BPS from what it registered in the second quarter. The functional ceiling for utilization is in the 86-87% range.

Developers continued to break ground, even with capital markets in flux. Commitments made earlier in the year and, in some cases, ownership of lower cost-basis land spurred more development.

Construction starts reached a record high of 142 MSF in Q3, pushing the construction pipeline to 550 MSF. As the cost of capital continues to rise, development activity may slow in coming quarters.

In 2023, leasing momentum is expected to normalize from the frenzied tempo of recent years. Users will have more options as the construction pipeline empties.

Compared with 2022, Prologis expects more deliveries and slightly lower net absorption, roughly in line with the annual demand run rate at the current level of IBI activity. The vacancy rate is expected to expand. Market rent growth should to outpace inflation, and TMS is seen rising.