Warehouse demand at coastal gateways to return in 2026

Demand for logistics space in key U.S. gateways is poised shake off the downturn and reach a three-year high in 2026, according to an outlook report from warehouse operator Prologis. The company also expects e-commerce companies to account for a larger share of leasing activity in the year.

Coastal markets like the Inland Empire and New Jersey are forecast to experience a recovery. Space availability in these markets serving dense population centers has improved and warehouse rents have reset from peak levels.

“Looking ahead, these conditions will allow for increased demand as customers shift inventory closer to consumption to mitigate transportation costs and improve service levels,” the report said.

Prologis (NYSE: PLD) said heightened regulation in the trucking industry is removing capacity and pushing rates higher. That is forcing tenants to forward deploy inventory closer to end users to reduce delivery distances and trim transport costs.

“Shrinking trucking capacity will drive double-digit freight hikes in 2026, making transportation an even larger share of total supply chain spend and amplifying the value of well-located logistics real estate,” the report said.

Warehouse utilization is expected to reach expansionary levels (85.5%) in the U.S. next year.

Recent growth in utilization has been driven by the nondiscretionary goods, e-commerce and manufacturing sectors. With many companies close to maxing out their existing spaces, a fresh round of leasing activity will have to occur in order for them to fulfill growth plans.

The report said the current trend in utilization is similar to prior periods of “rapid reabsorption” (2014–2015 and 2021–2022). Those timeframes included a utilization spike following a period of high vacancy rates.

Prologis expects e-commerce companies to account for nearly 25% of new leasing in 2026 as global e-commerce penetration approaches 20% of total sales by the end of the year.

The strategy is a little different in the U.S. given an end to duty-free status on de minimis shipments entering the country. The report said most domestic e-commerce companies will continue to explore better onshore inventory positioning with rapid regional fulfillment capabilities.

Given the policy change, Asian e-commerce firms are now focusing their expansion efforts on markets in Europe and Latin America, rather than the U.S. However, the European Union appears to be following the U.S. by ending de minimis import exemptions.

Prologis also anticipates that the availability of power sources robust enough for both advanced automation and manufacturing processes will become one of the top three considerations for companies when selecting a facility location. Fully automated warehouses use three to five times more power than last year’s baseline model, and power availability is already a constraint in some areas.

The U.S. and Europe will have an added demand catalyst as defense spending ramps.

An increase in defense spending in the U.S. is generating significant demand, extending past major prime contractors to include small and midsize suppliers. These secondary contractors are now actively seeking real estate near primary contractors to better localize and streamline supply chains. This could support demand for older industrial corridors that have been in decline as these users are seeking facilities with abundant energy and manufacturing capabilities.

Several European countries have committed to spend 5% of GDP on defense-related projects.

Prologis said international markets are likely to outperform the U.S. A fourth consecutive double-digit rent increase in Brazil, a sub-5% vacancy rate in Europe, and outsize growth in logistics infrastructure in India, are part of the company’s global forecast.

Rents in Brazil are expected to increase by 11.5% for full-year 2025, which would outpace global rents by 16 percentage points.

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