The industrial REIT vacancy rate crossed 7.2% in Q1 and I did not expect the share prices to shrug it off the way they did.

AFFO yield relative to the 10-year is probably anchoring the bid more than the operating fundamentals right now.

What spread are you using between the implied cap rate on those two names and current risk-free, because that compression story changes completely if you think rates drop 75 basis points before the supply cliff hits?

The price action is telling you something specific: the market is weighting the forward supply picture more heavily than the trailing leasing spread data, and the guide content here supports that read. New industrial supply is forecast to drop 20 to 70 percent in key submarkets, and if institutional holders are running that number forward, they are willing to absorb a quarter or two of spread compression in exchange for what they expect pricing power to look like in 2026 and 2027. That is the assumption doing the most work in the current multiple.

The risk you have not named is duration mismatch inside the rent roll. If the names you are watching have a concentration of lease expirations landing in 2025 and 2026 at the same time vacancy is elevated, the spread compression you are seeing now is a leading indicator of an earnings miss, and the supply cliff does not bail them out fast enough. That is the scenario where fundamentals eventually do show up in the equity. The Prologis supplement should break out weighted average lease term and near-term expiration exposure by submarket. If the inland empire sleeve has a cluster of expirations before the new supply correction tightens things up, the market's optimism is fragile.

The other thing worth separating: momentum holding a price above fundamentals and the market pricing a catalyst you are underweighting are two different situations that look identical from the outside right now. Your entry thesis depends heavily on which one is true, and you probably cannot settle that without working through the submarket-level absorption data, not just the portfolio-wide vacancy figure.

One thing worth confirming with your own data: how does the 7.2% vacancy figure compare to these names' specific submarket vacancy versus portfolio-wide, since Prologis skews premium-location and that number may understate stress in the specific assets you are watching.

What does the near-term lease expiration schedule look like for the two names you are tracking?

The divergence you are describing is real and I want to name the two things that are probably doing the work simultaneously, because they pull in opposite directions.

The supply cliff argument has actual numbers behind it. The strategy guide for this sector cites forecast supply declines of 20 to 70 percent in industrial in key markets through 2026. If the market is pricing that in now, the equity could hold near its high even as current-quarter leasing spreads compress, because investors are buying the anticipated vacancy recovery, not the Q1 snapshot. The Prologis supplement you cited actually supports that read: a large, well-located portfolio in a supply-constrained submarket benefits disproportionately when new deliveries drop.

The momentum explanation is also possible and harder to dismiss. Generalist money rotated hard into AI and growth names through 2025, and industrial REITs were relative laggards. Some of the price resilience may be reversion from oversold territory earlier rather than fresh conviction on fundamentals.

What I would want to know before treating the current price as justified: what the REIT is trading at relative to its NAV (net asset value, meaning the estimated market value of the underlying properties divided by shares outstanding). A price near a 52-week high with compressed leasing spreads looks very different if it is at a 15 percent discount to NAV than if it is at par. That single number would sharpen your entry thesis considerably.

I am not in a position to call direction on any name, and anything here is a starting point for your own research rather than a conclusion. Worth checking what the current NAV estimates from analyst coverage look like for both names.

What submarkets specifically are you watching within the Inland Empire, and are both names concentrated there or is one more diversified geographically?

The supply cliff argument is real but I'd push back on the timing a little. Most of the 2026 delivery projections I've seen still have a decent slug of spec space in Riverside and Perris that was permitted in 2022 and hasn't been cancelled, it's just delayed, so the cliff might be more of a slope. What I keep coming back to is that institutional buyers seem to be treating the 7.2% like a ceiling that gets worked down rather than a floor that keeps moving up, and I genuinely do not know if that confidence is earned or if it's just the narrative that got inherited from 2021 and nobody has formally revised it yet.

I'm not in a position to have gotten burned on this personally because I haven't bought anything yet, first house is still in escrow. But I did spend probably 40 hours last fall building out a DCF on a smaller industrial REIT and kept fudging the occupancy assumptions down until the entry price looked wrong, and what I noticed is that the spread compression you're describing hits NOI a lot harder than the headline vacancy number suggests if you're also renewing at tighter terms. The market may be looking past that because the duration on existing leases smooths it out for two or three more quarters.

What's your read on the lease expiration schedule for the name that's still near the 52-week high? That feels like the thing that actually determines whether the fundamentals show up in 2025 or get deferred long enough that the supply story has time to rescue the thesis.