➤Key Highlights

The industrial sector transitioned toward balance in 2025 after years of rapid expansion. National warehouse vacancy held around 6.6% in Q3, finally stabilizing after more than two years of increases. Robust leasing activity persisted — but it shifted heavily toward newer, high-tech facilities, while older buildings lagged. Modern warehouses delivered since 2022 generated more than 200 million sq. ft. of positive absorption, even as many legacy properties recorded significant move-outs.

Overall absorption remained solid: 53.3 million sq. ft. in Q3 and 79 million sq. ft. year-to-date. Yet this demand level couldn’t fully keep pace with the 1 billion sq. ft. of space delivered since early 2023. Roughly 400 million sq. ft. of that new inventory was still vacant heading into 2024, putting pressure on rent growth.

By late 2025, the supply surge finally began to slow. Fewer project starts meant deliveries fell materially, with 2025 completions on track to be roughly half of 2024’s level. This helped halt vacancy expansion. Rent growth flattened across many markets — following a ~3–4% decline in 2024 — as the sector worked through its backlog of new space. Still, asking rents remained far above pre-pandemic levels, and effective rents held up thanks to limited concessions compared to prior cycles. Core logistics hubs, particularly in Southern California and the Northeast, maintained Class A vacancy at or below 3%, underscoring the bifurcation between modern and obsolete stock.

Occupier demand remained healthy, supported by structural shifts in supply chain strategy. Total leasing volume in 2025 is on track to exceed 800 million sq. ft., slightly below pandemic-era highs but well above pre-2020 norms.

3PLs accounted for roughly 35% of all leasing, driven by retailers and manufacturers outsourcing logistics to manage volatility and control costs. E-commerce penetration continued upward — approaching 25% of core retail sales — driving additional demand for distribution and fulfillment centers.

Geopolitical and supply chain resiliency themes shaped tenant decisions. Nearshoring and “China+1” strategies pushed activity into U.S. border regions and Midwest distribution corridors. Markets such as Houston, Dallas, Kansas City, and Louisville saw increased warehouse demand tied to expanded North American manufacturing.

A significant occupier trend was flight to quality. Companies used the period of higher availability to upgrade into mega-distribution centers with advanced automation capabilities. Conversely, older warehouses — particularly those with low clear heights or outdated sprinkler systems — recorded over 100 million sq. ft. of negative absorption in 2024 and continued softening in 2025. Many landlords of aging facilities began evaluating renovations or partial repositioning as user demand shifted decisively toward modern product.

Industrial remained a favored asset class for investors, though pricing adjusted from 2021’s peak. Green Street data show industrial values down modestly year-over-year as of mid-2025. Cap rates expanded from the frothiest high-3% levels into the mid-4% to low-5% range by 2025 for prime assets, largely due to higher borrowing costs.

Even with these shifts, liquidity stayed healthy. Industrial continued to lead transaction activity across major property types. In the net-lease space, industrial comprised 53% of all STNL volume over the past year. Large operators like Prologis continued acquiring logistics portfolios, signaling long-term conviction in the sector’s fundamentals.

Lenders grew cautious on speculative development, driving the pullback in new starts. However, industrial benefited from the lowest loan delinquency rates among major CRE categories, and lenders generally remained willing to refinance or extend loans on high-quality, stabilized assets. Rent expectations — though more moderate than in 2021–22 — still supported investor underwriting, especially in coastal markets with scarce land and power capacity.

Industrial’s regulatory environment in 2025 reflected the tension between economic development and community impact.

Environmental regulations tightened in key logistics hubs such as the Inland Empire, where air-quality rules impose fees on large distribution centers and some municipalities explored temporary moratoria on warehouse development. Requirements for rooftop solar on new commercial buildings — now mandated in California — increased construction and compliance costs.

Trade policy continued influencing industrial demand. Persistent U.S.–China trade tensions and potential tariff escalations motivated manufacturers and distributors to diversify sourcing. Nearshoring into Mexico remained a major catalyst, benefiting U.S. border markets.

Labor stability provided relief: the 2023 West Coast port labor agreement prevented disruptions through 2025, supporting smooth logistics operations. Meanwhile, some states pursued logistics-friendly incentives, offering tax credits or infrastructure support to attract major distribution and manufacturing facilities.

In short, industrial sat at the crossroads of environmental standards, supply chain reconfiguration, and labor policy, and 2025 reinforced this intersection.