The chugging industrial engine that said, “I think I can,” has changed its tune to, “Wow, this track is steep.”
The newest Cushman & Wakefield report on the industrial market has found vacancy up 30 basis points to 7% in Q1 2025 and “modest” demand, causing market recalibration. Conditions have become closer to long-term averages before the pandemic, a likely sign of stability, if no longer standout performance.
Multiple factors — reduced construction, lower absorption, higher inventory, and slower construction — are jostling, causing changes in the market. Statistics in Q1 2025 show year-over-year construction down 32.8% and 5.7% off quarter-over-quarter. Completions were down 40.6% by year and 16.7% by quarter. However, the previous construction pace and overall absorption (down 3.0% year-over-year and 45.6% quarter-over-quarter) still left inventory up 0.4% over Q4 2024 and 2.2% over Q1 2024.
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The 7% vacancy rate is up 4.5% over the previous quarter and 22.8% higher than the first quarter of last year. New Leasing was down 6.4% year-over-year and down 4.2% quarter-over-quarter. Overall absorption took a 45.6% slide quarter-over-quarter and dropped 3% year-over-year.
Overall, average net rent hit $10.11 per square foot. That was flat over the previous quarter and up by 4.3% from the same period in 2024. New leasing was down 4.2% from the previous quarter and off 6.4% from the first quarter of 2024.
“For the first time since mid-2021, the U.S. industrial average asking rental rate has finally flattened out,” said Jason Price, senior director, Americas head of logistics & industrial research at Cushman & Wakefield, in prepared remarks. “The rate remained steady at $10.11 per square foot in Q1 as more pockets of rental rate softness emerged.”
Thirty-eight markets saw one million square feet of new deal volume in the first quarter of 2025. That compares to 37 from Q4 in 2024. The deals that continued to drive demand ranged from 100,000 to 300,000 square feet, comprising more than 35% of the quarter’s total. The result is “consistent with historical trends,” Cushman wrote. There was a continued flight to quality by tenants, as 60% of the square footage leased was concentrated in facilities built since 2020.
At the end of last year, 25 markets had annual rental rates that declined; in Q1 of this year, the number rose to 33. The Northeast and West regions had decreases of 2%. The Midwest and South saw 0.8% increases owing to speculative product that entered the market at premium pricing. “Despite recent downward pressure across many areas, 27% of the markets posted annual gains of 5% or higher, six of which exceeded 10% for year-over-year asking rent growth.”
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