Northern California industrial markets are cooling over a range of factors, including tariffs, overbuilding, and fear, which are being cited as the leading causes.
Construction, consisting mainly of large warehouse units, had declined dramatically from over six million square feet to under three million square feet in just two years in the region. Rents have remained relatively stable, but concessions, such as rent abatement or increased commissions, are on the rise.
The San Francisco Bay Area’s industrial markets continued their slowdown, with vacancies reaching 12.53% in 2025, compared to 11.75% at the end of 2024. Heavy negative absorption of 2.8 million square feet in Q1 was triple Q4 2024’s 946,000 square feet as demand for larger warehouse space continues to decline.
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East Bay industrial performance mirrored that of the rest of the area, as vacancies climbed into the10% range.
The warehouse markets were particularly hard hit, with some size and configuration segments experiencing vacancy rates of over 30%.
“The biggest fear in commercial real estate today is the fear of the unknown,” Ed Del Beccaro, EVP, San Francisco Bay Area regional manager at TRI Commercial, told GlobeSt.com.
“What will happen with interest rates on loan deals, what effect will tariffs have on increasing construction costs, and will geopolitical tensions cause an increase in energy costs?”
This fear of the unknown is significant enough that many major commercial developments have been put on hold to await market stabilization, he said.
“Businesses are delaying expansion plans,” Del Beccaro explained. “High Interest rates, increased construction costs, slowing economic expansion, and reluctant lenders all combine to dampen commercial real estate activity.
“The fear is that if I start a project, take out a construction loan, and build the building, will I be able to lease it at the projected pro forma rental rates, or will I face financial difficulties?
"If I build the structure and do not lease it at the required rental rate for which it was built, or even worse, have an empty building with no tenants, then what?”
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