The industrial real estate market is weathering a period of disruption, marked by an unexpected level of stability in new construction and shifting patterns in leasing and occupancy. While a slowdown in industrial construction during the first quarter of the year was anticipated, the reduction was less dramatic than forecasted, with CBRE projecting 217 million square feet of new supply for 2025—representing a 37% decline from last year’s levels. This restraint in new development has introduced pockets of optimism, even as supply dynamics shift.
Beyond the headline figures on completions, the supply landscape is changing in subtler ways. Move-outs from older facilities are rising as companies prioritize quality, opting for newer or upgraded spaces. At the same time, there is a growing reliance on third-party logistics providers, with many firms outsourcing their warehousing needs and vacating existing premises.
Early lease renewals are also becoming more common, further shaping the market’s absorption trends. “Many of the companies outsourcing to 3PLs are vacating buildings because they don’t need them,” said James Breeze, global head of industrial and retail research at CBRE. “Unfortunately, none of these drivers are creating positive absorption.” This trend is expected to push net absorption to its lowest levels since 2010, with significant negative absorption anticipated for facilities built prior to 2020. Nonetheless, continued demand for newly constructed properties is forecasted to keep overall absorption positive, albeit more modestly. The nationwide industrial vacancy rate is projected to reach 7% by the end of the year and peak in mid-2026, according to CBRE’s analysis.
Despite these headwinds, industrial leasing activity surged during the second quarter, culminating in the strongest June on record. This robust finish propelled year-to-date leasing volumes up 8.5%, outperforming expectations for flat growth that had been set last year. “We had that really strong finish in Q2, which helped our year-to-date leasing to increase 8.5%,” Breeze noted during a CBRE research briefing.
Rent growth, meanwhile, is experiencing a deceleration. CBRE senior industrial economist David Kelly links the moderation to the sharper-than-expected dip in completions, which has prevented rents from turning negative. He anticipates national industrial rent growth will land between 0.5% and 1.0% for the year, before gradually rebounding to an annual rate of about 2.5% over the coming years.
Macroeconomic forces are also shaping the outlook. Kelly reports that lower-income consumers have depleted the funds gained during the pandemic and now face the prospect of less than 2% growth in real income. While this is positive for keeping inflation in check, it could eventually dampen economic activity. “Eventually, the forces will squeeze higher incomes too,” Kelly observed, pointing to the group whose spending has buoyed GDP in recent quarters.
Digital transformation continues to drive metrics, with e-commerce’s share of total retail sales expected to surpass 25%. Not all segments of the industrial market are benefiting equally: leasing activity for warehouse spaces over 700,000 square feet is slow as major corporate tenants remain cautious. In contrast, mid-sized properties, particularly those ranging from 100,000 to 300,000 square feet, are forecasted to be the best performers through 2025.
In a climate of change and uncertainty, the question remains for investors: where are the opportunities? Breeze recommends focusing on local markets and leveraging insights from experts with on-the-ground knowledge. He emphasized the unprecedented micro-level variability in vacancy and rent trends, suggesting that occupiers looking to upgrade have a rare window of opportunity—though it may not remain open for long.
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