Net absorption increased in the third quarter of 2025, however, US industrial demand remains weaker than peak years and has had a challenging time keeping pace with the supply of new buildings, according to Lee & Associates' latest market report. The commercial real estate services’ firm also found that tenant growth remained muted by lingering tariff concerns and stubborn interest rate levels. Still, some indicators point to more clarity in the sector.
“The second half of 2025 showed meaningful signs of recovery in certain important submarkets,” notes CEO, Jeff Rinkov. Third-quarter net absorption was more than 50 million square feet nationally and equaled the aggregate net absorption in the first half of 2025. “Demand is still below the peak years of 2021 and 2022, but rents are stabilizing – which is encouraging and indicates the sector is improving.”
Vacancy Rates Remain Uneven
Rinkov says that vacancy nationally is trending at approximately 7.5% and may have peaked in the third quarter. But high vacancies continue to be an issue for larger buildings in recent years, with vacancy in buildings above 100,000 square feet increasing to more than 8%. Midsize buildings have seen a more gradual rise, increasing to 5.7%. Conversely, buildings smaller than 50,000 square feet are most in demand, with vacancy typically at less than 5%.
Regionally, Rinkov says the Midwest is currently a “standout,” with vacancy rates of approximately 5.5% at the end of the third quarter. He credits the strong inland distribution and manufacturing markets that populate the region.
“Vacancy rates may be moderating because of improved demand and diminished deliveries of new inventory,” notes Rinkov. “And they still may grow slightly as we conclude the year and begin 2026. But looking forward, we believe vacancy rates will trend downward later next year.”
Landlords Face Challenging Times, Tenant Concessions
The vacancy increase has proven difficult for industrial landlords as they seek ways to attract new tenants.
The combination of tenant contraction and added supply drove up the vacancy rate 70 basis points from the second quarter to 7.5%, the highest since 2013 in the aftermath of the Great Recession. In markets where new deliveries have outpaced demand, landlords are providing richer incentive packages that include longer free rent periods, increased tenant improvement allowances and more flexibility in lease terms, especially in renewal discussions.
“Landlords have been more accommodating of tenants’ requests for short-term lease extensions as their longer-term needs have been subject to the greater uncertainty,” says Rinkov.
Investors Wait Out Tariff, Trade Uncertainty
Hovering over the industrial sector is the status of ongoing tariff and trade talks, which is being closely watched by investors.
“Tariffs and trade policy uncertainty remain consistent themes and are the main contributors to the ‘wait and see’ posture taken by many occupiers,” notes Rinkov. He adds that investors are also closely monitoring the advancement of specialty assets (including cold storage and data centers) that have outperformed the market and remain in high demand.
Rinkov says that investors are paying particular attention to policies relative to interest rates and port activity, which are data points that tend to project demand for logistics space.
“Despite the challenges facing the industrial sector, the continued resilience of the US consumer is driving the general success of the economy.”
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