Demand for the largest U.S. industrial properties is helping tighten fundamentals in a segment that has faced elevated vacancy following a wave of new development.
According to a new report from CoStar, vacancy rates for industrial buildings larger than 500,000 square feet have contracted over the last several quarters as large logistics occupiers returned to the market beginning in the second half of 2025. The findings point to an increasingly segmented industrial market in which performance varies significantly by building size. While large logistics facilities are benefiting from renewed tenant demand, newer mid-sized warehouses continue to face leasing challenges as the sector works through excess supply delivered during the construction boom.
"Large logistics occupiers have returned to the market since the latter half of 2025, and a significant amount of absorption was driven by the delivery of build-to-suit properties," said Juan Arias, national director of industrial analytics at CoStar Group.
At the same time, tenant behavior has shifted. Arias noted that average lease terms for the largest industrial deals have fallen from approximately seven years in 2022 to five years today as occupiers seek greater flexibility amid evolving trade policies, supply chain disruptions and changing consumer demand patterns.
Small-bay industrial properties continue to outperform the broader logistics market. CoStar found availability for small-bay space stands at 6.4%, well below the 10.9% rate for the overall logistics sector. The segment has benefited from historically limited construction and steady leasing demand, although elevated economic uncertainty has begun to weigh on expansion plans among smaller businesses.
Market performance varies widely across the country. Austin and Phoenix, which have experienced significant additions to their small-bay inventory in recent years, rank among the markets with the highest vacancy rates for the segment, along with San Antonio, Reno and Charleston. Meanwhile, Midwestern markets including Omaha, Toledo, Rochester and Albany continue to post some of the lowest small-bay vacancy rates nationally.
Despite improving conditions for the largest logistics facilities, challenges remain elsewhere in the sector. For industrial properties larger than 200,000 square feet that were built within the last five years, supply is taking longer to absorb, particularly among mid-sized facilities. According to CoStar, vacancy rates for newly built logistics properties remain at their highest levels since 2006 across most size categories, with buildings larger than 500,000 square feet representing the notable exception.
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