Industrial demand held steady in Q2, bolstered by continued flight-to-quality from large tenants. But early signs of tariff-related pressure are emerging—especially in the West, where leasing softened alongside a drop in port activity. Meanwhile, core markets like Dallas, Houston, and Greenville remained strong, each posting solid gains.
Key Takeaways
Steady Absorption, Despite Softer Demand Industrial net absorption held steady at 29.6 million sq. ft.—in line with Q1 but below long-term averages. Activity remains uneven across regions, asset classes, and building sizes.
Vacancy Inches Up National vacancy rose by 20 bps in Q2, with the South and Midwest seeing only slight increases (+10 bps), reflecting relative stability.
Rent Growth Slows Weaker demand and rising vacancies are pressuring rents. Asking rent growth cooled to just 2.6%—the slowest pace since Q1 2020.
New Supply Hits Five-Year Low Only 71.5 million sq. ft. of new industrial space was delivered—the lowest since early 2019. The construction pipeline has shrunk to its lowest level since 2017, constrained by economic uncertainty, elevated vacancies, and higher borrowing costs.
Q2 Industrial Demand Stable, Early Signs of Trade Impact
Industrial demand held steady in Q2 2025, with 29.6 msf of net absorption driven by continued tenant preference for newer, high-spec buildings. While leasing volume remains healthy—surpassing 309 msf year-to-date—early signs of tariff-related pressure are emerging in port-centric West Coast markets like Los Angeles and the Inland Empire, where occupancy declined. Major logistics hubs like Dallas, Houston, and Greenville posted strong gains. Build-to-suit construction is rising, but new supply continues to outpace demand, and the speculative development pipeline has shrunk to a five-year low.
Rent Growth Slows from Record Highs as Industrial Availability Increases
Industrial vacancy climbed to 7.1% in Q2—the highest level since 2014—easing pressure on rent growth, which slowed to 2.6% year-over-year. Despite the cooling, rent levels remain elevated, especially in smaller warehouses where tight supply and a 4.4% vacancy rate continue to support pricing power. Tariff-related impacts are evident in coastal markets like the Inland Empire and Los Angeles, where rents declined over 10% annually but still remain far above pre-pandemic levels. Nationwide, rent trends are increasingly segmented by building size and market exposure.
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Outlook
Industrial demand is expected to remain soft through year-end, pressured by weak consumer sentiment and global trade uncertainty. Leasing delays may create pent-up demand, with a rebound anticipated in 2026–2027 as onshoring, trade agreements, and large occupiers reaccelerate decisions. Vacancy is forecast to peak in the high-7% range by 2026 before tightening. Rent growth will likely dip below 2% by late 2025 but is projected to recover to historical norms (3–4%) as supply and demand realign.
