Despite a shifting global trade environment and mounting economic uncertainty, the U.S. industrial real estate sector held its ground in the first quarter of 2025. Absorption levels remained stable, vacancy rates continued their gradual rise, and rent growth moderated—signaling a market that is transitioning from its pandemic-era highs into a more balanced, demand-driven cycle. While speculative supply and tariff headwinds have introduced new challenges, demand from third-party logistics (3PL), e-commerce, and manufacturers continues to anchor activity in key markets.
Key Takeaways
Demand Remains Steady: Net absorption reached 23.1 million sq. ft. in Q1, in line with Q1 2024. Warehouse and logistics facilities led growth, while some older manufacturing assets saw negative absorption.
Vacancy Ticks Up: National vacancy rose to 7%, driven by new speculative deliveries and move-outs in aging buildings. Smaller warehouses remain tight at 4.1% vacancy; larger facilities continue to see softening.
Rent Growth Slows: Industrial rents grew 4.3% YoY but were flat QoQ. Nearly 40% of tracked U.S. markets reported annual rent declines, signaling broader stabilization.
Pipeline Contracts Sharply: New deliveries hit a four-year low at 72.6 million sq. ft., a 41% YoY decline. The construction pipeline is down 33% YoY and falling fastest in the West and Midwest.
Quality Over Quantity: Newer buildings (post-2023) accounted for over 57 million sq. ft. of net occupancy gains. Class A space continues to attract the largest occupiers.
Demand Still Resilient
Despite trade policy uncertainty, the U.S. economy continues to absorb a healthy amount of industrial space. Warehouse and logistics buildings led the quarter with 30 million sq. ft. of positive absorption. In contrast, the manufacturing segment gave back 5.7 million sq. ft. Overall deal volume slowed 6.4% YoY, but the new product continues to attract large occupiers—60% of 100,000+ sq. ft. leases were signed in buildings constructed since 2020. The “flight to quality” trend remains strong.
Vacancy Rising, Midwest Stabilizing
The U.S. industrial vacancy rate rose to 7% in early 2025, its highest level since 2014, driven largely by speculative deliveries and returning space. Large-box facilities (250,000+ sf) saw vacancies exceed 10% in many markets, while smaller warehouses remained the tightest segment, especially in the Midwest where conditions are showing signs of stabilization.
Despite the rise in vacancy, rents grew 4.3% year-over-year but remained flat compared to Q4 2024. Nearly 40% of markets tracked by Cushman & Wakefield reported annual rent declines, as shifts in available inventory—particularly from large speculative builds—continued to weigh on averages. However, tighter supply in small-to-mid-size industrial spaces is sustaining stronger rental performance in those segments.
Pipeline Recalibrates After Record Expansion
Industrial construction slowed sharply in early 2025, with just 72.6 million square feet (msf) delivered—down 41% year-over-year and marking the third straight quarterly decline. Speculative builds made up 72% of completions, while the 100k–300k sf segment led in volume. The total pipeline dropped 33% YOY to 270.8 msf, with notable slowdowns in the West and Midwest. Only five U.S. markets now have active pipelines exceeding 10 msf, compared to 12 a year ago—reflecting a market-wide recalibration.
Outlook: Strong Fundamentals Amid Realignment
Despite global uncertainty, America’s industrial backbone remains solid. Strategic sectors like logistics, e-commerce, and advanced manufacturing continue to drive demand. Rising vacancies and cautious leasing reflect market discipline—not decline. With tariffs reshaping supply chains and speculative overbuilding easing, the sector is resetting for sustainable, U.S.-driven growth.
What to Watch
Tariff-Driven Realignment: Expect continued reshoring and reduced reliance on foreign suppliers as policy favors domestic production.
Flight to Quality: Older and inefficient properties will feel pressure as tenants pursue value, performance, and location advantage.
Regional Strength: Pro-business states in the South and Midwest are positioned to capture outsized gains from investment and migration tailwinds.
Bottom Line
The industrial market isn’t cooling—it’s calibrating. Investors and operators should lean into efficiency, location strategy, and high-demand sectors. As speculative supply clears and American manufacturing regains its footing, the next wave of opportunity will favor those prepared for a leaner, more resilient landscape—built here at home.
