2025 Industrial Real Estate Outlook: E-Commerce Boom and Warehouse Demand

Introduction

The U.S. industrial property sector enters 2025 at a pivotal moment. Over the past several years, an e-commerce boom fueled unprecedented demand for warehouses and distribution space, driving record construction of logistics facilities mmcginvest.com. Developers raced to deliver new mega-distribution centers during the pandemic-era surge in online retail, pushing industrial building construction industry revenues to an estimated $45.3 billion in 2025 (up ~4.8% annually since 2020). As we move through 2025, however, the market is transitioning. Warehouse supply has finally caught up to the frenzied demand, and key indicators like vacancy and rent growth are normalizing from their red-hot peaks. For lenders, developers, and institutional investors, the outlook demands a nuanced analysis: e-commerce remains a structural driver of demand, but the cycle is shifting toward equilibrium. This report examines how the e-commerce boom continues to influence warehouse construction and absorption trends in 2025, drawing on the latest data from IBISWorld, CoStar, and other industry sources. We explore construction pipelines (mega-centers, speculative vs. build-to-suit development), absorption patterns by property type and size, geographic growth hotspots (and cooling spots), the impact of nearshoring, evolving rent and vacancy dynamics, and investor implications for yields and financing. The goal is to provide a comprehensive, data-driven outlook to inform strategy in the U.S. industrial property sector.

E-Commerce as a Structural Demand Driver

E-commerce has firmly established itself as a structural driver of industrial real estate demand. Even as overall retail spending faces headwinds in 2025, online sales continue to expand their share of the market, sustaining strong needs for warehouse and fulfillment space. In fact, e-commerce’s share of U.S. core retail sales (excluding autos and gas) hit a record 23.2% in Q3 2024 and is projected to reach about 25% by the end of 2025. This sustained growth – on top of the pandemic-era surge – means retailers and logistics providers must maintain extensive distribution networks. Every percentage point increase in e-commerce penetration translates into millions of square feet of additional warehouse requirements for inventory management and last-mile delivery.

Online retail sales have more than doubled since 2019, and major e-commerce players (Amazon, Walmart, Target, etc.) rapidly expanded their logistics footprints in response. During 2020–2022, companies engaged in a “frenzied” expansion of fulfillment networks to keep up with the spike in online ordering mmcginvest.com. This led to a wave of speculative warehouse development in 2021–2024, as developers anticipated that e-commerce growth would continue unabated mmcginvest.com. By 2025, e-commerce growth has normalized from the extreme pandemic highs but remains robust – JLL, for example, forecasts the e-commerce sector to grow around 9% annually in coming years, a healthy clip that will continue to drive warehouse absorption. Consumers now expect ever-faster shipping, which forces retailers to hold inventory closer to end-users in multiple markets, reinforcing demand for “last-mile” facilities in urban and suburban locations.

Importantly, the e-commerce effect on warehouse demand is structural, not cyclical. Even if overall retail sales slow in a given quarter, the long-run trend is a higher baseline need for distribution space to support omnichannel retail. By late 2024, U.S. warehouse leasing activity remained well above pre-pandemic levels, totaling roughly 800 million sq. ft. expected in 2025 – a stable high plateau of demand, even if off the 2021 peak. However, much of this new leasing involves tenants upgrading to modern space rather than net-new requirements. As CBRE notes, tenants are pursuing a “flight to quality” – newer warehouses with higher ceilings and advanced automation – which means older facilities built before 2000 saw over 100 million sq. ft. of negative absorption in 2024, while new buildings delivered after 2022 logged +200 million sq. ft. of positive absorption. In other words, e-commerce growth is filling new state-of-the-art logistics centers, but often at the expense of outdated stock. This trend underscores how e-commerce is reshaping not only the quantity of industrial demand, but the quality of space desired. Modern fulfillment operations require features like 40-foot clear heights, dense truck court layouts, automation infrastructure, and proximity to labor – features often found in build-to-suit mega centers or the latest speculative developments.

Crucially, e-commerce has expanded the geography of warehouse demand. Traditional coastal distribution hubs (Los Angeles/Inland Empire, Northern New Jersey, etc.) still handle huge import volumes, but e-commerce has spurred growth of fulfillment centers in secondary and tertiary markets closer to population centers nationwide. Markets in the Midwest and South have benefitted from new fulfillment center investments. For instance, Amazon’s logistics network now extends deep into heartland states and rural areas – a recent report indicated Amazon is planning dozens of new smaller warehouses in U.S. hinterland areas by 2025 to speed up delivery times. The overall takeaway: e-commerce’s secular rise ensures that warehouse demand remains fundamentally supported in 2025 and beyond, even as the market works through a short-term supply glut. Occupiers (especially third-party logistics providers serving e-commerce clients) are expected to remain the leading source of leasing activity, accounting for roughly 35% of all industrial leasing in 2025 as retailers continue outsourcing distribution needs to 3PL partners. E-commerce has permanently elevated the baseline demand for logistics real estate, making the sector a long-term favorite for investors – albeit one now entering a more mature phase of the cycle.

Warehouse Construction Trends (2025 Outlook)

After several years of breakneck development, U.S. warehouse construction is finally moderating in 2025. The industry is transitioning from a record-setting boom toward a more sustainable pace, as higher interest rates and a pullback in speculative projects cool the pipeline. CoStar data shows the industrial market is nearing the end of a record development wave – quarterly new supply has already fallen sharply from its peak and will continue declining into 2026. Table 1 highlights this trend:

Table 1: Quarterly Industrial Space Deliveries – Peak vs. Projected mmcginvest.com

Sources: CoStar; MMCG Invest analysis.

At the height of the boom, roughly 150 million square feet of industrial space delivered in Q4 2023 alone, an extraordinary volume. Developers were completing projects at an annualized pace of well over 500 million SF per year in 2022–23 – a pace enabled by aggressive speculative building to meet perceived e-commerce and logistics needs. By mid-2025, that pace has slowed dramatically. In Q2 2025, only about 64 million SF of new supply came online, and by early 2026 quarterly completions are projected to dip below 40 million SF mmcginvest.com – the slowest rate of deliveries in over a decade. Industrial construction starts peaked in 2022, but have since plunged to 10-year lows by late 2024/early 2025 as developers reacted to softer market conditions. On average, large warehouse projects take ~14 months to build, so the steep drop in groundbreakings over the past 1–2 years foreshadows a very light delivery pipeline by 2026, once the last of the boom-era projects complete.

A key trend in 2025 is the near-standstill of speculative development in many markets. With vacancy rising and financing costs high, most new projects now require significant pre-leasing or build-to-suit commitments before lenders and investors will green-light construction. In effect, speculative warehouse construction has “largely paused” in 2025, shifting toward build-to-suit and heavily pre-leased projects mmcginvest.com. Developers and their capital partners are far more cautious, preferring to secure a credit tenant lease (or substantial tenant interest) up front. This is a stark change from 2021–22, when builders were comfortable breaking ground on “spec” mega-warehouses with no tenant lined up, confident that e-commerce-fueled demand would fill them. Now, with exit cap rates up and rent growth slowing, speculative projects must clear a higher underwriting bar.

Indeed, higher interest rates and cap rate expansion have significantly altered development economics. During the boom, warehouse cap rates compressed to the mid-4% range at their trough in 2021, enabling developers to sell new facilities at lofty prices mmcginvest.com. Since then, cap rates have decompressed roughly 150 basis points – prime industrial yields now typically hover around 6%, and many secondary-market assets trade in the 7–8% range mmcginvest.com. This means developers face lower projected sale prices for completed projects, even as construction costs remain elevated (labor and materials inflation). The result: fewer speculative starts penciling out. IBISWorld notes that high interest rates and tariffs on materials have disincentivized some new construction, despite federal incentives for manufacturing facilities. For warehouse developers, the financing environment in 2025 is challenging – lenders are tightening and requiring more equity, and debt costs are far above the rock-bottom levels of a few years ago. Many merchant developers have stepped to the sidelines unless a project has a strong tenant or is in a top core location.

That said, certain types of industrial construction remain active. Mega-distribution centers (facilities 500,000+ SF, including “big-box” and even multi-story warehouses) continue to move forward in select instances, often backed by large tenants. Some of the newest, most advanced logistics facilities are seeing healthy pre-leasing and even rent premiums. For example, CoStar reported that industrial buildings larger than 500,000 SF actually saw stronger demand in the first half of 2025, with robust pre-leasing rates and a “small uptick” in asking rents. The largest state-of-the-art distribution centers – typically occupied by major e-commerce players or retailers – are faring better than mid-sized spec projects. In one notable case, a newly built 753,000 SF logistics building in Washington state (fully leased to two tenants) traded in mid-2025 at a 5.2% cap rate, reflecting how premium, fully leased mega-warehouses can still command aggressive pricing. Developers like Prologis and other institutional players are selectively pursuing build-to-suit deals for Fortune 500 tenants that need massive facilities. Additionally, trends like multi-story warehouses are emerging in land-constrained urban markets (e.g. New York City, San Francisco) – projects that are often build-to-suit for last-mile distribution where land prices justify going vertical mmcginvest.com.

In contrast, mid-sized speculative projects (100,000–500,000 SF) have been overbuilt in some regions and now face longer lease-up times. The bulk of speculative construction from 2018–2024 was in this 100-500k SF range, and many such buildings are hitting the market just as demand has cooled. CoStar highlights Phoenix as an extreme example: since 2019, vacant space in Phoenix logistics buildings of 100–500k SF ballooned by 19 million SF (vacancy in that cohort now over 20%), and another 8.2 million SF of projects in that size range remain under construction unleased. Even if no new projects start in Phoenix, it would take almost 3 years at average absorption to work those vacancies back down to normal levels. This scenario is playing out in multiple Sunbelt markets (Austin, Indianapolis, Greenville-Spartanburg, San Antonio, etc.), where ample land and developer enthusiasm led to a glut of 100-500k SF warehouses. These markets will require time (and perhaps rent concessions) to absorb the speculative wave. As a result, construction in 2025 is heavily tailored by market: high-supply markets see an effective construction pause, whereas a few coastal and high-barrier markets with still-tight vacancy (e.g. infill Southern California, New Jersey) have a modest amount of ongoing development, often build-to-suit.

In summary, warehouse construction is decelerating sharply through 2025. New supply delivered in 2025 will likely be roughly half of 2024’s level, and the total pipeline under construction has shrunk to about 300 million SF nationally (down from 400+ million a year earlier) mmcginvest.com – the smallest pipeline since 2019 according to JLL data. The industry is effectively tapping the brakes to let occupier demand catch up. For stakeholders, this cooldown is actually a healthy development: it will gradually restore balance to supply and demand. From a lender perspective, construction financing has shifted to a much more conservative stance – debt providers favor experienced sponsors, strong pre-leases, and core locations mmcginvest.com. From a developer perspective, strategies are pivoting: “build-to-suit over speculative in oversupplied markets” is the mantra for 2025 mmcginvest.com, and phasing large projects to match actual leasing progress is advised. Meanwhile, construction innovation is a bright spot – techniques like modular/prefabricated building and green design (solar-ready roofs, EV charging, LEED certifications) are gaining traction mmcginvest.com, helping to control costs and appeal to future tenants. Overall, expect fewer but more targeted warehouse projects in 2025, as the development cycle enters a digestion period after the e-commerce-fueled boom.

Absorption Patterns by Segment and Size

Demand for industrial space in 2025 is showing a more nuanced pattern than in the all-out boom years, with clear divergences by property subtype and building size. Understanding these absorption trends is crucial for evaluating leasing risk and opportunities:

By Property Type (Logistics vs. Flex vs. Specialized): The industrial sector is commonly broken into logistics (warehouse/distribution), flex (industrial with office/showroom component), and specialized (manufacturing, heavy industrial) segments. Each is experiencing different fundamentals in 2025. According to CoStar’s national data, logistics properties have borne the brunt of the softening – they tend to be larger warehouses tied to retail supply chains (including e-commerce), and many markets saw logistics demand moderate just as a wave of new supply hit. As of Q4 2025, logistics facilities nationwide have a vacancy around 8.5%, up significantly in the past two years and above the national average. In fact, vacancy in logistics warehouses has climbed ~460 basis points since mid-2022, reaching the highest level in over a decade (around 8%+) by mid-2025). Net absorption for logistics space turned negative in multiple quarters of 2024–25, reflecting retailers pulling back on expansion and digesting excess inventory space. Table 2 summarizes key metrics by property subtype:

Table 2: U.S. Industrial Real Estate Key Metrics by Subtype (2025)

Sources: CoStar National Industrial Report (Q4 2025).

As Table 2 shows, specialized industrial space (e.g. factories, assembly plants, data centers) remains the tightest segment, with vacancy only ~4.3%. These facilities, often built-to-suit and occupied long-term by manufacturers, have largely insulated themselves from oversupply. Even during the broader industrial cooldown, specialized space absorption has been steady or slightly positive in aggregate. The nearshoring and reshoring of manufacturing activity (discussed later) is contributing to new demand for specialized facilities like semiconductor plants and EV battery factories, which are typically pre-leased or owner-occupied (so they don’t show up as vacant supply) mmcginvest.com. Rents for specialized industrial tend to grow modestly but steadily, as these tenants prioritize stable operations over relocating for marginally lower rent.

Flex space (which combines warehouse with office/showroom and caters to tenants like tech labs, R&D, light assembly, and service centers) is performing relatively well. Vacancy in flex properties is ~8.2%, on par with logistics, but importantly the construction pipeline for flex is very limited (only ~20 million SF underway, vs 200+ million in logistics) mmcginvest.com. This limited new supply means existing flex buildings face less competitive pressure, and many markets are seeing continued rent growth for flex units (national flex rents average ~$18–19/SF, with +2–3% YoY growth in many areas mmcginvest.com). Demand for flex is driven by a diverse user base (from small tech startups to local trade contractors), and because new development of flex product has been scarce, vacancies in well-located flex parks remain at or near historic lows in some cities. In short, the flight-to-quality trend is mostly a logistics phenomenon – tenants seeking modern high-bay warehouses – whereas flex tenants often have fewer new options and thus absorb available spaces steadily.

The logistics segment (bulk warehouses) is where the most significant adjustment is occurring. National logistics vacancy of ~8.5% is up from the sub-4% lows of 2021. Net absorption for big-box distribution space turned negative in late 2024 for the first time since the Great Recession, as some occupiers gave back space or delayed expansions. However, it’s important to note this softening is relative: leasing activity is still robust by historical standards (2023–24 leasing volumes were above pre-2020 averages), but much of the new leasing is tenants relocating to newer facilities, causing older buildings to go empty. Indeed, CBRE recorded over 400 million SF of new, first-generation industrial space delivered since early 2023 that is still available – a big chunk of empty new supply that tenants can choose from. This is why overall net absorption has lagged despite plenty of gross leasing. CBRE expects net absorption to remain low in 2025 even as leasing stays solid, because each new lease often corresponds to a tenant vacating an obsolete building. By 2026, as new construction abates, those vacant older buildings may start to backfill, bringing absorption back up. But for 2025, logistics landlords, especially owners of mid-2000s or older facilities, face a more tenant-favorable market.

By Size Bracket: Another stark pattern is emerging when analyzing industrial space by building size. Larger warehouses have seen disproportionately higher vacancy increases, whereas small “last-mile” facilities remain extremely tight. This reflects differences in both supply (developers mainly built large warehouses during the boom, not small ones) and demand (small spaces are sought by local tenants and saw less overbuilding). Table 3 illustrates the vacancy rates by building size cohort and how much they’ve changed:

Table 3: Industrial Vacancy Rate by Building Size mmcginvest.com

Source: CoStar; changes measured from mid-2022 to mid-2025.

Larger distribution centers have clearly felt the most stress. Vacancy in big-box warehouses (>100k SF) roughly doubled from around 4% in 2022 to about 8% in 2025 mmcginvest.com. This corresponds with the glut of speculative 100k+ SF product delivered. In many markets, these big spaces are lingering on the market longer as demand has become more selective. By contrast, small-bay industrial (<50k SF) remains very tight – even after a slight uptick, small-bay vacancy is under 4% nationally mmcginvest.com, near historic lows. Many local businesses (construction trades, small distributors, service companies) occupy these smaller units and new construction of sub-50k SF spaces has been minimal for years. Thus, landlords of small industrial suites often still enjoy near-full occupancy and pricing power, especially in growing metro areas.

This size-based dynamic is further evidenced by how quickly space is leasing by size. Larger vacancies are taking much longer to fill than smaller ones. In the first half of 2025, the median time on market for a leased industrial space over 100k SF was about 17.3 months, whereas spaces under 50k SF were snatched up with a median of just 4.6 months on the market. Table 4 highlights these figures:

Table 4: Median Time to Lease Industrial Space by Size (H1 2025)

Source: CoStar data (first half of 2025).

In essence, small spaces are still moving quickly – there’s a shortage of them in many cities (Nashville, Jacksonville, Orlando, Charlotte, etc. are cited as having acute small-bay shortages due to population growth and demand from service industries). Meanwhile, large spaces have slowed – a big-box vacancy might sit for over a year unless discounted, as the pool of tenants who can take 100k+ SF is limited and many already expanded during 2020–21.

The 50–100k SF mid-size category is somewhat in-between: vacancies have risen to ~5.5% mmcginvest.com, but that’s still relatively moderate. These midsize buildings often serve regional distributors or local branches of 3PLs, and while there was some spec construction in this range, it was less aggressive than the 500k SF big boxes. So mid-size spaces are seeing a more gradual softening.

Implications of Absorption Trends: Landlords and investors should note that absorption patterns are bifurcated. Owning a portfolio of small, infill industrial buildings in 2025 is very different from owning a new 500k SF distribution center on the metro fringe. The former might still enjoy 95%+ occupancy and rising rents, while the latter might be fighting through a year of free rent to land a tenant. This means performance by segment and size will vary widely in the near term.

Logistics REITs and institutional owners with a focus on large modern warehouses are encountering a tougher leasing environment (higher vacancies, flat or declining rents on big spaces), whereas those with specialty industrial or small-unit business parks are more insulated. Resilience in small and specialized segments also means that overall industrial market fundamentals, while softer than 2021, are far from collapsing – there is strength under the surface in certain niches. For example, national industrial net absorption in 2024 was about 170.8 million SF (the lowest since 2011), but that aggregate masked the fact that a few hundred million SF of new Class A space were absorbed positively even as a lot of older space went negative. Looking ahead, market forecasts (like NAIOP’s) predict vacancies peaking by late 2025 or early 2026 and net absorption gradually improving thereafter mmcginvest.com. The expectation is that with fewer deliveries, demand – even if moderate – will begin to outpace supply again by 2026, tightening vacancies across the board.

In summary, 2025’s industrial absorption story is one of stratification: strong demand for new, small, and specialized spaces; weak demand (in the short term) for oversupplied large logistics boxes. Stakeholders should calibrate their strategies accordingly: for leasing, consider subdividing larger vacancies or offering more generous concessions to compete for big tenants, while maximizing rents on scarce small units. For development, the bias is toward build-to-suit specialized projects or smaller-unit industrial parks rather than speculative big boxes, at least until the existing vacant big-box inventory is worked down.

Geographic Patterns of Growth and Oversupply

Industrial real estate conditions in 2025 vary significantly by geography. Regional patterns have emerged, with the Sunbelt and certain Midwest markets facing oversupply pressures, while coastal “gateway” markets and some interior logistics hubs remain relatively tighter. Additionally, new growth frontiers are appearing in response to supply chain shifts. Below we examine key geographic trends:

Sunbelt Surge and Hangover: The Sunbelt region (Southeast and Southwest U.S.) experienced an industrial development boom in recent years, fueled by available land, business-friendly environments, and population migration. Markets like Dallas–Fort Worth, Atlanta, Houston, Phoenix, Austin, and central Florida saw millions of square feet of warehouse space delivered in 2021–2024. For example, Dallas–Fort Worth frequently led the nation in annual absorption and new supply (with DFW’s industrial inventory now well over 1 billion SF). Phoenix – once a secondary market – became a top-five market for new big-box construction due to its growth as a logistics alternative to California. Austin, TX similarly had a record pipeline (over 10 million SF under construction at peak) targeting high-tech manufacturing suppliers and e-commerce distribution.

However, this rapid Sunbelt expansion has led to localized oversupply in 2025. As noted earlier, cities like Austin, Indianapolis, Greenville-Spartanburg, Phoenix, and San Antonio stand out for high vacancy in newly built logistics properties. Many of these markets effectively “got ahead of themselves” – speculative development overshot short-term demand. For instance, Greenville-Spartanburg (SC), a burgeoning Southeast freight hub, now has a much elevated vacancy rate in large warehouses, and Indianapolis – traditionally a strong logistics market – faces a surplus of new 100k–500k SF spaces that may take 18–24 months to absorb. CoStar data indicates these markets could take 2+ years for tenants to backfill the vacant new supply, especially for mid-sized boxes. In many Sunbelt cities, overall vacancy has pushed above the national average (e.g. Phoenix industrial vacancy jumped to double-digits in 2024). Rent growth in these oversupplied markets has stalled or even turned slightly negative for larger industrial properties as landlords compete for tenants.

That said, Sunbelt demand has not disappeared – it’s simply that supply overshot in the short run. These regions continue to benefit from population and economic growth, which drives long-term warehouse needs. Leasing picked up in early 2025 in several Midwest and Southern markets (e.g. Columbus, St. Louis, Nashville, Charlotte all saw new leasing volumes in H1 2025 at least 50% above their prior two-year average). So tenants are active; they just have plenty of choices. The likely scenario is a period of rent concessions and absorption of vacant space through 2025–2026. Savvy developers in Sunbelt markets have already pulled back – new starts are minimal – which will allow demand to catch up. Investors with a longer horizon may find opportunities to acquire quality assets in these areas at a discount during this supply indigestion.

Coastal and Infill Markets: In the primary coastal gateway markets like Southern California’s Inland Empire, Northern New Jersey, Los Angeles, Bay Area, Seattle, South Florida, and land-constrained inland hubs like Denver or Portland, the picture is somewhat different. These markets generally have higher barriers to new development (scarce land, tougher permitting), so they did not see the same relative surge in new supply. Vacancy in many coastal nodes remains below national averages – for example, the Inland Empire (CA), despite absorbing an enormous amount of new construction, still has relatively tighter conditions due to persistent port-driven demand and lack of buildable land in prime locations. CoStar noted that port-adjacent West Coast markets, while not immune, are at less risk – ongoing import activity and high barriers mean they are more balanced than the Sunbelt flurry mmcginvest.com. Northern New Jersey (serving the NYC region) likewise has a low vacancy for small and mid-sized spaces, and while big-box vacancy crept up, the market is aided by constrained land and strong last-mile demand.

Infill submarkets within major metros are notably holding value. Tenants continue to covet proximity to consumers and labor. As a result, in cities like Chicago, Atlanta, Dallas, Miami, etc., there’s a divergence between outer-ring greenfield submarkets (where most new warehouses were built) and inner-ring infill submarkets (with older but well-located warehouses). The infill areas, being mostly built-out, still have very low vacancy and in some cases rent growth persists because companies need to locate close to city centers for last-mile delivery. Owners of these infill assets often have older buildings, but as long as functional, they can lease them well since some tenants prefer a slightly obsolete building in the perfect location over a shiny new warehouse 40 miles out. CBRE observed that owners of older vacant buildings in core markets might either wait for the market to tighten (as new supply dries up in 2026) or upgrade their facilities to compete better. Some may even sell to owner-users who value location over modern features.

Notable Developments and Projects: Even with overall new construction slowing, there are still headline-worthy industrial projects shaping regional growth. A few examples: In North Carolina, Walmart is investing $300 million in a new 1.2 million SF fulfillment center (announced for 2025) to bolster its e-commerce distribution in the Southeast. Amazon has indicated plans to spend up to $15 billion on new U.S. warehouses through 2025, with a focus on secondary markets and even rural areas to reach customers faster. This includes multiple new fulfillment centers on Long Island, NY, and a proliferation of smaller delivery stations nationwide. Large manufacturing-driven projects are also notable: Tesla’s 10+ million SF Gigafactory in Austin (opened 2022) continues to expand and spin off supplier warehouse needs in Texas, and in 2025, sites in the Midwest and Southeast are being prepared for EV battery plants and chip fabs (each of which often require adjacent distribution centers for parts and materials). For instance, Micron’s massive semiconductor campus in upstate New York (announced in 2022) and TSMC’s fabs in Arizona are not only construction projects themselves but are generating requirements for local logistics space to support those facilities. Developers like Prologis, Duke Realty (now Prologis), CenterPoint, and Panattoni have been actively pursuing build-to-suit opportunities tied to these mega-investments. Additionally, infrastructure improvements (like expansions at the Ports of Savannah and Houston, or new air cargo facilities in Chicago and Louisville) are creating localized upticks in warehouse development around those logistics nodes.

Emerging Secondary Markets: 2025 is also seeing growth in some secondary industrial markets that are becoming regional distribution hubs. For example, Kansas City has risen as an intermodal and e-commerce hub (helped by a central location and affordable land) and recently led the nation in some quarters for net absorption. Greensboro, NC (with a new Toyota battery plant and other investments) and Memphis, TN (a traditional distribution center benefiting from e-commerce) are also performing well. These smaller markets can sometimes capture demand when big metros get too tight or expensive.

Investors are paying attention to markets that combine multimodal connectivity (rail, highway, ports) with population growth and available labor. The NAIOP Market Monitor and others have flagged markets in the Carolinas, Tennessee, and Texas as ones to watch for continued industrial expansion mmcginvest.com. At the same time, capital is cautious about the oversupply risk in less proven markets – hence why speculative building has dried up unless tenant interest is strong.

In conclusion, geography matters more than ever in 2025. Industrial real estate is not a monolith; local supply-demand conditions range from tight (e.g. an infill LA warehouse is still gold) to soft (e.g. a generic new warehouse in suburban Phoenix may struggle). Sunbelt and Midwest development hubs are in a digestion phase, expected to even out by 2026. Coastal and high-barrier markets remain relatively resilient, though even they have more availability now than the ultra-tight 2021 market. For investors, this means portfolio diversification by market is key – a balance of core market assets for stability and select high-growth market assets for upside (acquired perhaps at a discount during this oversupply window). For developers, it means focusing on the right locations: supply chain shifts (like nearshoring, which we cover next) may open up new geographic opportunities, but one must be wary of following the last cycle’s hot market into oversupply. The interplay of trade patterns, infrastructure, and regional policies will continue to shape the industrial map of the U.S.

Nearshoring and Reshoring: Impact on Warehouse Demand and Location

Global supply chain reconfiguration – namely nearshoring and reshoring trends – is an increasingly important factor influencing U.S. industrial real estate in 2025. “Nearshoring” refers to companies moving manufacturing and sourcing closer to the U.S. (often to Mexico or other parts of North America), while “reshoring” is the return of manufacturing to the United States itself. Both trends are being driven by a desire for supply chain resilience, as well as geopolitical and trade considerations (tariffs, trade tensions, etc.). These shifts are starting to reshape industrial space needs and locations, particularly boosting demand in certain U.S. logistics corridors and border regions.

One clear impact is growing warehouse and distribution demand in U.S.-Mexico border markets and key Texas hubs. As more manufacturing takes place in Mexico (for example, automotive parts, electronics, appliances), those goods still need to be distributed in the U.S., which requires logistics facilities near ports of entry and inland distribution nodes. CBRE reports that demand for modern logistics facilities near the U.S. southern border continues to grow as companies set up “twin-plant” operations (with manufacturing in Mexico and distribution just north of the border). Markets like El Paso, TX; Laredo, TX; McAllen, TX; and San Diego/Tijuana are experiencing a surge in requirements for warehouse space to handle cross-border flows. Additionally, central Texas is benefiting: San Antonio, for instance, has seen strong absorption in its south submarkets due to nearshoring-related distribution.

A June 2025 analysis by a Texas industrial firm found that industrial absorption rates in key Texas markets jumped 40–60% compared to pre-tariff periods, with especially strong demand in El Paso, San Antonio, Houston (east side), and Dallas–Fort Worth’s southern sector. This is directly tied to manufacturers relocating production closer to the U.S. market: tariff policies and trade uncertainties accelerated nearshoring, and Texas – with its border proximity and robust infrastructure – is a prime beneficiary. The Texas Triangle (Dallas–Houston–San Antonio) is becoming an even more critical logistics nexus as freight from Mexico flows in and goods produced in Texas itself (thanks to reshoring) flow out. We are seeing new warehouse developments in places like Laredo (the largest inland port) to expand cross-dock facilities, and warehouse parks in El Paso serving maquiladora supply chains.

Reshoring of manufacturing into the U.S. is also driving warehouse demand in certain regions tied to new factories. For example, the Midwest and Southeast manufacturing belt is seeing an uptick in both specialized industrial construction (factories themselves) and in ancillary warehouse space. The CHIPS Act and Inflation Reduction Act have spurred numerous large-scale projects (semiconductor fabs in Arizona, Texas, New York; EV battery plants in Arizona, Michigan, Georgia, North Carolina, etc.). Each such project often comes with the need for supplier warehouses, parts distribution centers, and increased regional freight traffic, which in turn requires logistics facilities. NAIOP’s research (Feb 2024) highlights how investments in electric vehicle and battery manufacturing, as well as green energy equipment, are creating new industrial real estate requirements in markets like Kentucky, Tennessee, Ohio, and Georgia. For instance, Ford’s BlueOval City (EV plant in Tennessee) and multiple battery gigafactories in the southeastern U.S. have already led logistics developers to plan nearby distribution centers to serve those plants and distribute finished products.

These trends are not instantaneous, but over the next several years the redistribution of supply chains will continue to influence warehouse absorption. In the near term (2025), companies that nearshored production may be taking additional warehouse space for inventory buffering, as just-in-time models give way to more resilient just-in-case strategies. Duckfund’s 2025 outlook noted that many companies are restructuring supply chains for resilience and that “the reshoring trend means increased demand for domestic industrial spaces, particularly in secondary markets with strong transportation infrastructure.” That suggests that mid-sized logistics hubs (with good highway/rail connectivity) in the interior U.S. could see a wave of new occupancy as manufacturers reconfigure distribution networks for a more North America-centric supply chain.

From a geographic standpoint, the I-35 corridor from Texas through the Midwest is emerging as a critical north-south logistics route thanks to nearshoring. Kansas City, for example, with its rail links and being a natural midpoint between Mexico and the Great Lakes, has attracted new distribution centers (some calling it the “Mexico to Midwest” corridor). Also, border-adjacent states like Arizona and California will see some benefits from nearshoring, although California’s high costs mean some companies prefer to route through Texas or Arizona when possible.

Warehouse design and lease implications: Nearshoring also influences the types of warehouses in demand. More manufacturing domestically means more need for manufacturing-support warehouses (which might store components, handle reverse logistics, or serve as intermediate staging facilities). Some of these might be specialized facilities requiring climate control or heavy power (for parts storage or light assembly). We also see an uptick in demand for industrial outdoor storage (IOS) and yard space – e.g. drop lots for containers and trailer storage – especially near ports and border crossings, because rerouting supply chains often involves more intermodal handoffs that need space. Investors have taken note, as IOS (essentially land for truck/trailer storage) has become a hot niche due to this logistics reconfiguration.

Policy and trade factors: The policy environment remains a wildcard. The USMCA trade agreement (which replaced NAFTA) has provisions that encourage North American production for duty-free status, which further nudges companies to keep more production regionally. Tariffs on Chinese imports, first introduced in 2018–2019 and still in effect for many categories, have made sourcing from Mexico or the U.S. relatively more attractive. If these tariffs persist or increase, nearshoring will likely accelerate. Conversely, if trade tensions ease, some companies might resume more global sourcing. But the consensus in 2025 is that resiliency and diversification are here to stay as supply chain priorities, so having regional distribution capabilities is essential.

In sum, nearshoring and reshoring are tailwinds for industrial real estate demand, especially in specific corridors. They contribute to incremental absorption of warehouse space, even as the e-commerce cycle cools. We are effectively seeing a broader base of demand drivers: not just retail distribution, but also manufacturing and trade-related distribution, which can help fill warehouses. For investors and developers, one takeaway is to target markets and properties positioned to benefit from these trends: e.g. land near border ports for trailer yards, warehouses in markets with new manufacturing growth, and intermodal logistics hubs bridging U.S. and Mexico trade. Already, capital is flowing in this direction – private equity and logistics firms are actively buying up land along the border and around emerging manufacturing clusters, anticipating future development. As nearshoring progresses, it could meaningfully shift some “center of gravity” for industrial demand southward and inland, which is an important strategic consideration for the next decade of warehouse investment.

Rent, Vacancy, and Evolving Lease Structures

The industrial property market’s rent and vacancy dynamics in 2025 reflect the inflection point between the boom and a more balanced market. While fundamentals remain healthier than other CRE sectors, landlords are no longer in the driver’s seat to the extent they were in 2021–2022. Here we analyze the latest trends in rents, vacancies, and how lease terms (including concessions) are changing in this more tenant-favorable climate.

Vacancy and Availability: U.S. industrial vacancy has increased markedly from its historic lows, reaching about 7.5% nationally as of Q4 2025. This is up from roughly 4% at the market’s tightest point in 2021–2022. In fact, vacancy is now at its highest level in a decade. It’s important to note that availability (which includes space being marketed but not yet vacant, such as under-construction or space tenants plan to sublease) is even higher – national industrial availability is around 9.7%. The gap indicates a lot of new space and sublease space is on the market in addition to current vacancies.

This rise in vacancy/availability has two primary causes: surging new supply outpacing absorption (as discussed earlier) and a mild softening of demand growth as some tenants downsized or delayed expansions post-pandemic. As a result, the leverage in leasing has shifted. For the first time in years, tenants in many markets have choices between multiple vacant spaces, and landlords have to compete on price and terms.

Rent Growth Cooling: The consequence is that rent growth has significantly decelerated. After an unprecedented run-up in rents through 2021–2022 (when national asking rents jumped by double digits annually in many markets), rent growth has now plateaued. As of late 2025, year-over-year market rent growth is roughly 1.3% nationally – the slowest rate since 2012. In fact, on a quarterly basis, rent growth is effectively 0.0% in Q4 2025, meaning rents have stopped rising for now. CoStar notes that average national rents are no longer rising as of late 2025.

However, because there were strong gains locked in during 2022 and early 2024, the trailing 12-month figure still shows a slight positive. Some contexts:

• Big-box logistics buildings have even seen asking rents decline in many markets in 2025, as landlords of large vacant spaces cut rents to attract tenants.

• Small-bay industrial rents, conversely, remain on an upward trajectory (though modest), since vacancy is still very tight for small units. For example, asking rents for <10,000 SF spaces hit all-time highs in mid-2025 (~$13.5/SF NNN nationally), and 10–25k SF spaces similarly reached record highs (~$11.8/SF) in mid-2025.

• In the mid-size and big-box categories, rents peaked earlier (in 2023 or 2024) and have since softened. So we have a bifurcation where smaller spaces are still getting pricier, while larger space rents have stagnated or ticked down.

To give concrete numbers: the national average asking rent is around $12.03 per SF NNN as of Q4 2025 (across all industrial). Logistics/warehouse space averages ~$10–11/SF, specialized industrial ~$12, and flex space ~$19 (higher due to office build-out). These averages are all-time highs in nominal terms, but the growth curve has flattened. Markets that saw explosive rent surges (e.g. Coastal California, Northern NJ, Phoenix, South Florida) have generally plateaued at those high levels or given back a few percentage points. Secondary markets that were catching up in rent (e.g. Columbus, Las Vegas, Savannah) have mostly paused growth as well. According to CBRE, 2025 will likely be the second consecutive year of moderating rent growth, with many markets seeing 0–3% rent change. Owners shouldn’t expect the 5–10% annual rent hikes of the pandemic era to return until the market tightens again post-2026.

Concessions and Lease Terms: Perhaps the most notable shift is the resurgence of landlord concessions to secure leases, particularly on large deals. In 2021–22’s landlord-favorable market, concessions (like free rent or extra tenant improvement allowances) were minimal to nonexistent – tenants had to compete for space. That has changed. Industrial landlords, especially REITs and institutional owners, have publicly acknowledged increasing concessions in 2024–25. One major industrial REIT reported that free rent granted amounted to ~2.8% of total lease value on deals signed in the past year, up from under 2% a year prior. In practical terms, 3+ months of free rent on a 5- to 7-year lease has become common in many markets – something unheard of during the boom. For example, CoStar cites Golden Designs (a sauna manufacturer) securing 6 months free rent in early 2025 on a 5.5-year lease for 177,000 SF of new warehouse space in the Inland Empire. This kind of concession indicates the lengths landlords will go to land a large tenant in an oversupplied submarket.

Additionally, tenant improvement (TI) packages are more generous, and landlords are more flexible on lease terms such as shorter leases or more renewal options. During the peak, most landlords insisted on 7-10 year terms to lock in high rents; now, some are agreeing to 5-year terms if that’s what the tenant wants. Sublease space has also popped up – with some companies downsizing, sublease availability is about 1.2% of inventory (nationally) by late 2025, adding more options for tenants often at a discount.

It’s important to note that while rents are flat now, many existing leases are still stepping up. Because a lot of leases signed pre-2023 were at lower rates, many tenants are facing rent increases upon renewal (“mark-to-market”). So some landlords in small-bay or older multi-tenant properties are still seeing revenue growth as below-market leases expire. But looking forward, the pace of rent appreciation will be constrained until vacancy recedes.

Geographical differences in rent trends: Markets flush with new supply – e.g. Austin, Indianapolis, Phoenix, Greenville/Spartanburg, and San Antonio – are identified as most at risk for tenant-favorable conditions and soft rents. In these markets, tenants moving into large blocks can negotiate sizable rent discounts from asking, plus incentives. On the flip side, in supply-constrained markets like Los Angeles or New Jersey, landlords of small or unique spaces might still raise rents moderately given lack of alternatives, though even there, the days of double-digit growth are over for now.

Operating costs and lease structures: Another factor on the horizon is rising operating costs – property taxes, insurance, and common area maintenance costs have been climbing (especially in disaster-prone areas, insurance has spiked). Most industrial leases are triple-net, meaning tenants cover these costs, but ultimately high occupancy costs can affect demand and landlords might feel pressure to keep base rents in check if OpEx is soaring. So far, it has not materially affected leasing decisions, but it’s something to watch.

To summarize, the industrial leasing environment in 2025 has normalized:

• Vacancies up, market equilibrium shifting slightly toward tenants in many locales.

• Rent growth essentially flat nationally, with small positives in some segments and negatives in oversupplied pockets.

• Free rent and other concessions are back as a negotiating tool, especially for larger leases where tenants have options.

• Landlords are focusing on tenant retention (to avoid vacancy) more than pushing aggressive rent hikes. Many are offering early renewals or blending and extending leases at moderate increases rather than risking a tenant leaving.

Despite these more challenging conditions, it’s worth noting that industrial fundamentals are still better than historical norms. A 7.5% vacancy is roughly a balanced market (neither extremely tight nor oversupplied in aggregate). And even at 1–2%, rent growth in 2025 is expected to remain positive overall – a far cry from the rent declines seen in sectors like office. In fact, industrial is still the best-performing sector in CRE on rent growth (Moody’s Analytics projects ~3% industrial rent CAGR over the next two years, highest among property types).

The outlook for rents beyond 2025 depends on absorption outpacing supply. Forecasts generally anticipate that with construction dropping sharply, vacancy will peak by early 2026 around 8% and then start to edge down. As vacancies tighten again through 2026–2027, landlords could regain some pricing power. Until then, we are in a tenant’s market relative to the past few years, and creative lease deals will persist. Stakeholders (investors, lenders) should underwrite rent projections conservatively in the near term, build in higher downtime and concessions for large spaces, and ensure business plans are resilient to flat rents for a couple of years.

Investor Implications: Yields, Cap Rates, and Financing Environment

For investors and lenders in the industrial property sector, the 2025 landscape presents both challenges and opportunities. The sector remains fundamentally supported by e-commerce and supply chain trends, but the capital markets have recalibrated from the frenzy of 2021–22. Here we delve into what 2025 means for yields (cap rates), asset values, and the construction financing and investment environment.

Capitalization Rates and Values: As mentioned earlier, industrial cap rates have expanded from their historic lows. The days of 4% cap rates for distribution centers are mostly behind us (at least for now). Prime institutional-quality warehouses that traded around a 4.25–4.5% cap in 2021 are now more in the 5.5–6.0% range in 2025. CoStar notes that stabilized multi-tenant warehouse cap rates have moved up roughly 150 bps off the bottom, to about 6% for typical assets. Some recent sales examples illustrate the range:

• A portfolio of new fully leased warehouses in Minneapolis sold at a 6.25% cap in August 2025.

• A large core industrial in Washington state (Seattle area), fully leased to strong tenants, sold at 5.2% cap (reflecting a premium price).

• Single-tenant long-term leased assets (which are akin to bond-like income) can still garner low-5% cap rates from certain buyers – for instance, a new 172,000 SF logistics center in Atlanta with a 5-year lease sold at ~5.4% cap in mid-2025.

Meanwhile, more commodity or vacant assets in secondary locations may trade in the high-6% to 7%+ range, especially if there’s lease-up or near-term rollover risk. Private buyers and some opportunistic investors are demanding higher yields (8–9% for secondary market or value-add deals) mmcginvest.com to compensate for higher interest costs. The result is that industrial values have generally declined from their peak in early 2022. Depending on the market and asset, values are off perhaps 10–20% from the peak, aligning with the cap rate moves (though still well above pre-pandemic values, given how much rents rose during 2020–22).

Investment Sales Volume: Transaction volume took a hit in late 2022 and 2023 due to interest rate spikes and uncertainty. For example, quarterly sales volume in 2023 was roughly half the pace of 2021 mmcginvest.com. However, 2024–25 saw a modest rebound in volume as the bid-ask spread narrowed. CoStar noted that by mid-2025, sales activity was regaining momentum, with institutional capital returning to big-ticket deals and private capital remaining active at the small end. In the first two months of Q3 2025, sales outpaced the prior year’s same period, hinting at renewed confidence. There’s anecdotal evidence of more investors viewing late 2024/2025 as a “buying window” now that pricing has corrected and the long-term outlook for industrial is still attractive mmcginvest.com.

Who is buying? Initially in the slowdown, private local buyers dominated (under $10M deals remained most active). But by 2025, institutional buyers (REITs, pension funds, etc.) have come back for high-quality assets, comprising about 45% of acquisitions in the $50M+ category. Some large funds that sat out 2023 are now looking to deploy capital into industrial, given its strong fundamentals relative to troubled sectors like office. We also saw an uptick in owner/user purchases (companies buying facilities for their own use) during the lull – e.g., Burlington Coat Factory’s $257M purchase of a 2019-built 770k SF distribution center in California to secure its own supply chain capacity. This trend underlines that some occupiers see value in owning mission-critical warehouses when pricing becomes more reasonable.

Financing and Development Capital: On the debt side, higher interest rates (the Fed funds rate in 2025 is significantly above 2021 levels) have increased debt costs to the point that leveraged returns are compressed. Many industrial deals that were financed at 3% interest in 2021 might now face 6-7% interest rates – so buyers either need to put more equity or accept lower leverage. Banks have remained active in lending on stabilized industrial assets (it’s still a favored asset class for credit), but underwriting is more conservative, with lower LTVs and higher debt coverage requirements mmcginvest.com. Construction financing is tougher: regional banks (key construction lenders) are cautious given rising construction costs and recent CRE credit concerns. Some developers turn to debt fund financing at higher rates for projects, or form JV equity partnerships to reduce loan needs mmcginvest.com. The fact that starts are at 10-year lows shows that financing for speculative development has largely dried up, unless one has a strong track record and significant equity.

Investor Strategy Shifts: With the market in transition, investors are adjusting strategies. Some notable themes:

• Focus on quality and location: Core funds are targeting high-quality assets in prime locations now that cap rates have widened (they see this as an entry point). Buying newer warehouses in infill locations at 5.5–6% yields is attractive long-term, given belief in the sector’s resilience.

• Value-add and repurposing: There’s interest in older industrial stock that can be acquired at a discount and upgraded (value-add). Strategies include refurbishing older warehouses with better lighting, ESFR sprinklers, added truck courts, etc., to make them competitive. Also, converting or redeveloping obsolete industrial (or even other property types like dead malls) into modern logistics facilities is on the table in some markets.

• Build-to-core and development: Some investors, notably REITs, are more cautious on acquisitions (why buy at a 5.5 cap if your stock trades at higher implied cap rate?), but they are pursuing development for long-term value – albeit focusing on build-to-suit or high-barrier markets where they feel confident in lease-up mmcginvest.com. They are also incorporating sustainability and automation features to future-proof these developments.

• Alternate industrial asset classes: Niche segments like cold storage, truck terminals, and trailer yards are gaining attention. Cold storage (refrigerated logistics) has high barriers and demand from grocery e-commerce, so some investors are exploring that despite high construction costs. Trailer yards and outdoor storage, as noted, are in demand due to nearshoring and e-commerce (more trailers, more staging).

• Sale-leasebacks: With corporate users wanting to raise cash and the investment market stabilizing, sale-leaseback deals are happening. Manufacturers and distributors can monetize their real estate at these still-attractive values. Investors like them because they come with a tenant in place on a long lease. We saw more activity in this area in 2024 and expect it to continue (e.g. some manufacturing firms selling their plants and leasing back to free up capital) mmcginvest.com.

From a lender’s perspective, industrial remains a preferred collateral, but prudent underwriting is key. Lenders in 2025 are stress-testing deals for higher vacancy and flat rents, making sure DSCRs can handle further interest rate or vacancy upticks mmcginvest.com. They favor experienced sponsors and strong tenants. Construction loans, if any, often require significant recourse or pre-leasing. Lenders are also keeping an eye on the large amount of new supply not yet absorbed – they may, for example, be more cautious in lending on a spec building in Phoenix or Atlanta until vacancy there improves.

Yields and Return Outlook: The rise in cap rates has a silver lining for new investors – going-in yields are higher, which could potentially mean better long-term returns if/when the market tightens again and cap rates compress. If interest rates eventually ease (many expect the Fed might cut rates in late 2025 or 2026 if inflation abates), cap rates could compress a bit, offering upside. However, no one expects a return to 4% cap environment quickly; rather, the consensus is that industrial cap rates will settle perhaps in the 5-6% range for core assets under a normalized rate environment. Fitch and S&P analyses of CRE debt suggest industrial has the lowest distress risk among major property types, so lenders are generally comfortable rolling over loans, albeit at higher coupons mmcginvest.com.

In summary, investors should approach 2025 with disciplined optimism. Industrial real estate’s big-picture drivers (e-commerce, supply chain reconfiguration, limited long-run supply in key markets) remain intact, so the sector is expected to outperform in the long term. But in the near term:

• Underwriting should be more conservative, assuming slower rent growth and longer lease-up times for vacancies.

• Cap rate expansion has reset values – which is painful for sellers but an opportunity for buyers with dry powder.

• Debt costs are high, so deals may require more equity; fortunately, many equity sources (e.g. pension funds) still have allocations for industrial due to its attractive fundamentals.

• Those already holding industrial assets might consider refinancing sooner if possible (before rates potentially rise further), or sell non-core assets to recycle capital into higher-quality or bargain opportunities.

From an institutional view, industrial real estate remains a favored asset class and should continue to attract capital in 2025, albeit more selectively. The sector’s rent growth prospects, though muted short term, are still better than office or retail. Additionally, industrial’s operational intensity is lower (no expensive TI for offices, etc.) and tenant default rates are historically low, making it relatively stable. As one market outlook put it, “capital should continue to favor industrial assets, supported by the sector’s historically strong rent growth and predictable capex compared to other property types”.

In conclusion, 2025 is a year of transition for industrial real estate investing – a time to secure quality assets at reasonable prices, focus on strong tenancy and locations tied to growth trends (e-commerce logistics, nearshoring, etc.), and to carefully manage leverage and lease expirations through the current market softening. By doing so, investors and lenders can position themselves to ride the next upward cycle, which many anticipate could take hold by 2026–2027 once the current oversupply is absorbed and the economy stabilizes.

Conclusion and Outlook

The U.S. industrial real estate sector in 2025 finds itself at an inflection point. The e-commerce boom that defined the past decade has permanently raised the floor for warehouse demand, and even as the initial frenzy has subsided, online retail continues to expand and drive long-term need for modern logistics space. At the same time, the sector is absorbing the consequences of its own success – a massive wave of new construction that overshot short-term demand in some markets, leading to a period of higher vacancy, flat rents, and greater balance between landlords and tenants.

Looking ahead, industry analysts broadly expect that this market correction will be relatively short-lived. Vacancies are likely to peak by late 2025 or early 2026 around the high-7% to 8% range, then gradually decline through 2026–2027 as new supply wanes and steady demand growth catches up. Net absorption is projected to improve in the latter half of 2025 and into 2026, potentially returning to a healthier clip (some forecasts see quarterly absorption rising back to 30–40 million SF per quarter by late 2025 if economic conditions hold mmcginvest.com). This would begin eroding the availability of first-generation space and tighten the market again. Indeed, by 2027, we may see rent growth reaccelerate modestly as equilibrium is restored.

For industry stakeholders, the current environment is a time for strategic adjustment and proactive management. Investors are counseled to “buy quality in prime locations” now that pricing has adjusted mmcginvest.com, and also to pursue value-add opportunities, such as upgrading well-located older warehouses or executing sale-leasebacks with corporate occupiers looking to shed real estate mmcginvest.com. Diversification – by geography and tenant mix – will help navigate the pockets of oversupply. Developers are wise to prioritize build-to-suit projects or build in phases rather than speculative endeavors in soft markets mmcginvest.com. Embracing efficiency (like modular construction) and ESG-friendly features can differentiate projects. Lenders should continue their prudent approach: stress-testing deals, favoring experienced sponsors and core markets, and being ready to offer creative refinancing solutions for owners who might struggle with loans maturing in a high-rate environment mmcginvest.com.

One overarching theme is that industrial real estate remains fundamentally essential. Warehouses are the backbone of the modern economy – enabling e-commerce, supporting manufacturing supply chains, and serving as buffers for retailers and producers in an uncertain world. This intrinsic value was highlighted during the pandemic and has not diminished. If anything, emerging trends like nearshoring, inventory buildups for resilience, and technological advancements (AI and automation in logistics) will create new demands for industrial space configurations. For example, more firms may require local return processing centers (reverse logistics) or small urban fulfillment centers for rapid delivery – niches that will spur absorption in coming years.

Risks remain – a sharper economic downturn than expected could temporarily push vacancies higher or cause some tenants to default. Trade policy uncertainties (tariffs, geopolitical tensions) could swing demand in port markets. And community opposition to large warehouses (the “Not In My Backyard” sentiment) is growing in some areas, which could impact development approvals mmcginvest.com. Yet, industrial real estate has shown remarkable resilience through cycles. Even in the face of a potential mild recession, any pullback in demand would likely be followed by a strong rebound as the structural drivers reassert themselves.

In essence, the 2025 outlook is one of cautious optimism and long-term confidence. The sector is transitioning from an exceptional growth spurt to a phase of maturation and rationalization. Stakeholders who navigate this transition with discipline – securing solid tenants, managing lease expirations, shoring up capital structures, and selectively investing in growth areas – will be well-placed to capitalize when the next expansion phase arrives. As this report has detailed, the e-commerce boom isn’t over; it’s evolving, and along with trends like reshoring and technological innovation, it will continue to underpin the industrial real estate story for the foreseeable future. Industrial properties remain mission-critical infrastructure for the economy, and after a short breather in 2025, the sector is poised to return to a growth trajectory, albeit one more measured than the frenzy of the early 2020s.

In summary, the U.S. industrial outlook for 2025 can be characterized as moderating but still strong: a temporary supply-demand imbalance to work through, but with robust structural demand ensuring that the warehouse sector will remain a favored asset class. By the end of 2025 and into 2026, we expect to see the industrial market regaining equilibrium – vacancies edging down, rent growth resuming modestly, and development aligning more closely with sustainable demand. Stakeholders who use this period to strategize and strengthen their positions will find themselves ahead of the curve as the next chapter of the industrial real estate boom unfolds.

October 03, 2025, by a collective authors of MMCG Invest, LLC, (retail/hospitality/multi family/sba) feasibility study consultants.

Sources: 

This analysis was informed by 2025 data and reports from IBISWorld, CoStar, CBRE, NAIOP, and insights from market research and industry experts mmcginvest.com, among others, as cited throughout. The convergence of these credible sources provides a well-rounded picture of current conditions and expectations in the industrial real estate sector.