The Top Five U.S. Industrial Markets in 2025: An Investor’s Deep Dive

Introduction

Investors and brokers are witnessing a transition in the U.S. industrial real estate landscape in 2025. After a pandemic-fueled boom that saw record construction and absorption, the market is stabilizing and normalizing. Nowhere is this more evident than in the top five industrial markets — Dallas–Fort Worth, the Inland Empire, Chicago, Houston, and Phoenix — which collectively dominate new developments, leasing activity, and investor interest. Each of these mega-markets has unique competitive advantages and demand drivers, from port proximity and population growth to manufacturing resurgences. Below, we delve into each market’s story, examining their key advantages, sector composition, recent trends in leasing and vacancy, infrastructure developments, and short- to mid-term outlook (2025–2027). The goal: to provide an informative yet engaging, data-backed narrative that helps investors and brokers understand what’s happening on the ground in these industrial powerhouses.

Dallas–Fort Worth: Logistics Titan at America’s Crossroads

Dallas–Fort Worth (DFW) sits at the logistical heart of the United States, and its central location is a prime competitive advantage. The metro’s position at major highway junctions (I-35, I-45, I-20) and a bustling air cargo hub (DFW International Airport) makes it a natural distribution nexus for reaching both coasts. Vast land availability and business-friendly conditions have fostered massive warehouse developments, including the famed AllianceTexas inland port with its intermodal rail and cargo airport. These factors have attracted e-commerce fulfillment centers, retail distributors, and 3PL (third-party logistics) operators in droves, making DFW one of the nation’s largest industrial markets with roughly 1.0 billion square feet of space. Major tenants range from Amazon and Walmart to manufacturers like Lockheed Martin, reflecting a sector composition dominated by warehousing and logistics with a sprinkling of big-ticket manufacturing.

Recent market trends in DFW reflect a post-boom recalibration. After an explosive construction surge during 2021–2022, supply began to outpace demand, pushing the industrial vacancy rate up sharply. The market’s vacancy peaked around the end of 2024 at roughly 10–11%, a jump of nearly 470 basis points from a year prior. By the first quarter of 2025, however, conditions showed signs of stabilization: vacancy had nudged down to ~10.6% (about 60 bps below its peak), and by Q2 it even dipped to 9.4% – the lowest level since early 2024. This improvement was driven by robust leasing and absorption. In Q1 alone, DFW saw 7.6–7.8 million square feet of net absorption, as tenants like e-commerce firms backfilled new space. For the first half of 2025, net absorption totaled an impressive 13 million square feet, outpacing new deliveries and beginning to chip away at the vacancy. Construction of new facilities has moderated from its fever pitch – only 2.0 million SF delivered in Q1 2025 (an 87% drop from the prior year’s quarter) – but DFW still leads the nation in development with 28–29 million SF under construction as of mid-2025. That pipeline equates to roughly 2.8% of local inventory, affirming DFW’s status as the #1 U.S. industrial construction market. Notably, developers have become more cautious, and average deal sizes have shrunk, indicating a shift toward smaller, build-to-suit projects instead of speculative mega-warehouses.

Investments in infrastructure continue to bolster DFW’s appeal. Recent expansions of intermodal rail yards and logistics parks are easing the flow of goods. The DFW International Airport is upgrading cargo facilities, and the region benefits from the completed I-35W expansion north of Fort Worth, which streamlines trucking from AllianceTexas. These improvements, combined with Texas’s lower taxes and abundant labor force, reinforce DFW’s long-term competitiveness. However, the market is not without challenges. The rapid deliveries of the past two years left a short-term glut in some submarkets, and landlords have had to become more flexible on rents (average industrial rents actually dipped ~3% year-over-year to start 2025). Even so, rent levels remain healthy and are expected to rise again once the current supply is absorbed.

Outlook (2025–2027): The consensus is that DFW’s industrial sector is entering a sustainable growth phase after a period of excess. In the short term, 2025 will see vacancy roughly plateau in the high single digits before gradually tightening. Landlords are regaining leverage as absorption improves, though tenants still have plenty of new options in the near term. By 2026–2027, analysts anticipate DFW’s vacancy rate could fall back to mid-single digits, given the region’s strong economic and population growth. The competitive rent bargains of 2024/25 may give way to renewed rent appreciation once the existing vacant big boxes lease up. Demand drivers like e-commerce and regional distribution remain robust, and an uptick in manufacturing (for example, new high-tech facilities and food processing plants) could further diversify demand. In short, Dallas–Fort Worth is expected to maintain its title as an industrial powerhouse. The market’s sheer scale and centrality, combined with a “new normal” of steadier construction, point to healthy performance ahead – a narrative that should reassure investors after the supply indigestion of the recent past.

Inland Empire: Port-Proximate Powerhouse Adjusting to New Normal

In Southern California’s Inland Empire (IE), it’s often said that logistics is king. Stretching across Riverside and San Bernardino counties, the Inland Empire has long been the indispensable overflow for the ports of Los Angeles and Long Beach, which lie just to the west. Proximity to North America’s busiest seaports gives this market an unrivaled advantage in handling imported goods – everything from Asian electronics to apparel and furniture makes its way to IE warehouses before dispersal across the nation. The region also boasts a massive consumer base (the greater Los Angeles area’s 18+ million population) at its doorstep, fueling e-commerce fulfillment and retail distribution centers. Historically, this demand outstripped supply to an extreme degree: a few years ago, IE’s warehouse vacancies were practically 0% – sub-2% in 2022, making it the tightest market in the country. Large occupiers (Amazon, Walmart, Home Depot, to name a few) snapped up any available space, and developers raced to construct millions of square feet of new big-box facilities on former dairy farms and desert plots.

By 2025, the Inland Empire is navigating a turning point from that ultra-tight era. A wave of new deliveries during 2022–2024 – more than 40 million SF added in the past few years – has finally given tenants some breathing room. The vacancy rate, which had climbed from near-zero to roughly 7.8% by late 2024, has stabilized and even ticked down slightly. As of Q1 2025, IE’s overall vacancy stands around 7.5–8%, with direct vacancy at 5.9% and sublet space adding a couple percent on top. (Notably, the West Inland Empire submarket near Ontario remains tighter, around 4–5% vacancy, while the East is higher around 8–9%, owing to a concentration of new speculative warehouses farther inland.) This mid-single-digit vacancy is still relatively low – below the national average – and in recent months it has begun to plateau, indicating the market is absorbing new space at a healthy clip. In Q1 2025, the Inland Empire recorded 3.5 million SF of positive net absorption, one of the highest figures nationally, thanks to a few large move-ins and the tail end of pandemic-related inventory restocking. However, leasing momentum has moderated compared to the frenzy of 2021. Occupiers are more cautious, often opting for slightly smaller footprints and shorter leases amidst economic uncertainties. On the rent front, asking rents have pulled back from their peak; the average took a roughly 29% tumble from 2023 highs, now at about $1.12 per SF NNN per month (around $13.44 annual). This rent correction reflects landlords’ efforts to stay competitive given the uptick in availability, but it’s worth noting that rents are still up dramatically (~50%) from just a few years ago.

One striking trend is how new supply defines the current market dynamics. The Inland Empire’s total industrial inventory now exceeds 611 million SF, making it one of the largest concentrations of warehouse space in the world. Most of the vacancy is concentrated in those brand-new buildings delivered post-2020. In fact, roughly three-quarters of vacant space is in facilities built since 2020, as recently completed mega-warehouses hunt for first tenants. Meanwhile, older, smaller buildings closer to the coast remain nearly full – spaces under 100,000 SF have a very low ~5.6% vacancy rate and face intense competition among tenants. The construction pipeline in Inland Empire has finally begun to taper. Only about 13–14 million SF is under construction now, a sharp drop from the 30–40 million SF under development at the height of the boom. This slowdown in new projects is partly by design – local governments and communities have grown wary of endless warehouse growth. New regulations and moratoriums are emerging, such as minimum distance requirements from residential areas and temporary pauses on approvals, reflecting environmental and traffic concerns. These policies, championed as environmental justice in this region choked by diesel trucks, are effectively pumping the brakes on supply. For investors, this means future competition might be limited: the era of “build it anywhere, fast” in the IE is giving way to a more controlled growth model.

Infrastructure improvements continue to support the Inland Empire’s crucial role in global trade. The Ports of Los Angeles and Long Beach are investing in on-dock rail facilities to move cargo more efficiently inland, which will benefit IE distribution centers. Additionally, the region is seeing upgrades to major freight corridors like Interstate 15 and the SR-60 freeway, aiming to unclog the trucking arteries into and out of the area. The Ontario International Airport has also expanded cargo operations, providing an airfreight boost for time-sensitive goods (particularly important for e-commerce). However, one wildcard is trade policy: recent tariff disputes and supply chain shifts have led to volatile import volumes at the ports. In May 2025, for example, Port of Los Angeles handled 25% less cargo than expected amid new tariffs and uncertainty. Such fluctuations can directly impact IE warehousing demand. On the flip side, any long-term reshoring or diversification of manufacturing (e.g. more goods from Mexico or Southeast Asia) could sustain import flows through Southern California or even increase reliance on inland facilities.

Outlook (2025–2027): The Inland Empire’s fundamentals remain strong, but growth is normalizing. In the near term, 2025 is poised to be the year vacancy peaks and then rolls over. Industry analysts expect IE vacancy to plateau in early 2025 and gradually decline thereafter. Essentially, the market is giving itself time to digest the “historic inventory increases” of the past few years. As we move into 2026 and 2027, the combination of a shrinking development pipeline and steady demand should tighten the market again. CBRE noted that Q2 2025 was the first quarter in years where IE vacancy actually decreased, dropping 30 bps to 11.9% (by their measure) as absorption outpaced new deliveries. That inflection suggests the worst of the vacancy expansion is over. Rent growth is likely to resume modestly by late 2025 after the current dip, given that landlords won’t face as much new competition. One challenge in the medium term will be policy constraints – developers may find it harder to add supply, which in turn could make existing assets more valuable as demand catches up. For occupiers, any pause in construction could mean the window for plentiful choices and tenant-favorable lease concessions will close within a year or two. Overall, the Inland Empire is expected to remain the nation’s premier big-box hub serving import supply chains, and its long-term trajectory – less frantic but fundamentally solid – should continue to attract institutional investors looking for core industrial assets.

Chicago: Steady Midwest Giant Balances Logistics and Manufacturing

Chicago is the granddaddy of American industrial markets – a region built on railroads, commodities, and heavy industry, now evolved into a diverse logistics and manufacturing base. With roughly 1.3–1.4 billion square feet of industrial inventory, Greater Chicago is the largest industrial market in the country by total size. This immense scale is supported by Chicago’s strategic advantages. Geographically, it is the nation’s central freight hub: all seven Class I railroads intersect here, and it’s often said “all roads lead to Chicago” – indeed, multiple major interstates (I-55, I-57, I-80, I-90, I-94, I-65) converge in the area. This makes Chicago a prime location for national distribution centers and intermodal facilities. The region is also home to one of the busiest cargo airports (Chicago O’Hare) and a large skilled workforce with a legacy of manufacturing know-how. Chicago’s demand drivers are more varied than the Sunbelt boomtowns – alongside e-commerce and retail warehousing, there’s significant food processing and cold storage (thanks to big food industry players), automotive and machinery manufacturing, and a thriving network of 3PLs that serve Midwest supply chains. In short, Chicago’s industrial sector is less about one single engine and more about a balanced portfolio, which lends it a certain resilience.

That resilience has been on display through the recent market cycle. Unlike some high-growth markets that experienced wild swings, Chicago’s industrial market has remained relatively stable. At the end of Q1 2025, Chicago’s overall vacancy rate stood around 5.9%, only a slight uptick from ~5.7% a year prior. Local analysts describe conditions as “balanced” – neither landlords nor tenants have an overwhelming upper hand, as vacancy in the mid-5% range indicates most space is filled but there is a bit of wiggle room for expansions. Net absorption in early 2025 was solid if unspectacular: about 3.5 million SF absorbed in Q1, which NAI Hiffman noted as a sign of a stable footing. (For context, Chicago absorbed more space in Q1 2025 than in the same period the prior year, reflecting a pickup in activity.) Leasing activity totaled ~8.6 million SF in that quarter, a healthy volume spread across many mid-sized deals. Notably, Chicago did not face the dramatic oversupply issues of some Sunbelt peers. Developers here have been more disciplined – only about 11–12 million SF was under construction as of Q1 2025, and a majority (nearly two-thirds) of that space was build-to-suit or pre-leased rather than speculative. This cautious approach meant that even as demand cooled from the 2021 highs, Chicago’s vacancy didn’t balloon; it increased only modestly. (There are exceptions by submarket: for instance, the far southwest Joliet Corridor, a big-box haven, saw vacancy rise to ~12% due to a cluster of empty new mega-warehouses. But closer-in submarkets like Central DuPage or infill Cook County remain tight, some even with sub-2% vacancy for small spaces.)

In terms of rent trends, Chicago has seen steady growth but at a slower pace than coastal markets. As of mid-2025, average asking rents are in the mid-$5 to $6 per SF range (per year) for bulk space, having grown only a few percent year-over-year. This is in line with the broader Midwest, where rent escalations (~2–4% YoY) lag the double-digit surges seen in places like New Jersey or Miami. However, Chicago’s rents started from a lower base, and its affordability is actually a selling point for firms looking to establish large footprints cost-effectively. For example, a sprawling 1 million SF warehouse in Chicago might rent for a fraction of the cost of a similar facility in Los Angeles. Investment sales in Chicago have been active; despite interest rate headwinds, the market’s strong occupancy and lower volatility attract institutional capital. Industrial assets in Chicago traded at cap rates around the high-5% to low-6% range recently, and sales volume has remained decent (though off the 2021 peak). One trend worth noting is infill redevelopment – older industrial buildings near the city are being refurbished or replaced to cater to last-mile distribution for Chicago’s large urban consumer base.

On the infrastructure front, Chicago continues to benefit from major improvements. The $4 billion O’Hare Airport expansion underway includes new cargo facilities that will boost air freight capacity. Rail infrastructure projects, such as the long-running CREATE program, are incrementally unclogging rail bottlenecks, which should improve train speeds and intermodal throughput (critical for Chicago’s dozen intermodal yards that transfer containers between trains and trucks). Highway upgrades like the recent reconstruction of the I-290/I-294 interchange and the planned widening of I-80 in Joliet will further streamline truck logistics. A notable development is the opening of the Houbolt Road extension and bridge in Joliet, which now provides a direct route from intermodal terminals to I-80, reducing local road congestion for trucks. These enhancements strengthen Chicago’s claim as the nation’s premier intermodal hub. It’s often said that if you’re shipping goods cross-country, they’ll likely pass through greater Chicago – and the region is preparing for that to remain true well into the future.

Outlook (2025–2027): Chicago’s industrial market is expected to stay on its steady trajectory. In the short term, some increase in vacancy is possible (Savills data showed vacancy about 7.7% by mid-2025, a bit higher than local figures, possibly counting sublease space), but any rise is likely to be gradual. With only moderate new construction in the pipeline and many projects built-to-suit, Chicago should avoid the oversupply hangover seen elsewhere. This positions the market for a gentle tightening by 2026 as economic growth (and especially a potential manufacturing uptick) fuels more demand. Indeed, there are bright spots on the horizon: global manufacturers are considering more U.S. production in response to supply chain re-shoring initiatives, and Chicago’s central location and industrial workforce could capture a share of that (e.g., recent moves by EV battery makers and solar panel producers in the Midwest). Additionally, resilient sectors like food and beverage distribution and parcel delivery will continue to take space as consumer demand evolves – remember, Chicago is within a one-day truck drive of nearly half the U.S. population. Rent growth is expected to continue in the low-to-mid single digits annually, barring any economic shocks, and investor appetite should remain solid for well-leased, infill properties. Chicago may not be the flashiest market, but for many, its stability and sheer scale make it a cornerstone of industrial real estate portfolios. In sum, the 2025–2027 outlook is “slow and steady wins the race” – and in Chicago’s case, that race is a marathon, not a sprint.

Houston: Energy Hub Transforms into Logistics Heavyweight

Houston’s industrial market is a study in diversification and growth. Traditionally known as the Energy Capital, Houston has leveraged its massive port and petrochemical complex to become a formidable logistics center as well. The region’s advantages start with the Port of Houston, one of the busiest ports in the U.S. (number one in imports of steel and resin, and a top-five container port). Being a port city gives Houston a steady flow of goods and raw materials that require warehousing – from imported consumer products to chemicals and plastics produced in the local petrochemical plants. Houston’s demand drivers thus span a range: port-related distribution warehouses, chemical storage and refining support facilities, construction and building materials yards, and more recently, e-commerce fulfillment centers serving the booming Sunbelt population. The metro has over 700 million SF of industrial inventory (and growing), putting it among the nation’s top five in size. A significant chunk of that space is tied to the energy sector – think equipment yards for oilfield services, pipe yards, and manufacturing for oil tools – but in the past decade Houston also attracted Amazon hubs, big-box retailers’ regional distribution centers, and even some high-tech manufacturing (for instance, Tesla signed leases in 2025 for over 1.6 million SF across two buildings in the Houston area to expand its presence). This blend of port, energy, and population-driven demand gives Houston a unique economic resilience.

Market performance in Houston through mid-2025 indicates a resilient yet normalizing scenario. During the pandemic surge, Houston enjoyed strong absorption but also saw a lot of speculative construction. As of Q1 2025, the market recorded its 62nd consecutive quarter of positive net absorption – an incredible 15-year streak of growth. Q1’s net absorption was about 1.0 million SF, a noticeable drop from the previous quarter’s 3+ million SF, yet still a gain. This deceleration is part of the market “returning to its natural rhythm” after the frenzied growth years. The vacancy rate in Houston has been inching up very gently but remains below the national average. At Q1 2025, overall vacancy stood around 6.8%, essentially flat year-over-year and only slightly above the historical norm. By Q2 2025, vacancy was roughly 6.2–6.5% (varies by data source), indicating that even with significant new construction, demand has kept pace enough to prevent a glut. In fact, Houston’s vacancy dipped below the U.S. average for the first time in nearly a decade recently, highlighting its strengthened fundamentals. Landlords have seen rent growth pick up: average industrial rents hit a record high of about $0.81 per SF per month (NNN) (~$9.72 annual) in Q1 2025, up ~5% year-on-year. This reflects not only healthy demand but also the higher-quality new product coming online. Houston delivered 3.6 million SF of new space in Q1 2025 and another ~3.8 million SF in Q2. Many of these projects are large, modern warehouses on the north and west sides of town, chasing the same e-commerce and 3PL tenants as other markets. However, as of mid-2025, only about 30–50% of new deliveries were pre-leased, so vacancy may tick up if those buildings take time to fill. The good news: developers are exercising some restraint now. Houston’s under-construction volume was roughly 13–17 million SF in early 2025, down from record highs, and the pace of new starts has slowed. One factor is the limited availability of entitled land within the metro – Houston has vast land, but sites ready with utilities and permits are fewer, which “keeps industrial supply in check” and supports market stability.

Houston’s infrastructure and recent improvements are integral to its industrial story. The Houston Ship Channel is undergoing a $1 billion widening and deepening (Project 11) to accommodate larger vessels; this project, set to complete by 2025, will effectively future-proof the Port of Houston and could draw even greater cargo volumes. In logistics parks like Baytown and along the Grand Parkway (Houston’s outer toll loop), new rail-served facilities and improved highway interchanges are enhancing connectivity. The Grand Parkway itself, with segments completed in recent years, opened up huge swaths of land for industrial development in north and west Houston – one reason we see big distribution centers in places like Katy and near Highway 290 now. Additionally, Houston is positioning for the energy transition which could spawn new types of industrial demand: for instance, components for wind turbines, solar panel assembly, or hydrogen production equipment might be stored or made in Houston given its energy workforce. Meanwhile, the petrochemical sector (centered along the Houston Ship Channel) had a construction boom of its own a few years back, and those new plants are now fully operational, sending out more plastic resin and chemicals for export. This has increased the need for warehouse space for packaging and transloading those materials. A notable recent lease was by a logistics firm handling plastic pellets, taking over 500,000 SF near the port – illustrating how petrochemical growth converts into warehouse demand. On the consumer side, Houston’s metro population (over 7 million and growing fast) has led to more last-mile facilities; Amazon alone has established dozens of delivery stations and fulfillment centers around the metro.

Outlook (2025–2027): Houston’s industrial market outlook is cautiously optimistic. Short term, 2025 is expected to see continued positive absorption (the first half of 2025 already logged 3.4 million SF absorbed) but at a more measured pace than the last two years. Vacancy might hover in the high-6% to low-7% range as new deliveries in 2025 (projected ~6.8 million SF in H1, possibly ~10–12 million SF for the full year) temporarily outstrip absorption. However, by 2026, as the pipeline of new builds slows, vacancy should trend down again into the 6% range. Houston’s diversified industrial base gives it some insulation: if one segment slows (say e-commerce), another (like petrochemical or construction equipment) often rises. Importantly, underlying demand remains solid, as evidenced by strong leasing in early 2025 (8.8 million SF leased in Q1, a jump from late 2024). In the medium term, manufacturing growth could be a wildcard boon – there’s talk of more onshoring of industries, and Houston’s combination of affordable land and big power infrastructure could attract advanced manufacturing (for example, a hypothetical Gulf Coast EV battery plant or aerospace manufacturing facility would find Houston attractive). The market’s rent growth is likely to continue modestly; having reached record highs, rents may plateau and then rise 2–4% annually in coming years as equilibrium returns. From an investment perspective, Houston offers higher yields than coastal markets, and if its fundamentals remain strong, more institutional capital is expected to flow in (recent big portfolio acquisitions in Texas underscore this trend). One area to watch is the impact of energy transition: as Houston leads in oil & gas, any major shifts in that sector could affect related industrial demand (e.g. if oil prices slump for a prolonged period, fabrication and storage demand might dip). Conversely, Houston’s push into renewables and technology could open new demand streams. All told, Houston is increasingly viewed as a logistics market on par with the traditional hubs, and the next few years should solidify its place as a critical distribution and manufacturing center for the South Central U.S.

Phoenix: Red-Hot Desert Market Cooling to Sustainable Levels

Phoenix has been the breakout industrial star of the past few years – a once-secondary market that vaulted into the top tier through sheer development velocity. Often dubbed the “Inland Empire of the Southwest,” Greater Phoenix leveraged its affordable land, pro-business environment, and proximity to Southern California to attract waves of warehousing and manufacturing investment. Between 2020 and 2024, Phoenix’s industrial inventory expanded by an astonishing 128 million SF, a nearly 29% increase. (To put that in perspective, Phoenix added the equivalent of 70% of Las Vegas’s entire industrial market in just five years!) By 2025, Phoenix’s total industrial stock is roughly 400–450 million SF, making it the 10th-largest U.S. market by square footage, yet it ranks even higher by new construction and absorption metrics. Key competitive advantages fuel this growth: Phoenix offers a location where companies can reach West Coast consumers without West Coast costs – it’s a day’s truck haul to Los Angeles or the ports, but land prices and taxes are far lower. It also sits along key trade routes to the rest of the Sunbelt (Texas) and to Mexico. Demand drivers include big-box distribution for retail and e-commerce, regional warehouses for 3PLs covering the Southwest, and increasingly advanced manufacturing and tech. The metro snagged major projects like TSMC’s $12 billion semiconductor fab, which not only directly adds manufacturing space but also draws a network of suppliers (who need industrial space for parts and logistics). Additionally, electric vehicle manufacturing has arrived in the Phoenix area (e.g. Lucid Motors in nearby Casa Grande), and suppliers for those plants are taking space. Data centers are another growth segment in Phoenix (though often categorized separately, they do occupy industrial zones). In short, Phoenix’s sector composition is evolving from pure warehousing to a high-tech industrial ecosystem alongside the booming logistics sector.

The numbers from early to mid-2025 illustrate a market that is extremely active but working through a surge of new supply. During Q1 2025, Phoenix achieved 4.1 million SF of net absorption, placing it among the top three markets nationally for demand in that quarter. This marked the 20th consecutive quarter of 1 million+ SF absorption – an incredible streak of growth. Tenants are steadily backfilling many build-to-suit completions (which drove a lot of that absorption). However, Phoenix also saw its vacancy rate climb to about 11.2% in Q1. This was a dramatic jump from the sub-7% vacancy a year prior. The rise in vacancy was “because of historic inventory increases and construction deliveries” – essentially, developers built faster than tenants could absorb in the short term. In Q1 alone, 7.3 million SF of new product delivered in Greater Phoenix, and roughly 4.0 million of that delivered vacant (on spec). That pushed vacancy up for a seventh straight quarter. By the end of Q2 2025, there are signs the tide is turning: absorption in Q2 hit 4.4 million SF – actually exceeding Q1 – while new deliveries dropped to just 2.2 million SF. As a result, Phoenix’s vacancy edged down slightly to ~11.9% in Q2, the first decrease in vacancy in almost two years. This indicates that the market may have reached its vacancy peak and is now starting to lease up the oversupply. Indeed, occupiers have been taking advantage of the plentiful new choices; large leases (100k–500k SF) by logistics firms, manufacturers, and retailers were commonplace in the first half of 2025. One notable deal in Q1 was Kenco Logistics committing to a new 642,000 SF warehouse at Gateway Interstate 10, the largest of several big transactions.

With so much new space, rent trends in Phoenix have been interesting. After years of rapid increase (Phoenix industrial rents jumped over 50% in the past three years), rents softened slightly in early 2025, with Q1 seeing a minor 0.15% QoQ decline. The average asking rent around Q1 stood at roughly $0.98–$1.12 per SF monthly (around $11.5–$13.5 annual) depending on the submarket. By Q2, CBRE reported asking rates ticked back up to about $1.08 (perhaps as landlords sensed the market bottom). Landlords have been offering concessions to fill space – one can secure short-term rent discounts or abundant free rent in Phoenix right now, something unheard of during the 2021 frenzy. Still, Phoenix’s rent levels remain higher than many Midwest/Southern markets (reflecting its high growth status) and not far off from Inland Empire rates, showing that demand for modern space in Phoenix is genuine. Another notable point: construction has finally pulled back hard. The development pipeline shrank to about 12–16 million SF under construction in Q1 2025, down from a staggering 40 million SF a year earlier. Some projects were paused or canceled due to rising interest rates and the spike in vacancy. This pullback is good news for market balance. As of mid-2025, what’s left under construction is much lower than the absorption pace – Phoenix averaged ~3.9 million SF absorbed per quarter since 2023, so ~12 million SF underway is only about three quarters’ worth of demand. Developers have effectively hit the brakes, which should allow the market to catch up.

On the infrastructure side, Phoenix’s growth has been facilitated by forward-thinking investments. The completion of the Loop 303 freeway on the metro’s west side a few years ago unlocked massive tracts of land in Goodyear, Glendale, and Surprise, now home to huge logistics campuses. Likewise, the Loop 202 South Mountain bypass opened in 2019 on the south side of Phoenix, improving truck routes and stimulating industrial parks in the Southwest Valley. The state is also advancing plans for Interstate 11, a future trade corridor that would link Phoenix to Las Vegas (and eventually Canada/Mexico) – while not built yet, the prospects of I-11 have spurred land banking for future industrial use. Phoenix-Mesa Gateway Airport (in the Southeast Valley) is expanding and positioning itself as a freight alternative, which could attract air cargo logistics firms to that submarket. Moreover, Arizona’s reliable power grid and new infrastructure for water recycling are crucial for attracting manufacturers like chip fabs, which require immense resources. A potential challenge is water – industrial users like chip plants consume a lot, and Arizona’s drought issues mean water management will remain critical. The state has been proactive with plans to import and conserve water, which should help ensure sustainable industrial growth.

Outlook (2025–2027): Phoenix’s industrial market is expected to transition from white-hot to merely red-hot – in other words, cooling to a more sustainable growth rate. In the short term, 2025 will be about absorbing the vacant spec space. Thanks to the rapid demand, it’s projected to take roughly just over three years to absorb the current vacant stock (~50 million SF) at recent take-up rates. This implies that by 2026–2027, Phoenix could be back to sub-7% vacancy once again, assuming no new construction wave intervenes. Vacancy might actually decline faster if developers remain restrained; we already saw a hint of that with Q2 2025’s vacancy downtick. Rents may stay flat through late 2025 (as landlords focus on occupancy), but they’re likely to start climbing again by 2026 once the market tightens. Phoenix’s medium-term narrative is very bullish: the metro’s population and job growth are among the fastest in the nation, so consumer-driven warehouse demand will only increase. Furthermore, the high-tech manufacturing investments (like TSMC) have a long tail – as those facilities come online in 2025–2026, their suppliers (many of which are overseas now) could localize production or warehousing in Phoenix, boosting industrial demand in unexpected ways. There is also talk of Phoenix becoming a larger regional distribution hub as California continues to face land constraints and regulatory hurdles; some companies that might have located in the Inland Empire are choosing Phoenix instead, accepting a one-day longer transit in exchange for lower costs. Experts predict vacancy in Phoenix will continue to rise slightly into mid-2025 and then peak before new construction drops off and absorption catches up. That moment seems to be now. Heading into 2026 and 2027, Phoenix could very well regain a tight market status, albeit not as extreme as 2021. The region’s ability to attract diverse industries (from solar panel manufacturing to medical device assembly) alongside big logistics means it has multiple engines of growth. The key for Phoenix will be managing its explosive growth responsibly – ensuring infrastructure (especially water and roads) keeps up, and avoiding overbuilding in the next cycle. For investors and brokers, Phoenix remains one of the most exciting markets, offering growth opportunities that are hard to find elsewhere. The frenzy is calming, but the story is far from over: Phoenix is firmly on the map as an industrial super-region, and the next few years will likely cement that status with more record-setting (but hopefully more balanced) activity.

Comparative Metrics at a Glance

To summarize and compare these five leading markets, the table below highlights key metrics as of mid-2025:

Market	Total Inventory (SF)	Vacancy Rate (%)	YTD Net Absorption(MSF)	New Construction (MSF)	Major Demand Drivers
Dallas–Fort Worth	~1,000 MSF (1.0 B SF)	~9.5%	13.0 MSF (H1 2025)	~28 MSF U/C	E-commerce & retail distribution; Central U.S. logistics hub
Inland Empire	611.3 MSF	~7.8%	~3.0 MSF (H1 2025)	~13.6 MSF U/C	Port-driven import logistics; E-commerce fulfillment
Chicago	~1,300 MSF (1.3 B SF)	~6%	~6 MSF (H1 2025)*	~11.6 MSF U/C	Nationwide distribution (rail & trucking); Diversified manufacturing & 3PL
Houston	~700 MSF (0.7 B SF)**	~6.8%	3.4 MSF (H1 2025)	~16.7 MSF U/C	Energy & petrochemical industry; Port of Houston trade
Phoenix	~450 MSF (0.45 B SF)	~11.9%	~8.5 MSF (H1 2025)	~15.7 MSF U/C	Regional distribution (SW U.S.); High-tech manufacturing (semiconductors, EV)

*Chicago’s H1 2025 absorption is an estimate, combining ~3.5 MSF in Q1 with an assumed modest Q2 uptick (Chicago’s vacancy rose only slightly by mid-year).**Houston inventory estimate. Exact figures unavailable; Houston crossed ~600 MSF a few years ago and delivered tens of MSF since, now approaching 700 MSF.U/C = Under Construction (pipeline of ongoing projects).

July 16, 2025, by a collective of authors at MMCG Invest, LLC, (retail/hospitality/multi-family/sba) feasibility study consultants.

Sources:

1. CommercialCafe (Yardi) – “Industrial Markets Navigate Changes Amid Tariff Tensions and Supply Shifts,” June 26, 2025. (National industrial trends, vacancy and construction data)

2. CommercialEdge (Yardi) – “Vacancy Stabilization and Slowing Construction to Redefine Industrial Sector in 2025,” January 30, 2025. (Year-end 2024 overview; regional vacancy changes and pipeline)

3. Partners Real Estate – DFW Industrial Market Report Q1 2025, May 15, 2025. (Dallas–Fort Worth quarterly statistics: vacancy 9.2%, absorption 7.8 MSF)

4. Savills Research – Dallas–Fort Worth Q1 2025 Industrial Report, April 2025. (Market stabilization noted; vacancy plateaued at 10.6% in Q1 2025)

5. NAI Hiffman / RE Journals – “Stable and steady: Chicago-area industrial market” (summary of NAI Hiffman Q1 2025 report), April 2025. (Chicago vacancy 5.9%, Q1 absorption 3.5 MSF)

6. NAI Hiffman (Blog) – “How Big is 1.3 Billion Square Feet?” November 2023. (Chicago’s total inventory ~1.3 billion SF – largest in U.S.)

7. Avison Young – Inland Empire Industrial Market Report Q1 2025. (Inventory 611.3 MSF; vacancy 7.8%; Q1 absorption 3.5 MSF; asking rent trends)

8. Cushman & Wakefield – Inland Empire MarketBeat Q2 2025. (Q2 vacancy ~7.9%, down 20 bps; first signs of vacancy decrease mid-2025)

9. Partners Real Estate – Houston Industrial Market Report Q1 2025, April 2025. (Houston Q1: vacancy 6.8%; absorption 1.02 MSF; pipeline 16.7 MSF; manufacturing uptick)

10. Avison Young – Houston Industrial Market Report Q2 2025 (Press Release), July 11, 2025. (Houston H1 2025 absorption 3.4 MSF; Q2 absorption 2.0 MSF; construction and outlook)

11. Colliers / InBusiness Phoenix – “Phoenix Industrial Absorption Remained Strong in Q1 2025,” May 6, 2025. (Phoenix Q1: net absorption 4.1 MSF; vacancy 11.2%; construction added 128 MSF since 2020)

12. CBRE Research – Phoenix Industrial Figures Q2 2025, July 9, 2025. (Phoenix Q2: net absorption 4.4 MSF; vacancy down to 11.9%; 2.2 MSF delivered in Q2)

4 Star Industrial Distribution