The industrial sector has been carefully navigating the balance between supply and demand to maintain low vacancy rates and drive rent growth. Following the e-commerce boom of the pandemic, overzealous construction led to a brief uptick in vacancies. In response, developers scaled back, halting new construction projects for more than a year.
Now, that caution is paying off. Vacancies are starting to plateau, rents are climbing, and net absorption is stabilizing. Why is this important? The success of industrial has become an anchor in the broader commercial real estate market, outperforming other sectors.
With these positive trends in mind, let's dive into the numbers and explore why 2025 could be an even stronger year for industrial real estate. So read on, in this article you'll learn:
- Why industrial real estate properties were eclipsing demand
- How industrial vacancy rates are now levelling
- Which industrial markets are hottest
- Other focal influences and headwinds for industrial CRE in the future
Industrial Recalibration
After years of breakneck expansion fueled by e-commerce and pandemic-era demands, the industrial real estate market in 2024 found itself shifting into a cautious recalibration. The brakes were slammed hard on speculative developments, and the reason was clear: soaring interest rates.
On top of this, demand wasn’t keeping up with the pipeline of projects.
The Cost of Oversupply: Rising Vacancy Rates
For seven straight quarters, construction completions outpaced tenant demand, pushing the U.S. industrial vacancy rate to 6% in Q1 2024.
While still extremely low compared to the 20% average vacancy rate in the office market, this was the highest rate since 2015—a signal that the industrial sector may not be invincible.
Regardless of a small bump in vacancy, things are still stable. Take a look at the vacancy rates of six critical markets, all under 10%.
Hitting Pause: A Market Reset
Developers took a deliberate step back, pausing for the market to absorb the space.
Total construction activity plummeted 53% from its peak of 711 million square feet in late 2022, leaving 331 million square feet underway by mid-2024. Speculative development slowed to a crawl as developers weighed the risks of overbuilding in a market where high interest rates had cooled developer appetite.
Even more, zoning hurdles, community opposition, and long approval timelines further stifled new projects. Depending on the region, it could take one to five years just to break ground, ensuring that today’s slowdown will ripple through the market for years.
Check out the construction rates of the following six cities.
Shrinking Supply, Rising Rents
This pullback in construction created an immediate ripple effect. Vacancy rates began stabilizing as the market absorbed excess space. Simultaneously, the reduction in new supply pushed rents higher.
Average asking rents for industrial properties rose 9% year-over-year, with most markets settling into historical growth norms of 2%-7%. However, it's worth mentioning that 15 markets, particularly along the coasts, saw rents dip as they worked through an oversupply of high-priced space.
For developers, this recalibration was a long game. The available pool of space is shrinking, and as approvals for new projects stretch over years, rents are likely to keep climbing.
| The numbers are clear: less supply, steady demand, and an inevitable squeeze! |
Check out the net absorption rates for the following six markets.
Build-to-Suit Projects: A Bright Spot Amid the Slowdown
While speculative development slowed to a trickle, build-to-suit projects remained a key driver of the market. Tenants with specific needs—especially logistics and e-commerce giants—continued to demand custom solutions, keeping a steady flow of tailored projects moving forward.
What’s Next: The Long Lag to Recovery
Speculative development isn’t gone—it’s been on pause. Once interest rates ease and rents continue their upward trajectory, developers will return to the drawing board. However, the lag effect remains. Projects approved today won’t hit the market for another few years, meaning the tight supply and rising rents of 2024 could extend well into the late 2020s.
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For tenants, this creates a window of opportunity to secure space before the next development cycle begins. |
As the industrial real estate sector recalibrates, the lessons of 2024 are clear: interest rates matter, supply-demand balance is everything, and the market rewards those who adapt.
Where is the Most Rent Growth?
In terms of geography, Miami has claimed the top spot for rent growth. Industrial prices per square foot have risen 11% year-over-year.
This surge is driven by the addition of over 15 million square feet of high-quality industrial space since 2022.
Miami’s growing population and e-commerce boom continue to fuel demand for industrial space, particularly last-mile delivery facilities. Additionally, Miami’s strategic position as a gateway for international trade, particularly with Latin America, has made it a hotspot for industrial tenants needing distribution hubs.
Other Southern markets, such as Atlanta and Nashville, also saw robust growth, with rents increasing 9% and 8.7%, respectively.
Many of these markets maintain double-digit asking rates, reflecting their ongoing appeal in the industrial sector. Also, the scarcity of developable land in dense Western regions like Orange County, Los Angeles, and the Bay Area drives up costs and rents.
Notice the rent rates for six critical markets.
Industries Driving Growth
Going forward, the focus will shift toward industries with rising operational demands.
Developers can expect an influx of occupancies driven by manufacturing, data centers, food and beverage, and general retail users. These sectors are set to take the reins, adding to the robust activity seen in Q3, where 35% of occupancies were in facilities of 500,000 square feet or larger—nearly half of which catered to third-party logistics providers and packaging users.
Forces Driving Industrial Interest
On top of all this promise, industrial real estate is poised for yet another powerful boon as the onshoring movement continues to reshape supply chains and bolster domestic manufacturing.
With geopolitical uncertainties and global disruptions prompting companies to relocate operations closer to home, demand for U.S.-based industrial properties is skyrocketing. This seismic shift is driving growth in already high-demand markets like Miami, Atlanta, and Nashville, where strategic logistics infrastructure meets a surge of tenant interest.
Coastal hubs like Los Angeles, the Inland Empire, and Orange County remain at the epicenter of activity, leveraging their connectivity to international trade and access to massive consumer bases. These markets, already commanding premium rents, are likely to see sustained demand as tenants seek properties to support manufacturing, warehousing, and last-mile delivery needs. Read more about onshoring's influence on industrual.
Future of Industrial Real Estate: Challenges and Goals
In terms of industrial demand, supermodern, high-tech properties are going like hot cakes.
Tenants are increasingly seeking state-of-the-art facilities designed to support cutting-edge technologies like automation, artificial intelligence, and advanced manufacturing. These properties are not just in demand—they are becoming essential for companies looking to stay competitive in a rapidly evolving landscape.
However, going forward, the focal concern will be supplying and sustaining the vast power sources needed for such advanced features.
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“Access to power remains one of the biggest challenges for the industrial sector, driven by the energy-intensive nature of automation, artificial intelligence, advanced manufacturing, and data centers.” -Commercial Edge. |
At the same time, a growing labor shortage in warehouse and storage operations is accelerating the shift toward automation. This trend not only addresses workforce gaps but also pushes the design and development of next-generation facilities equipped to handle cutting-edge technologies. For developers, adapting to these modern demands will be essential to stay competitive in the rapidly evolving industrial real estate market.
Because of this evolution, behemoths like Amazon and Microsoft have begun investing in nuclear technology like SMR’s. Down the line, they may be the only answer for sustainable, high-power energy. Not to mention that tenants are increasingly prioritizing facilities capable of accommodating sustainable energy solutions, like solar power, especially in regions vulnerable to high temperatures and brownouts. However, carbon-free sources have their limits; widespread implementation has been challenging. So read about whether SMR’s could have an integral place in the future of commercial real estate properties.
Takeaways for Tenants
As the industrial real estate market stabilizes, tenants can expect continued rent growth, especially in high-demand areas like Miami and the West Coast. With supply slowing down and a shift toward advanced, energy-efficient facilities, tenants should prioritize securing spaces that meet their evolving operational needs, including access to cutting-edge technology and sustainable energy solutions.
As onshoring continues to drive demand, tenants in sectors like manufacturing and logistics will benefit from positioning themselves in strategic markets. Staying ahead of these trends will be key to securing the right space at the best terms in a competitive market.
If you're looking to stay ahead of the curve in this evolving market, explore the Ultimate Warehouse Course and Warehouse Checklist, where you'll gain the tools and insights needed to make strategic decisions that align with the future of industrial real estate.
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