Industrial real Estate Demand Faces Headwinds, But Recovery Anticipated
The industrial warehouse sector, a booming market during the pandemic-fueled e-commerce surge, is experiencing a slowdown driven by economic uncertainty stemming from fluctuating tariffs and persistent inflation. Recent data indicates a significant cooling in demand.According to a report from NAIOP, a commercial real estate advancement association, net absorption of industrial space totaled just 27 million square feet in the first half of 2025. The second quarter alone saw a demand decrease of 11.3 million square feet – the first quarterly drop recorded as 2010. NAIOP projects a “nearly flat” net absorption for the remainder of the year, anticipating continued uncertainty.While the report suggests demand will recover as businesses adjust to evolving tariff policies, it forecasts slower growth than the robust period between 2020 and 2022, and even slower than the six years prior to the pandemic. NAIOP anticipates a rebound beginning in the second quarter of 2026, projecting 119.3 million square feet of absorption for the full year, followed by 109.7 million square feet in the first half of 2027.
Industrial property sales are currently tracking similarly to 2024, reaching $74.3 billion, a 14.7% increase from 2023 but below the peak of $129.8 billion in 2021, as reported by yardi. Price appreciation has also moderated after considerable gains between 2019 and 2022, when average sale prices rose by 54%. Year-to-date, the average sale price for completed transactions is only 6% higher than the 2022 average.The national industrial vacancy rate reached 9.1% in July, a rise of 10 basis points from June and 270 basis points year-over-year. Despite this increase, in-place rents remain 6.1% higher than the same period last year.
Peter Kolaczynski, director for Yardi Research, stated that the market has transitioned from a “darling” to a “resilient” position, and anticipates increased activity and interest as economic clarity emerges alongside growing demand for space.
