Industrial Real Estate Market Update: Navigating the Mid-Cycle Reset

Brett Vogeler | Commercial Real Estate Intelligence

The Bottom Line Up Front: We're at an inflection point in industrial real estate. Vacancy has peaked near 7%, but the development pipeline has shrunk to 2016 levels. Smart money is positioning now for the tightening cycle ahead. Here's what you need to know to stay ahead of your competition.

The industrial sector is working through what I call a "mid-cycle normalization"—fancy talk for the market finding its footing after the pandemic boom-bust cycle. Here's where we stand:

Vacancy Reality Check: Different brokerages report vacancy between 6.6% (CBRE) and 7.5% (JLL), but they all agree on one thing—we're near the cyclical peak. More importantly, the supply pipeline has collapsed to just 241 million square feet under construction, the lowest level since 2016. Source: Multiple Market Reports

The Absorption Story: Net absorption tells two tales. CBRE shows a modest 3.5 MSF in Q2 (lowest since 2010) due to tenant consolidations, while Cushman & Wakefield reports a healthier 29.6 MSF. The truth? Leasing is happening, but companies are rightsizing footprints, creating a wash in net occupancy gains. Source: Market Analysis

Here's the shift that matters: 3PLs signed 38 of the top 100 industrial leases in H1 2025, totaling 28.9 million square feet—up from 28 deals the year prior. Why? Retailers are outsourcing operations and rightsizing their own footprints. If you're not tracking 3PL activity in your market, you're missing the biggest demand driver. Source: DC Velocity

Q2 2025 online sales reached $304.2 billion—16.3% of total retail sales, a new record. That's up 5.3% year-over-year, maintaining the structural tailwind for modern warehouse demand even as retailers rationalize their footprints. Source: U.S. Census Bureau

Real manufacturing construction spending has doubled since late 2021, supercharged by CHIPS Act, IRA, and “TRUMP Reshoring” infrastructure investments. Computer and electrical projects have nearly quadrupled. This isn't just about factories—it's creating demand for specialized industrial facilities around advanced manufacturing nodes. Source: U.S. Treasury

Phoenix Turns the Corner: First vacancy decrease since 2022, down 30 basis points to 11.9%. Absorption hit 4.4 MSF with deliveries dropping sharply year-over-year. If you've been waiting for Phoenix to stabilize, this is your signal. Source: CBRE Phoenix Report

Inland Empire Stays Strong: Despite vacancy ticking to 6.7%, gross activity remained robust at 11.1 MSF in the core market. Several large build-to-suits broke ground, signaling continued confidence in the logistics capital of the West Coast.

Dallas-Fort Worth Delivers: 5.5 MSF quarterly absorption with vacancy down 30 basis points to 8.8%. Nearly half of recent deliveries came pre-leased—a healthy sign of demand-driven development.

After a brutal 2023-2024, H1 2025 industrial sales volume jumped ~12% compared to 2024 levels. Cap rates are holding in the 5% range with modest spreads based on asset quality and location. Translation: liquidity is returning, and if rates stabilize, expect Class A assets in prime locations to compress first. Source: Newmark Analysis

Warehouse Automation Boom: The global warehouse automation market is tracking toward $55 billion by 2030 (15% annual growth). This means higher specifications for power, floor loading, clear heights, and mezzanine-ready shells. If your properties can't support automation retrofits, they're falling behind.

Solar ROI Gets Real: CBRE Investment Management reports their solar programs are generating $707K+ in annual rental revenue and ~$136K in annual tenant utility savings across their U.S. portfolio. Properties with solar and efficiency upgrades are leasing faster than comparable assets. Source: CBRE Investment Management

Freight Volumes: Cass Freight Index shipments fell 6.9% year-over-year in July—a near-term headwind for space absorption timing. Watch for re-acceleration as your early tell on stronger leasing activity. Source: Cass Information Systems

Construction Pipeline: At 241 MSF under construction (lowest since 2016), every quarter of weak starts increases the odds of a tighter 2026. The supply constraint story is real.

Policy Clarity: Tariff uncertainty remains the main brake on decision-making. Final rules could unlock delayed expansions and swing absorption scenarios significantly.

Near-Term (H2 2025): Expect continued tenant-favorable conditions with modest concessions available, especially on larger footprints. NAIOP projects minimal absorption in H2 2025, while Prologis expects a 20% rebound as uncertainty clears.

2026 Setup: With the pipeline at decade lows and e-commerce/reshoring tailwinds intact, we're setting up for landlord-favorable conditions. Vacancy should peak in early 2025, then decline as supply constraints bite and flight-to-quality accelerates.

The industrial market is in a mid-cycle reset, not a crisis. Demand fundamentals remain solid—driven by e-commerce growth, manufacturing reshoring, and 3PL expansion. Supply is finally moderating after years of overshooting.

Smart players are positioning now for the tightening cycle ahead. Whether you're buying, building, or leasing, the window for tenant-favorable conditions is narrowing. By mid-2025, expect the conversation to shift from "finding space" to "competing for space."

The winners will be those who act on quality assets with future-ready specifications while others wait for perfect clarity that never comes.

Questions about your specific market or property strategy? Let's talk. The data is clear—the opportunity window is defined. Your move.

Brett Vogeler specializes in commercial real estate brokerage and business transactions. This analysis is based on comprehensive market research from leading industry sources including CBRE, JLL, Cushman & Wakefield, Colliers, and government economic data. For specific investment advice, consult with qualified professionals.

Want the full research report with detailed regional breakdowns and additional charts? Access the complete Industrial Real Estate Research Dashboard here.

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