U.S. Industrial Real Estate Outlook 2025: Warehouses & Logistics

Aerial view of a large modern warehouse and logistics facility with multiple rooftop HVAC units.

National Warehouse Demand & Vacancy Trends (End-2025)

The U.S. industrial warehouse sector is exiting 2025 in a more balanced state after a period of frenetic expansion. A wave of new supply that hit the market in 2023–2025 pushed vacancy up to about 7.1% by the end of 2025, roughly double the record-low ~3.8% seen two years prior. This 7.1% vacancy rate is back in line with long-term averages and has leveled off in recent quarters, suggesting that demand is finally catching up with the glut of new space. Indeed, net absorption (occupancy growth) rebounded strongly in the second half of 2025 – total industrial absorption reached ~176.8 million sq. ft. for 2025, up 16% from the prior year, indicating tenants have been steadily backfilling the delivered space.

Importantly for investors, the surge in vacancy appears to be peaking rather than spiraling. Nationwide vacancy remained essentially flat at ~7.1% for the last two quarters of 2025 as stronger leasing demand and a slowing construction pipeline put a floor under occupancy rates. In fact, the Q4 2025 vacancy increase was only ~50 basis points year-over-year, the smallest annual rise since the supply surge began. This points to an inflection point: while vacancies are elevated versus the 2021–2022 tightness, conditions have stabilized as the market absorbs new inventory.

Rent growth has cooled significantly under these more competitive conditions. Industrial asking rents rose only around 1.5% year-over-year in 2025, the slowest annual growth since 2020. By contrast, rents had been climbing at a double-digit pace during the e-commerce boom earlier this decade. The deceleration is most pronounced in markets that experienced extreme rent spikes during the boom – for example, some coastal and gateway markets are now seeing flat or even slightly declining rents as vacancy normalizes. **Nationally, however, rents remain slightly up and broadly stable – a positive sign that even with higher vacancy, there is no widespread rent collapse. Tenants have gained some negotiating leverage, but landlords in most markets have held onto modest rent increases, keeping industrial lease rates near all-time highs. From an underwriting perspective, this environment of slower (but still positive) rent growth and higher vacancy means pro forma cash flow projections should be moderated relative to the last few years. Lenders can no longer assume 5–10% annual rent pops; instead, 1–3% rent growth is a more realistic underwriting assumption in the near term, with a greater emphasis on maintaining occupancy levels.

Another notable trend is the divergence by asset quality and size. Modern “big-box” distribution centers – the very large warehouses often 300,000+ sq. ft. – saw above-average vacancy as a segment, around 9–10% nationally. This reflects the fact that much of the new supply delivered was in these large format centers, often built speculatively. However, even in big-boxes the tide began to turn by late 2025: vacancy for modern large facilities ticked down in Q4 as new deliveries slowed and several large users signed leases, especially in 3PL (third-party logistics), manufacturing, and e-commerce sectors. Meanwhile, smaller industrial buildings (for example, infill warehouses under 100,000 sq. ft.) remain comparatively tight, with vacancy in that segment closer to ~5%. These smaller facilities, often used for “last-mile” distribution in urban areas, have seen steadier demand and far less new construction, so their fundamentals are stronger. For portfolio allocation, this means first-generation, high-capacity warehouses are currently leasing up slower than small, last-mile properties – but they also offer the upside of accommodating the mega-tenants driving absorption. Investors may consider a barbell strategy of holding some core occupied smaller assets for stability, while selectively acquiring high-quality big-box logistics centers at today’s higher cap rates for long-term growth potential once they lease up.

E-Commerce & Logistics Trends Driving Absorption and Location Strategies

After the pandemic-era boom, e-commerce continues to be a fundamental demand driver for industrial real estate, albeit on a more normalized growth trajectory. U.S. e-commerce sales have settled at roughly 15–16% of total retail sales (up from barely 10% in 2017), establishing a new baseline of warehousing needs to support online fulfillment. This sustained level of online sales is fueling ongoing requirements for distribution centers, sortation hubs, and last-mile delivery stations. Retailers and third-party logistics (3PL) firms in particular are actively leasing modern space to improve their e-commerce supply chains. In 2025, companies oriented toward e-commerce, consumer staples, and retail replenishment were among the most active tenants, helping drive the robust net absorption seen in the second half.

At the same time, logistics strategies are evolving. Occupiers are increasingly focused on supply chain resilience and efficiency, which is shaping where and what they lease:

• Flight to Quality: Tenants are showing a clear preference for new, modern warehouse facilities with high ceilings, advanced automation infrastructure, ample truck courts, and energy efficiency features. Many older industrial buildings are experiencing move-outs or slower leasing, as tenants “trade up” to state-of-the-art construction. This has created a bifurcated market: new Class A logistics space continues to see healthy demand (often from tenants consolidating operations or adding distribution nodes), whereas older, Class B/C warehouses may lag unless upgraded. Investors should factor in higher re-tenanting risk and potential capex for functional obsolescence in older assets. In contrast, newly built properties – especially build-to-suit facilities designed for specific tenants – are garnering premium rents and longer lease commitments due to their operational advantages.

• Larger Facilities & Network Consolidation: A notable trend is the rise of mega-leases by large occupiers. In 2025, there was a ~30% jump in the number of signed leases over 1 million sq. ft.. Major retailers, e-commerce platforms, and logistics providers are consolidating into fewer, bigger distribution centers to drive scale efficiencies. Rather than operating many small warehouses, they are opting for regional mega-hubs that can stock a wider range of inventory and facilitate faster delivery within a broad radius. This consolidation means absorption is being driven by big-box facilities in strategic hubs. For lenders, this underscores the importance of tenant credit and lease term in those big deals – a million-square-foot building often hinges on a single tenant’s covenant. It can offer very stable cash flow if the tenant is solid, but concentration risk is high if that tenant falters. Thus, due diligence on tenant financial health and having recourse or guarantors on such leases is critical in underwriting large single-tenant logistics assets.

• Shifts in Geographic Demand – Inland over Coastal: Geography of absorption has shifted as firms rethink distribution networks. Traditionally, port-adjacent gateway markets (Los Angeles/Long Beach, New York/New Jersey, etc.) claimed a large share of new leasing. In 2025, however, inland logistics hubs surpassed coastal markets in demand. For example, Dallas–Fort Worth, Indianapolis, Phoenix, Kansas City, and Columbus were among the top markets for net absorption in 2025, collectively accounting for a significant portion of total U.S. warehouse demand. In fact, Dallas/Ft. Worth alone absorbed over 30 million sq. ft. of industrial space – the highest in the nation – while major port regions saw comparatively less take-up. Why the shift? Companies are locating warehouses closer to population centers and along major highway corridors in the interior U.S. to speed up delivery times to large swathes of the country. Additionally, moderating import volumes (and unresolved trade/tariff uncertainties) made some coastal import-centric markets less frenzied than during the pandemic import surge. The takeaway for investors is that Sun Belt and Midwest distribution nodes are increasingly vital – markets like Dallas, Atlanta, Phoenix, Houston, Chicago, Indianapolis, and others with strong transportation links and growing populations are capturing outsized tenant interest. These regions often offer lower land costs and taxes as well, supporting more development and potentially higher yields. Conversely, some coastal markets are seeing flattening demand and more competition from secondary markets, which could temper rent growth in the coastal segment until global trade volumes pick up again.

• Manufacturing & Inventory Strategy: It’s not just pure retail distribution driving warehouse use – resurging domestic manufacturing and shifts in inventory strategy are also contributors. Many companies have adopted higher inventory levels (“just-in-case” inventory) and diversified their supply bases after the disruptions of 2020–2021. This has led to additional warehouse requirements for safety stock and parts storage, often in proximity to manufacturing sites or key transport nodes. Notably, the Southeast and Midwest have seen an industrial boost from manufacturing-related demand: for instance, new electric vehicle and battery plants, semiconductor factories (e.g., in Arizona and Texas), and other advanced manufacturing facilities often come with huge footprints for supplier warehouses. Reshoring and infrastructure investment is translating into more industrial space needs for components and assembly logistics. Markets like Greenville-Spartanburg (SC), Savannah (GA), Louisville (KY), and central Ohio (Intel’s new fabs) are benefiting from this trend, with strong absorption in 2025 tied to manufacturing supply chains. These are often build-to-suit projects with tenants committed long term. For lenders, such facilities can be attractive due to their specialized nature and tenant stickiness, but one must consider the industry cyclicality (e.g., an auto parts warehouse depends on auto production health).

• Last-Mile and Urban Logistics: Even as big regional hubs grow, last-mile distribution facilities in and around major cities remain critical for e-commerce fulfillment. Same-day and next-day delivery expectations mean firms need smaller distribution centers closer to end consumers. Throughout 2025, occupancy in urban infill industrial properties (including flex warehouses) stayed very high in most metros, and rents for these infill spaces have been more resilient. For example, in dense coastal cities where land is scarce (New York, Los Angeles proper, Bay Area), last-mile warehouse rents are at a premium and vacancy near zero, even if large suburban box space has some slack. This reinforces a two-tier market: large suburban/rural logistics parks versus small urban logistics facilities. Both play roles in a comprehensive distribution network. From a portfolio allocation view, the urban infill segment offers defensive, bond-like characteristics (stable occupancy, high rent per foot, limited new supply due to land constraints), whereas the large suburban segment offers growth and scalability but with more development-driven volatility. A balanced industrial portfolio might include both types to capture upside while mitigating downside.

Construction Pipeline & Market Rebalancing

The industrial construction boom of the early 2020s has finally downshifted, which is helping the market move back toward equilibrium. Developers delivered an estimated 280–281 million sq. ft. of new industrial space in 2025, a 35% drop from the record deliveries of 2024. In fact, 2025 saw the fewest annual completions since 2017, as many projects were shelved or delayed in response to higher vacancy and rising interest rates. This pullback in new supply was necessary – it helped prevent vacancy from climbing further and allowed tenant demand to catch up to the big 2022–2024 inventory additions.

Not only were fewer projects completed, but the nature of development shifted: A much larger share of new construction in 2025 was build-to-suit (BTS) for specific tenants rather than speculative builds. By Q4 2025, about 40% of space under construction nationally was pre-leased BTS projects (up from ~22% in 2024). Developers and their lenders became more cautious, often requiring significant tenant commitments before breaking ground. This trend improves forward visibility on lease-up and reduces the risk of huge blocks of vacant space coming online. It also indicates that many corporate occupiers still have unmet needs – they’re willing to partner on BTS developments for specialized facilities (e.g. mega distribution centers with automation, or manufacturing-adjacent warehouses with heavy power and cooling for certain industries). From an underwriting standpoint, BTS projects in 2025 and 2026 can be attractive as they come with credit tenancy in place; however, one should vet the tenant’s long-term space needs and ensure the facility’s design is versatile enough for secondary users if that tenant ever vacates.

The pipeline of industrial projects under construction bottomed out around mid-2025 and has since stabilized. Nationwide, roughly 260–270 million sq. ft. was under construction at year-end 2025, down sharply from the ~400+ million sq. ft. under development during the 2021–22 boom. In some overbuilt markets, the pipeline thinned dramatically. For example, Southern California’s Inland Empire – which led the country in development a few years ago – saw new starts slow to a trickle by late 2025, allowing its construction pipeline to shrink below 5 million sq. ft. ongoing (virtually a halt, considering that market delivered over 30 million sq. ft. in 2022 alone). Similar pullbacks happened in Central Pennsylvania, Atlanta, and Phoenix, where developers hit pause after speculative vacancies mounted. This development pause is good news for market health: with fewer new spec buildings flooding the market, existing vacant stock has a chance to lease up in 2025–26, gradually lowering vacancy from the current peak.

Interestingly, by Q4 2025 there were early signs that developers’ confidence was cautiously returning in select markets. Construction starts ticked up in the final quarter in about one-third of U.S. markets – primarily in regions where vacancy had begun to plateau and tenant inquiries were strong (for instance, Texas and parts of the Midwest). Overall, however, 2025 new groundbreakings (≈260 million sq. ft.) were roughly 50% below 2022 levels, and we anticipate new supply in 2026 will remain moderate. Most developers are heading into 2026 prudently: only the best-located sites with clear tenant interest (or build-to-suit deals) are moving forward. The combination of high construction costs and tighter financing also naturally reins in speculative development. Lenders are generally demanding more pre-leasing or stronger sponsor equity for construction loans, which has raised the bar for new projects.

For market equilibrium, this slowdown in supply is a welcome development. It suggests that industrial vacancy is near its apex – with supply additions slowing and demand holding up, the market should progressively reabsorb the vacant space through 2026. As long as developers don’t revert to breakneck construction in the face of any improvement, vacancies can gently decline and rent growth can return to a normalized pace (instead of the feast-or-famine swings of the past few years). Of course, there are risks: if the economy were to stumble or if occupiers downsize (for example, through bankruptcies or moving operations offshore), absorption could lag and vacancy might take longer to improve. Also, one looming factor is sublease space – a number of large retailers took on extra distribution space in 2021–22 and later found it excess to their needs. Sublease availability hit record highs in 2024–25, effectively adding shadow supply. Encouragingly, sublease offerings started to ebb by late 2025 as some of that space was withdrawn or re-leased. It will be important to watch subleases in 2026; if they drop, it further tightens effective supply, but if a wave of new subleases hits (due to corporate cost-cutting), it could undercut the positive absorption of new leases.

In summary, the construction pipeline data tells a story of market rebalancing. The frenzied building of the early decade overshot demand, but the industry has responded by tapping the brakes. National industrial construction starts in 2025 were roughly 260 million sq. ft., well below prior peaks, and heavily focused on build-to-suit deals. This discipline is allowing high-demand nodes to catch up and supporting a soft landing for fundamentals. As investors and lenders, keeping a close eye on local supply pipelines is crucial – markets with still-heavy construction (relative to their size) may face lingering vacancy pressure, whereas those with minimal new supply will tighten faster and support rent growth. In the next section, we’ll examine how these dynamics are playing out across different regions and metro markets.

Regional Variations in Rent Growth, Vacancy & Absorption

Industrial real estate performance in 2025 has varied widely across U.S. regions, underscoring the importance of location strategy in portfolio decisions. Broadly, Sun Belt and Mountain West markets led the country in absorption, while some coastal and slow-growth Midwestern markets lagged or saw rising vacancies. Below, we break down a few regional highlights, followed by a data table of key market stats:

• Sun Belt Strength: The Sun Belt region – spanning the Southeast and Southwest – has been a standout. High-population-growth states like Texas, Florida, Georgia, and Arizona are seeing robust warehouse demand driven by in-migration, booming manufacturing/logistics activity, and business-friendly economics. For instance, Dallas–Fort Worth (TX) not only had the highest net absorption in 2025 (~27–30 MSF) but is also seeing developers ramp up construction again in response. Houston, another Texas hub, absorbed over 10 MSF in 2025, keeping its vacancy moderate (~7–8%) despite a massive amount of new supply in recent years. In the Southeast, Atlanta had one of the fastest rent growth rates (~9–10% YoY) as demand for distribution space persists around its logistics nexus, although a flood of new deliveries pushed vacancy up to roughly 9%. Central Florida (Orlando, Tampa) and South Florida (Miami) similarly benefited from population gains and trade – Miami’s warehouse rents jumped about 8–9% YoY, among the highest in the nation, and its vacancy remains very tight (around 6%) thanks to barriers to new supply. Investors allocating to the Sun Belt should, however, differentiate between markets: some (like Miami) are supply-constrained and thus have low vacancy and high rent growth, while others (like Phoenix or Dallas) offered abundant land and saw a bit of short-term oversupply that pushed vacancies into the low double-digits. The common thread is strong long-term demand, but the timing of cash-flow stability will differ – e.g., a Phoenix or Dallas asset might lease at a discount until the market re-absorbs excess spec space, whereas a Miami asset might have immediate pricing power but limited expansion opportunity.

• Mountain West and Inland Hubs: Phoenix (AZ) epitomizes the Mountain West story: it became an industrial development hotspot with roughly 30% growth in stock over five years. By late 2025, Phoenix’s vacancy hovered around 11–12%, up from near 4% a couple years prior, reflecting that rapid supply influx. Yet demand in Phoenix has also been record-setting (≈13 MSF absorbed in 2025), and vacancy actually edged down in Q4 as leasing picked up. Rents in Phoenix have essentially flattened after years of explosive growth – a necessary breather for tenants. Other inland hubs like Las Vegas, Denver, Salt Lake City, and Reno have similarly seen elevated vacancy but continued positive absorption. These markets benefit from serving regional west-of-the-Rockies distribution and, in some cases, spillover growth from pricier coastal markets. Kansas City and Indianapolis – more Midwest than Mountain – also fall in this category of inland logistics hubs that thrived in 2025, each absorbing well over 10 MSF with vacancy rates improving to the 7–9% range. Many tier-2 inland markets enjoyed strong leasing as well (e.g., Columbus, OH nearly hit 10 MSF absorption, much of it tied to retail and e-commerce distribution in the Midwest). For lenders, the inland distribution hubs often mean newer product and reliable demand, but one must watch the developer activity. A number of these markets had very aggressive building in 2022–24 (often with cheap land and incentives), so while their outlook is positive, some may take another few quarters to work through the vacant spec space. Being selective – favoring submarkets near major intermodal facilities, population centers, or with unique drivers (like Kansas City’s intermodal rail hub or Indy’s central location) – can help ensure stronger occupancy.

• Coastal Gateway Cooling: The coastal port markets that were ultra-tight during the pandemic have seen a relative cooling. For example, Southern California’s Inland Empire (IE), as discussed, saw vacancy rise to roughly 8% by end of 2025 (from almost 1% at the peak of the frenzy). Warehouse rents in the Western region actually declined ~4–5% YoY in 2025 on average, with the IE and Northern California seeing some of the steepest adjustments as landlords competed for tenants in new spec buildings. The New York/New Jersey industrial market similarly saw vacancy creep up into the 6–8% range (from ~2–3% lows), and rent growth stalled after years of double-digit gains. Notably, older facilities near the ports have struggled more as logistics firms reconfigured networks (for instance, some importers shifted routings to Gulf and East Coast ports, easing pressure on LA/Long Beach). However, these coastal markets still have inherently strong demand drivers and high barriers to entry – we are seeing a flight to quality here too: the newest distribution centers (especially those with proximity to ports or large population clusters) are leasing, while older or less ideally located warehouses sit vacant. Land values and replacement costs remain extremely high on the coasts, so any further rent decline is likely limited; in fact, as supply pipeline drops to near-zero in 2026, even 8–9% vacancy should gradually compress. For investors, a short-term softening in coastal markets could be a buying opportunity – e.g. picking up an LA infill warehouse or a Port Newark logistics center at a slight discount – but they should underwrite a slower rent CAGR in these markets compared to high-growth Sun Belt areas, at least until the next upswing in global trade.

• Heartland and Midwest: The Midwest had a mixed year regionally. Chicago, the nation’s largest inland port, remained one of the tightest big markets – vacancy in Chicago is around 5% (barely up from 4.5% a year ago) and the market has absorbed new space steadily. Chicago’s more measured construction pipeline (only ~0.8% of inventory under construction, well below national average) has prevented oversupply. Rent growth in Chicago has been moderate (low-single-digits), reflecting its stable, diversified tenant base (manufacturing, food, retail distribution, etc.). In contrast, some secondary Midwest markets like St. Louis, Cleveland, or Milwaukee saw slower leasing momentum and upticks in vacancy, partly due to more limited demand drivers or tenants contracting. Detroit and parts of the auto belt had a tougher 2025 (some vacancies from supplier consolidations, though also some bright spots from EV-related activity). Columbus we noted as strong (due to Intel and other projects), and Louisville saw good activity (tying into UPS Worldport and regional e-commerce). Overall, the Midwest is not monolithic – locations that play key roles in national distribution (Chicago, Columbus, Indy, Kansas City) are performing well, whereas those reliant on older manufacturing or lacking logistics infrastructure are softer. Lenders might favor the former group, where low vacancies and strong credit tenants are common, and be more conservative in the latter unless there’s a compelling value-add story (e.g., repositioning an older warehouse to modern spec in a submarket that’s poised for a comeback).

To illustrate the range of market conditions, below is a snapshot of select industrial markets as of late 2025, including vacancy rates, annual rent growth, net absorption, and new construction levels. All data are sourced from the Loan Analytics proprietary database (aggregating market research and industry data):

Market	Vacancy Rate (Q4 2025)	2025 Rent Growth (YoY)	2025 Net Absorption  (Million Sq. Ft.)	2025 Construction Starts  (Million Sq. Ft.)
U.S. National	7.1%	+1.5%	176.8	260
Dallas–Ft. Worth (TX)	9.1%	+3%	27	30
Houston (TX)	7.5%	+5%	10.5	15
Miami (FL)	6.0%	+9%	2	2
Phoenix (AZ)	11.0%	0%	12	15
Inland Empire (SoCal)	8.0%	+1%	8	5
Chicago (IL)	4.7%	+2%	8	15

Source: Loan Analytics proprietary database, data as of Q4 2025.

This table underscores the dispersion in market dynamics. Coastal Southern California’s Inland Empire, for example, now has a higher vacancy and negligible rent growth (after a period of correction), whereas Miami’s vacancy remains ultra-low with nearly 9% rent growth. Dallas and Phoenix have huge absorption but also elevated vacancy due to heavy supply, while Chicago demonstrates steadiness with low vacancy and moderate growth. For lenders and investors, such data reinforce that market selection is pivotal – industrial is not a monolith, and each metro’s supply-demand balance must be evaluated when deploying capital.

Outlook for 2025–2026 and Risk-Adjusted Investment Strategy

Looking ahead to 2026, the industrial warehouse sector appears to be on a trajectory of stabilization with modest growth. Most industry forecasts anticipate that U.S. industrial vacancy will plateau in the low-7% range through the first part of 2026 and could gradually drift downwards by late 2026 as absorption continues to outpace new supply. In other words, 2025 likely marked the cyclical high for vacancy – barring an economic downturn, we expect the national vacancy rate could improve to the mid-6% range by the end of 2026. Such an outcome implies the market moving back into a more balanced equilibrium, though not the extreme landlord-favoring tightness of 2021. Rent growth at the national level is projected to remain in the low single digits next year (perhaps 2–3% in 2026), which would be a slight uptick from 2025’s ~1.5% but still well below the boom-era pace. Essentially, 2026 rent and occupancy fundamentals should be steady – positive but not heady growth, which is actually conducive to disciplined underwriting.

One reason for optimism is that new construction will likely remain subdued into 2026. Given the pipeline metrics discussed and the higher cost of capital, we expect 2026 deliveries to be even lower than 2025’s, and new starts to stay constrained at least through mid-2026. This supply tapering, combined with consistent demand drivers (e-commerce, population growth, manufacturing investment), sets the stage for landlords to regain a bit of pricing power. Markets that faced the most oversupply (e.g. Phoenix, Inland Empire, Central PA) should see their vacancies inch down as fewer buildings come online. Markets that were already tight (South Florida, New Jersey, Seattle, etc.) could tighten further and potentially return to mid-single-digit vacancy levels, which would support rent bumps above the average. However, any rent acceleration will be measured – many occupiers are pushing back on costs after absorbing steep rent hikes in 2020–22, so landlords are likely to prioritize occupancy and renewals over aggressive rent pushes in 2026.

From a capital markets perspective, industrial real estate remains a favored asset class, but investors are adjusting their strategies to the new normal. Cap rates for industrial properties rose in 2023–2024 alongside interest rates, and essentially stabilized in 2025. Currently, cap rates for core industrial assets in primary markets might range in the mid-5% to low-6% (up from sub-4% lows), and in secondary/tertiary markets or for value-add deals, cap rates can be in the 7–8%+ range. With the 10-year Treasury yield hovering around mid-4% and potentially peaking, there is anticipation that capital costs will ease slightly in late 2026, which could spur more acquisition activity. Indeed, 2025 saw an uptick in industrial investment sales volume compared to the very slow latter half of 2024 – some opportunistic buyers stepped in to acquire assets at a 10–20% discount from peak pricing. As credit markets stabilize and if interest rates indeed start to inch down in 2026, we expect investment volumes to increase. Lenders should still be prudent – debt-service coverage is tighter now with higher rates, so loan underwriting in 2026 will rely more on in-place income rather than pro forma growth. But given industrial’s strong fundamentals and investor demand, the sector’s values are likely to be resilient and potentially resume gradual appreciation beyond 2026 (driven by NOI growth more than cap rate compression).

For an investor or lender evaluating industrial portfolios, the key is to focus on risk-adjusted strategy. Below are some lender-oriented insights and strategies as we enter this next phase:

• Favor Modern, High-Quality Logistics Assets: The “flight to quality” among tenants means newer warehouses (Generation 1 space) are expected to lease faster and retain value better than outdated facilities. Investors should tilt portfolios toward modern distribution centers with features like 30’+ clear heights, ample docking, HVAC as needed, and strong ESG credentials. Lenders might offer more favorable terms (higher LTV, lower spreads) on Class A properties with durable design and location, knowing these assets will attract demand even in soft markets. Conversely, for older industrial assets, underwrite more conservatively – higher capex reserves for needed upgrades (ESFR sprinklers, LED lights, etc.), and shorter lease assumptions. Some older product in challenged locations may become functionally obsolete; those are candidates for repositioning or may warrant a higher exit cap rate in valuations.

• Align Market Selection with Long-Term Growth: Direct new investments toward markets with structural tailwinds (population growth, infrastructure development, diversified economies). These include many Sun Belt markets, key intermodal hubs, and emerging logistics corridors. Such markets are more likely to experience sustained rent growth and quicker lease absorption, supporting better cash-flow growth for investors. That said, also consider diversification – a portfolio spread across different regions (coastal gateway, Sun Belt, Midwest) can hedge against regional shocks (e.g., a regulatory change, local economic downturn, or overbuilding in one area). Lenders can reward diversification and strong market fundamentals with slightly better terms, reflecting lower risk. On the flip side, be cautious in markets that are highly dependent on a single industry or that have seen outsized speculative building without a commensurate demand story. For example, a smaller market that added millions of sq. ft. hoping for spillover demand might struggle – ensure there is real tenant depth if lending into such markets.

• Underwrite Realistically – Rent Growth & Lease-Up: The go-go days are over; base underwriting on moderate rent growth (perhaps ~2% annually for the next couple years) and allow for longer lease-up periods in models, especially for any speculative space or backfill of big boxes. It’s wise to stress test deals at flat rents or with an uptick in vacancy downtime, to ensure debt service can still be met under slower growth scenarios. Lenders should verify that sponsors aren’t relying on aggressive refinancing assumptions or large rent jumps to hit pro formas. The current consensus is that 2026–2027 will see industrial demand continue, but at a normalized pace, so plan for steady NOI growth rather than spikes. Construction cost inflation and financing costs are also higher, so development deals in underwriting might need contingencies and more equity to pencil out.

• Pay Attention to Tenant Credit and Lease Structures: In a market where vacancy is higher than the ultra-tight past, tenant quality differentiates assets even more. Properties leased to investment-grade tenants (or mission-critical facilities for tenants) will hold value and find lender/investor interest readily. Consider sale-leaseback opportunities where strong companies are monetizing real estate – these can offer stable long-term cash flow (just watch for any signs of tenant financial stress). Also, examine lease terms: long-term leases with fixed escalations can be a double-edged sword (great stability, but low flexibility if market rents outrun the escalations). In a low-growth environment, long leases with 2–3% bumps are fine; however, if you believe certain markets will regain pricing power, having the ability to mark leases to market in a few years is valuable. For lenders, a well-staggered lease rollover schedule in a multi-tenant industrial portfolio is ideal – it avoids too much roll in any single year, reducing refinance risk.

• Monitor Infrastructure and Regulatory Factors: A new wrinkle in location strategy is the availability of infrastructure – particularly power and utilities. As mentioned, some modern warehouses need significant power (for automation, cold storage, data handling). Markets or submarkets with limited power capacity could constrain new development or expansion of certain uses (for example, some areas are experiencing delays in getting sufficient electricity for large facilities). Investors might find opportunity in sites where infrastructure investments (highways, ports, rail, power grid) are being made, as these locations will become more valuable logistics nodes. At the same time, regulatory environments, such as zoning restrictions or community opposition to new warehouses (which has arisen in parts of California and the Northeast), can limit supply and thereby benefit existing assets. When allocating capital, consider places with high barriers to new supply (good for existing owners) versus places rolling out the red carpet for development (good for tenants, but possibly oversupplied for owners). Both scenarios have different risk profiles.

Overall, the industrial warehouse outlook for 2025–2026 is cautiously optimistic. After a period of indigestion, the sector is moving back to a healthy balance. For investors and lenders, industrial properties still offer compelling fundamentals – relatively high occupancy, decent rent growth prospects, and a critical role in the modern economy’s supply chain. But success in this phase will depend on choosing the right assets and markets and employing disciplined underwriting. The days of blindly riding a massive e-commerce wave are gone; now it’s about fine-tuning portfolios for resilience and steady performance. By focusing on quality, understanding regional dynamics, and aligning investment decisions with long-term logistics trends, stakeholders can confidently navigate the industrial real estate landscape in 2025 and beyond. The sector’s steadier footing means it can continue to be a cornerstone of a risk-adjusted real estate portfolio, providing income and growth, but it will reward those who do their homework on each submarket and asset’s specifics. In short, industrial real estate remains a prime target for capital deployment, albeit with a sharpened focus on operational fundamentals and strategic positioning as we enter a new chapter of the cycle.

Sources:

• Loan Analytics proprietary database - U.S. Industrial Market Dashboard (Vacancy, Rents, Absorption, Pipeline), 2025

• Loan Analytics proprietary database - Metro Industrial Scorecards (Selected MSAs), Q4 2025

• Loan Analytics proprietary database - Construction Pipeline Tracker (Starts, Deliveries, Pre-leasing), 2025

• Federal Reserve Bank of St. Louis (FRED) - E-commerce Retail Sales as a Percent of Total Sales, 2024–2025

• U.S. Census Bureau - Quarterly Retail E-Commerce Sales, 2024–2025