Q3 2025 Industrial Occupier Outlook

The US Industrial Market Pauses As Occupiers Wait for Consumers to React to Inflation

Vacancy rates in the industrial market have been rising for nearly three years. Softer market conditions have shifted negotiating power more toward tenants. As a result, lease rates, which saw nearly two years of double-digit annual percentage growth, have now stalled. The recent decline in new construction starts will help address the current imbalance between supply and demand; however, tenants will still have the leverage in the short term to negotiate better terms and build-out costs. Net absorption rebounded in the third quarter of 2025, following the first contraction in over a decade during the second quarter. Leasing activity has continued at a steady pace, with both the number of deals and total square footage expected to align with historical averages for the year. However, the time it takes to lease space is increasing, as properties have been vacant for longer periods. Smaller bay spaces are outperforming larger ones, with vacancy rates below 5 percent for spaces under 50,000 square feet due to heightened demand.

Industrial Tenant View

• Even with the recent slowdown in rent increases, the dramatic increase in 2022 and 2023 will result in many tenants renegotiating significant increases from previous base rates.
• Vacancy expansion has been concentrated in warehouse/ distribution buildings as consumers remain cautious about spending.
• Increasing tariffs and other protectionist policies could potentially increase manufacturing requirements if companies’ onshore production.

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