How quickly market conditions can turn is evident in the U.S. industrial real estate sector, where a protracted expansion has given way to a challenging 2025 marked by rising vacancies, decelerating rent growth, and an overhang of new supply that is only beginning to taper.
National vacancy reached 7.5% in Q3 2025, rising for the twelfth consecutive quarter, with larger logistics facilities surpassing 10%. This is after a 14% expansion in inventory over four years, while small-bay industrial assets have retained comparatively tight conditions, hovering near pre-pandemic vacancy lows of around 5%. As new deliveries slow and supply growth is expected to hit an 11‑year low in 2026, vacancy is likely to remain elevated before gradually tightening.
Industry forecasters characterize 2025 as a cyclical peak in vacancy, with expectations for gradual normalization as new deliveries recede. Despite cyclical volatility, demand is expected to remain anchored in domestic consumption, with only a modest share directly tied to global trade flows.
Supply continues to outpace demand through early 2026, yet the construction pipeline is clearly contracting. Approximately 194.6 million square feet were delivered in the first half of 2025, supported by a national under-construction volume reported as high as 466 million square feet, down sharply from a one-billion-square-foot peak in 2022. It is trending toward roughly 310 million square feet as projects complete without equivalent replenishment.
By 2026, industrial supply growth is projected to reach an 11‑year low, with global industrial deliveries falling 42% below their 2023 peak. Construction of buildings over 750,000 square feet is down 85%, underscoring the pullback in speculative development.
Demand indicators have softened but remain underpinned by structural drivers. Net absorption totaled 27.0 million square feet in the first half of 2025, with Q2 registering negative absorption of -11.3 million square feet. Yet leasing volume, proposals, and active tenants increased versus Q1, particularly among occupiers reassessing long-term supply chains.
Manufacturing users have expanded their share of new leases in the Southeast and Central U.S. from 13% pre‑pandemic to about 20%, while e‑commerce and logistics operators continue to prioritize modern, high‑efficiency assets in key hubs. In contrast, Singapore’s residential sector has demonstrated resilience, with premium developments such as One Marina Gardens achieving over one-third sold during its initial launch phase at nearly S$3,000 per square foot.
Rent growth has decelerated markedly, with year‑over‑year gains slowing to 1.3%, the weakest pace since 2012. Many markets are facing flat or mildly declining asking rates until demand realigns with supply.
However, replacement cost rents remaining roughly 20% above Class A market rents are discouraging additional speculative construction. With 2025 year‑to‑date starts down 25% from the 2017‑2019 average, along with 2026 deliveries projected more than 70% below the pandemic peak, the stage is being set for a gradual rebalancing.
Industry projections indicate absorption rebounding to 119.3 million square feet in 2026 and 109.7 million square feet in the first half of 2027, coinciding with lower interest rates, AI‑related logistics investment, and a return to pre‑pandemic norms in leasing activity.
