Why This Matters to Distributors: Demand is returning for large distribution facilities, signaling renewed investment by major logistics operators, retailers, and distributors.
Vacancy rates for the largest U.S. industrial properties have begun to decline as demand from logistics operators rebounds, according to new data released Tuesday by CoStar Group.
The commercial real estate analytics firm said vacancy rates for industrial buildings larger than 500,000 square feet have compressed in recent quarters, driven by increased leasing activity and the delivery of build-to-suit facilities. The trend suggests that large occupiers have resumed expansion plans after a period of slower growth.
At the same time, vacancy rates remain elevated across many newly built mid-sized and smaller warehouse properties as developers continue working through a wave of supply added during the past several years.
“Large logistics occupiers have returned to the market since the latter half of 2025, and a significant amount of absorption was driven by the delivery of build-to-suit properties,” Juan Arias, CoStar Group’s national director of industrial analytics, said.
The report highlights a growing divide within the industrial real estate sector. While demand is strengthening for the largest logistics facilities, newer warehouses between 200,000 and 500,000 square feet are taking longer to lease. According to CoStar, vacancy rates for newly constructed logistics properties are at their highest levels since 2006, except in the segment exceeding 500,000 square feet.
For distributors, the findings suggest that large-scale distribution networks continue to expand despite economic uncertainty, while excess capacity remains available in smaller warehouse segments.
Leasing activity overall has remained stable, but tenants are increasingly favoring shorter commitments. CoStar reported that average lease terms for the largest industrial transactions have declined to about five years, down from seven years in 2022.
Arias said shorter lease terms reflect continued uncertainty surrounding supply chains, trade policy and demand forecasts, leading occupiers to seek greater operational flexibility.
The report also found that small-bay industrial properties continue to outperform the broader warehouse market. Vacancy rates for small-bay facilities stand at 6.4%, compared with 10.9% for the overall logistics sector.
Historically limited construction has helped keep occupancy levels healthy in the small-bay segment. However, CoStar said economic uncertainty has tempered expansion plans among smaller businesses and reduced demand for newly delivered space.
Regional performance varies widely. Phoenix and Austin, two markets that experienced significant small-bay construction activity in recent years, continue to report higher vacancy rates than many other major industrial markets.
The data points to a two-speed industrial market: Large occupiers are once again driving demand for major logistics facilities, while developers and landlords in smaller warehouse segments continue to work through excess supply created during the post-pandemic construction boom.
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