The U.S. industrial real estate market ended 2025 on firmer footing, with demand improving in the second half of the year and new construction slowing, according to a new report from Cushman & Wakefield.
Net absorption totaled 54.5 million square feet in the fourth quarter, up 29% from the same period a year earlier and roughly matching the third quarter. That late-year pickup lifted full-year absorption to 176.8 million square feet, a 16.3% increase from 2024 and the strongest six-month demand since 2023, the firm said.
The gains came despite a cooling labor market and ongoing uncertainty around trade policy and tariffs, pointing to steadier underlying demand for warehouse and distribution space.
“Newer warehouse and logistics buildings drove demand late in the year,” said Jason Price, senior director and Americas head of logistics and industrial research. He said tenants increasingly favored facilities designed to support modern operations, while large users—those occupying 500,000 square feet or more—accounted for more than 116 million square feet of absorption in 2025.
Leasing Activity Remains Solid
Leasing continued to support the market. Fourth quarter leasing reached 165.7 million square feet, up 11% from a year earlier. For the full year, leasing totaled 665 million square feet, the highest annual level since 2022.
Large deals played a key role. Cushman & Wakefield said 43 leases larger than 1 million square feet were signed in 2025, a 30% increase from the prior year. Market performance was broad, with Dallas–Fort Worth, Indianapolis, Kansas City and Greenville posting stronger net absorption than in 2024. Six U.S. markets recorded more than 10 million square feet of positive absorption during the year.
Construction Slows, Vacancy Levels Off
Construction activity cooled further, easing pressure on vacancies. Developers delivered 281 million square feet of new industrial space in 2025, down 35% from 2024 and the lowest annual total since 2017. Fourth-quarter deliveries fell 24% year over year to 65.7 million square feet.
More of the space under construction is being built for specific tenants rather than on a speculative basis. Cushman & Wakefield said build-to-suit projects account for about 40% of space currently under development, reflecting demand for facilities tailored to tenant needs.
National vacancy held steady at 7.1% for the second straight quarter, suggesting the market may be nearing a peak. Vacancy rose just 50 basis points from a year earlier, the smallest annual increase since late 2022. Conditions improved in the Midwest and South, while availability increased modestly in parts of the Northeast and West. Smaller warehouse space remained the tightest segment, while vacancy for large facilities improved late in the year after peaking midyear.
Rent Growth Slows but Stays Positive
Industrial rent growth moderated but remained positive. Average U.S. asking rents rose to $10.18 per square foot, up 0.8% from the third quarter and 1.5% from a year earlier. Over the past five years, national industrial rents have increased 53%, the report said.
Demand continues to be supported by domestic distribution tied to e-commerce, essential goods, and retail replenishment. Manufacturing-related activity also contributed to leasing in 2025, particularly in the Southeast and Central regions. At the same time, access to reliable power is becoming a key factor in where and how new facilities are developed.
“With vacancy stabilized and new supply slowing, the industrial market is entering 2026 from a position of strength,” said Jason Tolliver, president of logistics and industrial services. He said tenants are placing greater emphasis on long-term efficiency and reliability, favoring newer facilities in markets tied to population growth and manufacturing investment.
What It Means for Wholesale Distributors
For wholesale distributors, the report points to a more predictable—but still competitive—real estate environment in 2026.
- Newer facilities have an edge. Distributors expanding or upgrading their networks are increasingly competing for newer buildings that can support modern warehouse operations. Older facilities may require significant investment to remain viable.
- Bigger buildings reflect network changes. The rise in large leases suggests distributors are continuing to consolidate operations into fewer, larger distribution centers to improve service and control costs.
- Location decisions matter more. Strong demand in the Midwest and Sun Belt aligns with population growth and domestic manufacturing, reinforcing those regions’ appeal for regional and national distribution networks.
- Costs are stabilizing, not falling. Slower construction and steady vacancies reduce the risk of shortages, but rents are still rising, limiting opportunities for meaningful cost relief.
- Infrastructure is a growing constraint. Access to power and utilities is playing a larger role in site selection, adding another consideration for distributors planning new facilities or expansions.
Overall, the industrial market’s steadier footing supports continued investment in distribution capacity, but favors careful planning, modern facilities and locations aligned with long-term demand rather than rapid expansion.
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