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Five years ago, when the pandemic pushed e-commerce to new highs, industrial warehouse space became the biggest commercial real estate play. Although it began to be late in 2022, the economic uncertainty brought about by ever-changing tariff policies and sustained high inflation is taking a major blow to this previous hot real estate sector.
A report by Naiop, the Commercial Real Estate Development Association, shows that just 27 million square feet of space was absorbed in the first half of this year, with demand falling 11.3 million in the first quarter since 2010.
Uncertainty is likely to last until the end of this year, so NAIOP predicts net absorption will be “almost flat” later this year.
“Demand for industrial space is expected to recover somewhat after the occupying people have time to adapt to the new tariff regime,” the author of the report said. “However, if tariffs increase and job growth slows, demand could increase slower than what we experienced from 2020 to 2022.
NAIOP forecasts absorption to recover from the second quarter of 2026, bringing total absorption to 119.3 million square feet for the full year. An additional 109.7 million square feet of absorption is expected in the first half of 2027.
When it comes to industrial property sales, this year coincides with a pace of $74.3 billion last year, up 14.7% from 2023, but a decline from 2021’s all-time high of $129.8 billion, according to another report from Yaldi.
Also, price increases have been cooled down as the average selling price of industrial property increased by 54% between 2019 and 2022.
“The capital was cheap and investors wanted to benefit from record rent growth, along with historically low industrial vacancy rates behind,” the report said.
So far, the average selling price for completed industrial transactions has been only 6% higher than the 2022 average.
The national industrial vacancy rate in July was 9.1%, an increase of 10 basis points from June and 270 basis points from July 2024. However, in-place rents still rose 6.1% year-on-year.
“We have seen the industrial investment market move from darling to resilience over the past few years, and we hope that together with increasing demand for space, we will raise activity and interest in anticipation of economic clarity,” said Peter Korasinski, director of Yardi Research.
