🚨The U.S. industrial market's vacancy rate increased to 7.1% in Q2 2025, marking a significant jump from the record low of 2.8% in mid-2022. This shift is primarily due to a supply wave that outpaced net absorption, driven by large-scale developments facing slower lease-up times. The bifurcated demand for smaller last-mile facilities and larger logistics spaces highlights a need for pivoted leasing and development strategies.
Vacancy Rate: 7.1%, Q2 2025.
New Supply Delivered: 71.5 MSF, Q2 2025.
Net Absorption: 29.6 MSF, Q2 2025.
Loan Performance: Industrial loans may see adjusted DSCRs as vacancy rate rises affect NOI. Stabilized assets maintain better performance, while speculative developments face renewed underwriting scrutiny.
Demand Dynamics: Leases for large-format warehouses are sluggish, necessitating concessions. Conversely, smaller urban properties hold strong rent-betas, driven by 3PL and regional demand.
Asset Strategies: Strategies favor smaller in-demand spaces. Larger facilities may need to explore unit subdivision to reduce downtime or enhanced TI offerings to secure tenants.
Capital Markets: Despite industrial being favored, some recalibration is occurring—with cap rates for prime logistics facilities rising amid tightening lender conditions.
Rates/growth: Vacancy levels align more with historical trends, needing strategic re-evaluation.
Favored assets: Strong demand for smaller, urban industrial facilities.
Financing stance: Increased caution among lenders, especially for speculative projects.
Spreads/structure caveat: Shift to performance-based terms and higher equity requirements.
🛠 Operator’s Lens
Refi: Stabilized assets hold strong; flexibility required for speculative spaces.
Value-Add: Emphasize capex to attract smaller tenants; maintain contingency reserves.
Development: Reassess pro forma timelines to buffer against slower lease-ups.
Lender POV: Stricter credit requirements, especially for big-box facilities in saturated markets.
Watch for Q3/Q4 absorption shifts to assess market stabilization.
Monitor rent trends, particularly in overbuilt markets.
Keep an eye on policy impacts like trade agreements affecting regional demands.
WSJ — U.S. Industrial Vacancy Rises in Q2 (Sep 2025). MBA — Industrial Supply and Demand Q2 2025 Report. Trepp — U.S. Industrial Lending Trends Report Q2 2025.
