Industrial Enters a Correction Phase
After years of record expansion, the U.S. industrial market is settling into a new phase of recalibration, with rents easing and vacancies edging higher as supply catches up and demand cools, according to CompStak?s 2025 biannual market overview.
Industrial rents have slipped 4.7% from their late-2023 peak, marking three straight quarters of decline. Though still nearly 50% higher than in early 2020, the pullback signals a gradual correction after an unprecedented run-up from 2020 through 2023. Vacancy climbed to about 4.4% in the third quarter of 2025, rising faster year over year than in 2024?a clear sign of a market returning to more balanced conditions.
Small-bay assets recorded the steepest rent declines, roughly 8% below peak levels, though the rate of decline has begun to ease, the report said. Lease terms continued to lengthen in both bulk and small-bay buildings for a second consecutive quarter. Bulk assets maintained their advantage, averaging commitments roughly 16 months longer than small-bay transactions, suggesting tenants remain willing to make longer bets despite ongoing uncertainty.
Trade and logistics trends remain central to industrial demand. Port traffic slowed in 2025, with West Coast gateways feeling the greatest strain amid higher tariffs and softer trade flows with China. East Coast ports, led by New York/New Jersey, Savannah, Charleston and Virginia, posted modest gains. In contrast, Houston and Oakland saw notable declines, reinforcing a continued East Coast tilt in distribution activity.
Despite weaker consumer sentiment, spending held firm in durable, goods-heavy categories such as furniture, automotive, sporting goods and apparel. E-commerce and broadline retailers also proved resilient, helping sustain appetite for logistics and distribution space.
Looking ahead, more than 31% of industrial leases in major markets will expire by 2027. Many of those tenants are paying rents far below current market rates ? in Dallas?Fort Worth and North and Central New Jersey, the gap is roughly 40% or greater ? creating potential for significant repricing. Greater Los Angeles, however, offers limited upside after a wave of peak-cycle leasing, according to CompStak.
Landlords are also granting more concessions as tenants gain leverage. Free rent hit post-2019 highs, averaging 4.3% of term in bulk buildings and 3.2% in small-bay space. Annual rent escalations have softened, especially in shorter leases and small-bay properties.
Investor behavior also shifted in 2025. Private equity buyers led gains in small-bay acquisitions by both square footage and sales volume, while family offices increased their activity. Public REITs and traditional managers, meanwhile, eased their exposure?underscoring a growing divide between opportunistic and risk-averse capital.
Amid the moderation, one segment continues to outperform: single-tenant net lease industrial. Starting rents in that category are now more than 94% higher than in 2019 and remain buoyed by favorable spreads between in-place and market rents across most metros.
Source: GlobeSt/ALM