REAL ESTATE NEWS

The industrial real estate market, once seen as the ?golden child? emerging from the pandemic, is now entering a new phase of correction and recalibration.

?The industrial world was the golden child coming out of the pandemic,? CoStar National Director of U.S. Industrial Analytics Juan Arias tells GlobeSt.com.

Fueled by pandemic-era demand, warehouses and logistics facilities multiplied as consumers turned to e-commerce for goods that had become scarce during supply chain disruptions. But that momentum has faded.

?Since around 2023, the goods side of the economy has slowed down,? Arias says. The CASS Freight Index, which tracks North American freight volumes, has been steadily declining since that year?a trend Arias calls ?the freight recession.?

Companies across the logistics chain have felt the pressure.

?We?ve seen an oversupply of 3PLs [third-party logistics companies], trucking companies,? he says. ?We?ve seen a lot of 3PLs and trucking companies go bankrupt.? Arias expects that trend to continue through 2026.

A key driver of today?s slowdown, he explains, was the ?pull forward in overall consumer demand? that occurred during and soon after the pandemic.

Five years of e-commerce expansion occurred in just two, creating an unsustainable level of activity. In addition, as 2025 tariff concerns mounted, many retailers stocked up early, temporarily inflating warehouse use.

Overbuilding compounded the problem. About 22% of current warehouse stock has been built since 2020?the highest proportion since the Great Recession, when new buildings accounted for roughly 21% of the total. After some healthy absorption in 2024, leasing activity slowed but picked up again in late 2025. Larger properties, especially those over 500,000 square feet, have performed the best. ?Over 54% of absorption in the fourth quarter of 2025 was driven by the largest properties,? says Arias. ?If you look at the share above 500,000 square feet, most, if not all of them, were newly built.?

While demand for large facilities has remained steadier, smaller properties tell a different story. Warehouses under 100,000 square feet have seen little new construction and infill demolition has risen. Yet, some of the sharpest demand has been for spaces under 20,000 square feet.

?When you want to deliver to your customers, you want to be in as close as possible to the customer,? Arias explains.

Within roughly eight miles of major metro centers, small-bay facilities have performed well?though not everywhere. In Washington, D.C., for example, areas near the central business district are lagging, while small-bay spaces north of Dulles Airport are thriving due to demand from companies servicing nearby data centers.

?There is no real driver for mid-size to larger logistics,? Arias notes. ?For now, it?s going to be a slow drag until vacancy rates come down.?

The next frontier for industrial investment may lie beyond warehouses altogether.

?For the industrial world, we are continuing to see the shift from construction spending to data centers,? Arias says. He expects spending on data centers to soon surpass spending on traditional warehouse development.

?When you look at the amount of money flowing to data centers, over 50% of asset allocation targets in 2025 in the industrial world were targeting data center funds,? he adds.

Source: GlobeSt/ALM