Balance could soon return to the industrial sector as vacancy rates peak, new supply and tenant demand reach equilibrium, and rent growth stabilizes, according to Colliers 2025 Commercial Real Estate Outlook.
That will be a welcome relief after a surge in development drove up the national industrial vacancy rate by more than 250 basis points since 2023.
“While some markets are already ahead of the curve, others will follow suit in the coming year as the market gears up for its next growth cycle,” commented Stephanie Rodriguez, national director for industrial services. Indeed, the report said new construction starts could resume in late 2025 in markets where balance has already been achieved. It anticipated that industrial vacancy rates would peak by mid-year.
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To make the most of this opportunity, however, efficient last-mile delivery solutions will be key for companies in the industrial real estate sector, the report noted.
That’s because even though demand and supply challenges created by the sector’s response to the pandemic are abating, risks, disruptions and high costs will remain. To overcome these challenges, increased agility and reliable deliveries will be needed to ensure the supply chain is resilient and flexible. “More companies will adopt route optimization strategies and crowdsourced delivery networks to improve the last mile and adapt to unexpected delays,” the report predicted.
Another trend to watch is increased use of automation, the report said. Companies are expected to turn to data analytics to improve warehouse efficiency by identifying demand fluctuations and bottlenecks. The use of AI and collaborative robots will also grow.
It is also likely that the current uncertainties regarding future trade policy and regulation under the Trump administration could stimulate more development of buildings with smaller footprints in well-located areas. Protectionist policies will encourage further nearshoring and reshoring of advanced manufacturing, helping to reduce financial and geopolitical risks.
For the rest, Colliers’ outlook on the industrial sector is positive but restrained.
Industrial rents, which rose 9% year-over-year by 3Q 2024 are expected to continue to rise but at a more modest 3%-6%. In certain coastal markets a decline in lease rates is likely to continue.
Demand slowed in 2024, but a projected rise in net absorption in 2025 is unlikely to reach the high levels of 2021 and 2022.
Total space under construction dropped 53% to 331 million square feet and is expected to fall further to under 300 million square feet by early 2025, in line with pre-pandemic development.
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