The coming year is likely to be one of transition for the industrial sector as the pandemic-driven supply boom that reached 1.1 billion square feet fades, according to a Yardi Matrix report. Industrial space has gone from scarcely available in 2021 and 2022 to more readily available for occupiers, with the national vacancy rate standing at 8% compared with less than 4% two years ago.

About 350 million square feet of industrial space is under construction, representing 1.7% of stock. Starts were just 236 million square feet in 2024, down 35% from 2023 and more than 60% from 2022.

“The combination of slowing demand for space and higher borrowing costs for construction loans has cooled the development pipeline, and we do not anticipate any significant increases in starts this year,” said Yardi Matrix. “Though borrowing costs have come down somewhat in recent quarters, inflation remaining stubbornly above the Fed’s target rate will lead to fewer benchmark rate cuts than was previously anticipated. Beyond more expensive construction loans, the wave of new supply delivered over the past few years is still being absorbed and will temper developer enthusiasm for new projects for the time being.”