Robust Industrial Leasing Masks Weak Absorption, Rising Vacancies

The industrial market is in an interesting position. Leasing this year has been robust, even as vacancy rose and net absorption fell as the market tried to figure out the effects of tariffs that have created “a prevailing miasma of uncertainty across the global economy,” in the words of Newmark’s latest report on U.S. industrial conditions and trends.

In this cloudy environment, forecasting the months ahead and the prospects for vacancy becomes more challenging, and prompted a warning from Newmark. “Turbulence should be anticipated in the second half of the year following in the wake of pre-tariff inventory drawdowns,” the report cautioned.

What industrial leasing there has been appears to be to consolidate or optimize supply chains instead of expansion, it noted.

Industrial vacancy rose 7.4% in 1H 2025 -- the highest level in over 10 years, with older properties more affected. The availability rate climbed 9.8%. Net absorption also fell 47.4 million square feet, or 35% year over year, especially in 2Q 2025, the first negative quarter in over 15 years. “Many tenants are consolidating and restructuring to preserve margins. Others are closing entirely as corporate bankruptcies remain elevated,” the report said.

On the other hand, there was little change in average asking rent of $10.50 per square foot and new leasing volume climbed 2% year over year to 215 million square feet, helped by well positioned tenants taking the opportunity to lease new, efficient space.

Deliveries of new space dropped and the development pipeline fell for the 11th consecutive quarter to 282 million square feet. But newly delivered facilities showed positive absorption as tenants in search of throughput and efficiency demanded quality.

Even so, vacancy was highest in newly delivered product, with 47% of over half a billion of space delivered since 2024 still empty in 2Q 2025.

Another unknown is how consumer spending will be affected. In 2Q 2025 sales grew modestly to the pre-pandemic trendline, But tariffs and unfavorable jobs data could change that pattern.

Deteriorating corporate liquidity, a year reportedly described as the busiest since 2010 for corporate bankruptcies, is another risk. For example, JOANN’S corporate bankruptcy was followed by warehouse vacancies in California and Ohio.

Industrial staffing could also suffer, especially in manufacturing. However, the report stated that industrial production is performing better than expected, although there may be cutbacks in capital expenditures. Demand is being affected by persistent stagnation, despite a small improvement in the housing market. “In the last 18 months, Home Depot has given back over five million square feet of space,” the report noted.

On the positive side, e-commerce will continue to drive industrial demand, with AI likely to serve as a kickstarter for consumer shopping. “AI-mediated shopping could approach 25% of the total potential market for online sales globally by 2030 from below 5% currently,” the report commented.

In addition, the growing drive to lease new efficient space that can preserve or improve margins has helped new industrial leasing in 1H 2025 and given an impetus to lower-cost markets with strong logistics infrastructure for superregional distribution. New leasing rose significantly quarter-over-quarter in markets like Dallas, Chicago, the PA-1-78/81 Corridor, and Greenville-Spartanburg,

New manufacturing construction spending in Southern states hit $134.2 billion over the past year, more than the rest of the country combined. By comparison, private construction spending in the West totaled $56.9 billion, in the Midwest $52.2 billion and in the Northeast $7.6 billion.

Industrial demand in 1H 2025 was led by inland intermodal markets including Dallas, Phoenix, Kansas City, the Inland Empire, Greenville, SC, Raleigh, Savannah, Columbus, Washington, DC and Houston.

Industrial sales volume rose 12% in 1H 2025 compared to 1H 2024 but still has lagged the overall 16% growth rate. Fluctuating cap rates remain in the 5% range.

The report found private capital continues to account for nearly half of total acquisitions as users up their stakes.

“Users have found more opportunity than the buyer type has seen in years, growing from 3% share in 2022 to 10% share in 2025,” the report noted.