From Post-COVID Boom to Balanced Reality: 2025 Industrial Market Insights
As we wrap up 2025, the industrial real estate sector across North America faced headwinds from U.S. trade policies and tariffs, leading to softened demand and slower growth. According to Lee & Associates' Q4 2025 Market Report, net absorption, deliveries, and rent increases all decelerated, marking a shift from the post-COVID boom. However, pockets of resilience—especially in logistics-heavy markets—suggest a potential rebound if tariff uncertainties resolve. Here's a breakdown of the highlights, tailored for investors, brokers, and industry watchers.
Overall Market Trends
- Demand Slowdown: U.S. net absorption totaled 112.5 million square feet (SF) in 2025, a 13% drop year-over-year and a staggering 78% decline from the 2021 record of 519 million SF. Over the last three years, annual absorption averaged 137.9 million SF, down from 388 million SF between 2020-2022. In Canada, overall absorption was negative, pushing the vacancy rate to its highest since 2017.
- Supply Moderation: New deliveries reached 253.6 million SF in the U.S., down 52% from 2023's peak. This brings completions back to pre-COVID levels (averaging 211 million SF annually from 2015-2019). Canada saw similar trends, with rent growth slowing to under 2%.
- Rent and Pricing Pressures: U.S. rent growth hit just 1.3%—the lowest since 2011—compared to over 10% in 2022. Warehouse-distribution spaces (68% of the 19.6 billion SF market) saw demand fall 16% from 2024. Uncertainty around tariffs has led to inventory volatility, delaying expansions, though onshoring could boost manufacturing space needs if clarity emerges from upcoming Supreme Court rulings.
- Vacancy and Cap Rates: U.S. vacancy averaged 7.6%, while Canada's was tighter at 4.8%. Cap rates stood at 7.3% in the U.S. and 5.6% in Canada, reflecting varied investor sentiment.
Key risks include oversupply in Sunbelt and Midwest markets like Austin, Indianapolis, Phoenix, and San Antonio, where big-box completions may take years to absorb. On the bright side, top absorption markets included Dallas/Fort Worth (26 million SF), Phoenix, Columbus (OH), Houston, and Indianapolis.
Standout Market Metrics
Here's a snapshot of top performers across key categories (based on CoStar-defined territories; note: Canadian figures in CAD):
| Category | Top Markets | Details |
|---|---|---|
| Lowest Vacancy Rates | NE, Omaha (3.0%) BC, Vancouver (4.1%) MN, Minneapolis (4.2%) OH, Cleveland (4.3%) ON, Toronto (4.4%) | U.S. Index: 7.6% Canada Index: 4.8% |
| Highest Market Rents/SF (Annual) | CA, San Francisco ($28.49) CA, San Diego ($22.51) FL, Miami ($20.76) NY, New York ($19.75) NY, Long Island ($19.35) | U.S. Index: $12.12 Canada Index: $12.00 CAD |
| Highest Sale Prices/SF | CA, San Francisco ($445) CA, Orange County ($349) CA, San Diego ($326) BC, Vancouver ($324 CAD) CA, Los Angeles ($323) | U.S. Index: $160 Canada Index: $205 CAD |
| Most SF Under Construction | TX, Dallas-Fort Worth (38M SF) TX, Houston (27M SF) DC, Washington (23M SF) GA, Atlanta (20M SF) AZ, Phoenix (19M SF) | U.S. Index: 330M SF Canada Index: 34M SF |
| Largest Inventory by SF | IL, Chicago (1.43B SF) TX, Dallas-Fort Worth (1.23B SF) CA, Los Angeles (964M SF) ON, Toronto (902M SF) NY, New York (888M SF) | U.S. Index: 19.6B SF Canada Index: 2.4B SF |
| Lowest Cap Rates | BC, Vancouver (4.2%) ON, Toronto (4.7%) CA, Inland Empire (4.8%) CA, Los Angeles (5.2%) CA, Orange County (5.4%) | U.S. Index: 7.3% Canada Index: 5.6% |
Spotlight on Select Markets
The report dives into specific regions, showing varied performance:
- Calgary, AB (Canada): Ended strong with vacancy dropping to 3.14% (from 4.04% in Q3) and Q4 absorption surging to 2.73 million SF. Construction is ramping up (3.77 million SF underway), with big-box leasing driving activity. Sales averaged $192.88/SF, up from prior quarters. Top deals included a 331K SF sale to Minhas Furniture for $41.5M CAD and a 252K SF lease to Modine of Canada.
- Phoenix, AZ (U.S.): Transitioning from rapid growth, with Q4 absorption at 3.44 million SF and vacancy steady at 13.7%. Over 23.5 million SF under construction signals optimism, but tenant selectivity is rising. Rents averaged $13.32/SF NNN, with sales at $201.43/SF. Notable transactions: Walmart's 1.28M SF purchase for $152M and Amazon's 1.06M SF lease.
For Southern California markets like Los Angeles (where vacancy is 6.4%, rents $17.67/SF, and sales $323/SF), the report notes balanced conditions amid broader tariff impacts—ideal for logistics firms eyeing West Coast hubs.
Looking Ahead to 2026
While 2025 was a cooling period, the industrial sector's fundamentals remain solid, especially for e-commerce and supply chain players. Tariff resolutions could spark onshoring, boosting manufacturing demand. Investors should watch oversupplied markets for opportunities as absorption catches up. For the full report contact me directly.
If you're navigating industrial deals in Long Beach or beyond, feel free to reach out, let's discuss how these trends impact your strategy!
