Industrial Insights - September 2025
Budget Season
All operators currently manage budget initiatives involving real estate analysis. Forecasting typically includes lease commitments for 2026-2027 to prepare for relocation expenses and rent adjustments, ensuring projects align with variable equipment, automation, and construction timelines.
National Market Trends
Leasing Strength:
- June 2025 U.S. industrial leasing reached "60 million square feet, a figure that was 24% higher than June 2024" - First half 2025 totaled 424 million square feet, an 8.5% increase year-over-year
Driver Factors:
- Flight to quality: occupiers leveraging concessions in newer buildings while vacating older facilities - Early renewals: approximately 34% of 2025 leasing involved tenants securing space ahead of schedule - 3PL outsourcing: retailers and wholesalers increasingly engaging third-party logistics providers
3PL and Manufacturing Lead Demand
- 3PLs dominated with "34% market share and a 25% increase in leasing from this time last year" - Manufacturing demand rose 51% annually, though representing only 10.8% of national demand - 3PL bulk space (100,000+ SF) increased 8.0% mid-year
Supply and Demand Dynamics
"Industrial construction completions totaled 132.6 million square feet, the lowest first-half delivery since 2017" while net absorption remained weak at 3.5 million SF in Q2—"the weakest since 2010." Vacancy increased to 6.6%, the highest level since 2014.
Construction starts declined for 11 consecutive quarters, though decline rates have slowed.
Lease Expiration Pricing
Tenants facing 2025 expirations will see rents approximately "30% higher," with Northern and Central New Jersey experiencing increases exceeding 2X. The gap between market and renewal rates is expected to narrow as post-COVID five-year leases mature.
Landlord vs. Tenant Markets
Markets divide into four categories:
Landlord-Favorable: Chicago, Houston, Kansas City, Louisville, Sacramento, Minneapolis, Northern Virginia
Lean Landlord-Favorable: Charlotte, Cleveland, Detroit, Silicon Valley, South Florida, Pittsburgh, Columbus, Greensboro
Lean Tenant-Favorable: Inland Empire, Los Angeles, Dallas-Fort Worth, Orange County, Northern NJ, Boston, Portland, San Diego, Atlanta
Tenant-Favorable: Austin, Phoenix, Seattle, Las Vegas, Reno, Philadelphia
Record Renewals Approaching
"Nearly 1.7 billion square feet of industrial space will come up for renewal nationwide" between 2026-2028, the largest renewal wave on record. This will pressure tenants to consolidate into newer facilities, potentially triggering significant negative absorption in older properties.
Top Five Markets for Expiring Space (2026-2028):
1. Inland Empire: 157.3M SF (24% of inventory)
2. Chicago: 135.1M SF
3. Dallas-Fort Worth: 112.6M SF
4. Los Angeles: 97.4M SF
5. Northern-Central NJ: 83.2M SF
Port of Long Beach Insights
Dr. Noel Hacegaba, COO, highlighted three critical supply chain developments:
Cargo Distribution: Approximately "one-third of containers remain in Southern California" while two-thirds move inland to Chicago, Dallas, Memphis, and Kansas City—meaning port volume doesn't directly correlate with local warehouse demand.
Rail Expansion: The Pier B On-Dock Rail Support Facility ("Project Beast") represents a $1B+ investment with $300M+ federal backing, designed to increase ship-to-train capacity to 4.7M TEUs annually from current 25% utilization.
Truck Efficiency: The Port is implementing a universal appointment system across terminals to reduce missed pickups and improve local operator velocity.
Southern California Market Segments
Los Angeles: Vacancy mid-4s; concessions and tenant improvements becoming standard
Orange County: Vacancy approximately 4.4%; sublease space rising with moderating asking rents
Inland Empire: Vacancy stabilized in high 7s to low 8s; increased tenant choices and sharper landlord pricing
Next Steps
Teams planning operational changes or facing lease events within 12-36 months should initiate strategy conversations to align supply chains with footprint requirements.