- US industrial net absorption fell by 11.3M SF in Q2 2025 — the first negative quarter since 2010 — bringing year-to-date absorption to just 27M SF.
- The slowdown is driven by high interest rates, rising vacancy, and policy uncertainty around tariffs, which have delayed leasing decisions.
- A recovery in industrial demand is not expected until mid-2026, with 2025 projected to end virtually flat at 2.8M SF of net absorption.
An Industrial Market Cooling Off
Leasing momentum in the US industrial sector has come to a near standstill in 2025, reports NAIOP. According to their latest forecast, the market saw a rare negative absorption of 11.3M SF in Q2 — a sharp reversal after a decade of consistent demand.
This drop was fueled by a trifecta of macro pressures: persistently high interest rates, growing trade policy uncertainty, and decelerating job growth. Year-to-date, net absorption totals just 27M SF — far below historical norms.
Tariffs And Timing
A major contributor to the leasing slowdown is confusion around new US tariff policies. As occupiers weigh the implications on costs and supply chains, long-term leasing decisions are being put on hold. While earlier fears of a trade war have eased, higher tariffs are here to stay — and occupiers will need to adjust.
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Vacancy And Supply Pressure
With 194.6M SF delivered in the first half of 2025 and 466M still under construction, supply is outpacing demand. Vacancy ticked up 50 basis points to 6.7%, and with leasing soft, that trend may continue. Rental rates are expected to flatten or dip in some regions.
Forecast Ahead
- NAIOP forecasts a modest 2.8M SF of net absorption in the second half of 2025.
- Absorption is expected to rebound starting Q2 2026, with 119.3M SF projected for the full year.
- The recovery continues into 1H 2027, with 109.7M SF of absorption forecasted.
In comparison, absorption hit 756.3M SF in 2021 and has declined steadily each year since.
No Recession, But Not Booming Either
The model assumes a 21% chance of recession, but even in a no-recession scenario, growth remains muted. If a downturn does hit, NAIOP projects a deeper drop in 2025 absorption — potentially as low as 34M SF in H2.
Why It Matters
The softening industrial market is a stark contrast to the record-setting years seen during the pandemic boom. Developers, investors, and occupiers will need to recalibrate their strategies amid slower growth, pricing pressure, and shifting global trade dynamics.
What’s Next
Expect a continued wait-and-see approach from many tenants through the end of the year. If tariff policies stabilize and interest rates decline, leasing activity may begin to rebound. However, that turnaround is not expected until mid-2026.
