Industrial Markets Adjust Amid Tenant Leverage Gains

Industrial rents decline as tenant leverage grows in 2025, with concessions rising and private equity boosting small-bay investments.

January 16, 2026

Nina Dale

Industrial rents dropped 4.7% since late 2023, marking three consecutive quarters of decline.
Tenant leverage increased, with concessions and free rent at post-2019 highs and escalation rates dropping sharply on short-term leases.
Private equity saw the largest gains in small-bay industrial acquisitions, while REITs and traditional managers pulled back.
Over 31% of industrial leases will expire by 2027, pointing to continued rent repricing opportunities for landlords.

Key Takeaways

Market Overview: Rent and Vacancy Trends

Major US industrial markets are in transition as the CompStak Industrial Rent Index fell 4.7% from its recent late-2023 peak. Rents have declined for three consecutive quarters, as the market corrects from pandemic-driven highs. This comes amid a rising vacancy rate, which increased from 4.0% to 4.4% through Q3 2025, accelerating from previous years and signifying normalization from historically tight conditions.

Despite softer rent conditions, consumer spending in goods-heavy categories—such as furniture, automotives, and sporting goods—rose throughout 2025. This buoyed demand for industrial space connected to distribution and retail supply chains, even as economic uncertainties persisted.

Tenant Leverage and Lease Concessions Expand

Tenants gained leverage in 2025 as landlords expanded concessions to fill vacant space. Free rent periods reached new post-2019 highs: 4.3% of the lease term in bulk buildings and 3.2% in small-bay properties. Short-term leases—particularly those under five years—saw the steepest drops in annual escalation rates. Tenants signing new agreements benefited from both lower rents and more flexible terms.

Lease term lengths increased for the second straight quarter in both bulk and small-bay properties. This suggests some tenants are regaining confidence after earlier trade and policy volatility. Rent declines also slowed in Q3 2025, especially in small-bay space. Still, effective rents remain 8% below the 2023 peak in that segment.

Trade, Inventory, and Port Activity

Trade headwinds persisted as US tariffs on Chinese goods spiked, peaking as high as 135% during spring 2025 and remaining elevated around 47% by year-end. This pressured West Coast port volumes and US manufacturing, with imports from China down nearly 25% year-to-date. By contrast, East Coast ports maintained a slight year-over-year advantage in TEU volume growth.

TEU volume at East Coast ports rose 0.9% year-over-year through September 2025, continuing their lead over West Coast ports amid ongoing tariff-related supply chain shifts.

Logistics managers are reacting to tariff and policy volatility by holding less inventory and incurring higher carrying costs. The November 2025 Logistics Manager’s Index remained above 50, signaling continued sector expansion, but softer than in previous years.

While US manufacturing employment has declined since early 2023, transportation and warehousing jobs continue to rise, reflecting the sector’s growing role in logistics and e-commerce.

Lease Expirations and Repricing Opportunities

More than 31% of industrial leases will expire by the end of 2027. Many of these leases are priced well below current market rates, especially in markets like Dallas-Fort Worth and North/Central New Jersey, where potential rent upticks reach 40% over in-place rents. Los Angeles, in contrast, shows a smaller repricing gap due to more recent peak-period lease executions.

Markets such as Dallas–Fort Worth and New Jersey could see rent increases of up to 40% on expiring leases through 2027, while Los Angeles shows a minimal spread due to newer leases.

Buyer Composition Shifts in Small-Bay Industrial

Private equity emerged as the most active buyer group for small-bay industrial assets in 2025, doubling its share to over 63% of total square footage purchased across major markets. Traditional investment managers and listed REITs decreased their market share, signaling a pullback in risk-averse capital as prices reset and uncertainty increased.

Family offices and private companies also grew their presence, especially in high-demand small-bay markets where leasing momentum remained strong throughout 2025. The willingness of private equity to deploy capital contrasts with REIT caution amid ongoing pricing correction.

Single-Tenant Net Lease: A Notable Outlier

Single-tenant net lease (STNL) industrial continues to outperform the broader industrial market. Rents in the STNL segment are up 94% since 2019, compared to 68% growth across all industrial space. Positive in-place rent spreads signal continued upside for landlords, reinforcing the segment’s resilience despite broader softening.

What’s Next

Industrial markets face cautious momentum moving into 2026, with elevated vacancies, persistently high tariffs, and evolving tenant expectations. Landlords will likely seek to capitalize on lease expirations for potential rent growth, while private capital continues to hunt for value as institutional buyers pull back. Despite these adjustments, underlying structural demand tied to consumer goods and logistics remains firm, pointing to selective opportunities across the sector.