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**Industrial CRE: Rebalancing in 2025, Outlook for 2026 Remains Nuanced**
Following years of robust development and leasing activity, the industrial real estate sector pressed pause in 2025. Oversupply, slower demand, and delayed tenant decision-making led to a recalibration in the market. Factors like asset quality, location, and functionality became key differentiators in driving performance.
Industry professionals noted that the movements in 2025 represented a shift rather than a downturn. Despite ongoing challenges, the sector continues to show solid fundamentals.
“Generally speaking, relative to a historical perspective, the industrial market in the United States is still on solid footing,” said Jeff Thornton, Executive Vice President at CenterPoint Properties’ Central Region. He went on to note that while the market is no longer operating at the frantic pace seen between 2020–2022, the current environment is more reflective of typical conditions.
**A More Balanced Landscape**
Experts across the board agreed that 2025 was a year of recalibration. “The first half of the year was sluggish in demand, largely due to economic uncertainty,” said Elizabeth Holder, JLL Senior Analyst, Industrial Research. This was exacerbated by fluctuating tariffs that led to delays in leasing decisions. However, she added, the second half saw a rebound as many tenants were compelled to act.
Jordan Nathan, Head of Corporate Investments at Faropoint, echoed Holder’s observations, attributing softening demand to normalized goods consumption and rebalanced inventories.
Certain industrial subsectors performed better than others in 2025. According to Luke Huberman, Vice President and Director of Acquisitions at BLT Enterprises, flex and specialized industrial properties benefited from limited new development and diverse tenant demand. These properties saw success due to layouts suitable for light manufacturing, service industries, and last-mile logistics.
Mason Waite, Senior Managing Director of Asset Management at BKM Capital Partners, noted that constrained supply helped smaller industrial properties maintain favorable lease rates and transact on more landlord-friendly terms.
In contrast, large-format industrial “big box” properties underperformed due to a glut of speculative development. This resulted in higher vacancies and intensified competition—particularly in oversaturated markets.
Steve Reents, Managing Partner and U.S. Chief Investment Officer at BGO, highlighted a performance split between asset classes. He noted a “flight to quality,” with Class A properties—those built after 2020 with high clear heights, trailer parking, cross-docking capabilities, and strong power infrastructure—outperforming their older counterparts.
Geographically, inland and domestic logistics hubs outshone port-dependent regions, according to Reents, driven by their reduced exposure to international trade volatility.
Michael Mullahey, Vice President of Acquisitions at MCA Realty, said that despite uncertainties stemming from the macroeconomic landscape and tariffs, business parks held their ground due to their lesser reliance on logistics operations.
Overall, industry professionals agreed that the market reset in 2025 was a return to normalization rather than a downturn. “Performance was primarily driven by supply imbalance and suite-size mismatch—not overall sector weakness,” Nathan said.
**Deep Dive Into 2026 Expectations**
Experts also shared their insights into what lies ahead in 2026 across several key focus areas.
**Supply Constraints and Market Adjustments**
The industrial development pipeline continues to tighten. Huberman observed much of the present-day construction is concentrated in core markets with high rates of pre-leasing. As a result, these logistics hubs are expected to stabilize sooner. Secondary markets, however, may take more time to reach equilibrium as both tenants and capital providers remain cautious.
Assuming further reductions in federal interest rates, Holder believes that land acquisitions and new developments could increase as better development yields make it more financially feasible.
Still, supply trends in 2026 are expected to remain uneven. “Overbuilt markets will concentrate on absorbing existing inventory,” said Butler. Meanwhile, markets marked by low vacancy and solid demand may experience new, targeted development.
**Risks on the Horizon**
The outlook for 2026 includes various risks beyond oversupply.
– **Macroeconomic Risk**: A potential recession or economic slowdown could influence consumer behavior. “If spending declines, some industrial tenants may choose to scale back or postpone expansions,” warned Butler.
– **Interest Rates and Capital Markets**: Ongoing uncertainty around interest rates may suppress property valuations and limit transaction volume, said Huberman. Nathan noted that capital market disruptions could further delay leasing and investment activities.
– **Trade and Geopolitical Uncertainty**: While the current trade environment is relatively stable, Holder pointed out that this balance is fragile. Geopolitical instability could damage supply chains and trade flows.
Thornton encapsulated these concerns by warning that uncertainty itself is a major headwind. From trade policies to broader macroeconomic and geopolitical dynamics, ambiguity clouds the near-term outlook.
**Diverse Forecasts for 2026**
When looking ahead to 2026, expert predictions were cautiously optimistic.
Reents expressed a favorable outlook, citing long-term demand drivers and strong fundamentals. Mullahey was also hopeful, highlighting leasing interest driven by growth in the manufacturing and AI sectors. Holder expects continued positive momentum, supported by supply chain modernization and U.S.-based manufacturing initiatives.
Others, however, took a more cautious stance. “The market is simply more nuanced than in prior years. Performance will depend heavily on picking the right submarkets and understanding suite-size dynamics,” said Waite.
Huberman agreed, emphasizing that demand for well-located, functional industrial assets will remain resilient. However, performance will be increasingly dependent on location, asset quality, and operational features.
Nathan predicted that fundamentals would stabilize rather than accelerate, with increasing segmentation by suite size and location.
Thornton added a note of caution, pointing out that a softening labor market and potential tariff hikes could pressure performance. “Uncertainty around consumer spending and macroeconomic signals creates demand ambiguity—never a good situation for our business,” he said.
Butler closed the discussion by underscoring that industrial real estate is still a favored asset class. “Backed by long-term demand drivers and robust fundamentals, industrial remains attractive—but expect prolonged periods of volatility as capital markets adjust,” he concluded.
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