Tenants Continue Shifting from Older Facilities to Newer Properties Amid Limited Pre-Leasing
According to CoStar’s latest outlook, vacancy across the U.S. industrial real estate sector is expected to rise further, even as overall demand remains broadly in line with levels recorded over the past two years.
At the start of 2026, the national industrial vacancy rate stands at 7.5% and is projected to increase modestly in the near term, reaching a peak of approximately 7.8% by the end of the year.
While net occupancy posted healthy gains toward the end of 2025, full-year net absorption finished 11% below 2024 levels. At the same time, average annual rent growth remained subdued at just 1.5%, near its lowest point in more than a decade.
The anticipated uptick in vacancy during 2026 is expected to place additional pressure on rents, pushing growth closer to 1.0% before conditions begin to stabilize and improve.
Over the 2026–2027 period, average annual rent growth is forecast to reach 2.2%, consistent with prior projections. As vacancy trends begin to reverse toward the end of 2026, annual rent growth is expected to accelerate to roughly 2.8% by the close of 2027, although this would still trail the pre-pandemic five-year average.
Compared with the previous quarter’s forecast, expectations for 2026 have improved slightly, driven by a return to positive net absorption in the fourth quarter of 2025. As a result, the projected peak vacancy rate is now marginally lower than previously anticipated. Nevertheless, rent growth is expected to remain constrained in the near term.
Net absorption is projected to improve in 2026 relative to the prior year, but tenant demand remains weaker than pre-2023 norms. This moderation is largely tied to slower growth in real retail spending, excluding vehicles, which Oxford Economics expects to fall below 3% in 2026.
Soft consumer spending on physical goods since the second half of 2025 has weighed heavily on logistics facilities, where activity has slowed and availability has climbed above 10%. This trend continues to pressure midsized industrial properties—those ranging from 100,000 to 500,000 square feet—where the bulk of available space is concentrated.
On the supply side, new industrial construction has declined sharply. Construction starts fell to a 10-year low in 2025, totaling just 263 million square feet—less than half the volume recorded in 2022. This pullback is expected to limit new supply in 2026 and 2027, helping vacancy begin to ease after reaching its peak.
However, despite the slowdown in new starts, a pipeline of speculative projects already under construction is scheduled for delivery over the coming quarters. These additions are likely to continue placing near-term pressure on occupancy levels.
Although the U.S. industrial vacancy rate is forecast to crest near 7.8% before gradually declining through 2027, the risk of a mild recession could push vacancy higher. Freight market indicators continue to signal weakness, particularly during the first half of the year, extending a freight recession that has persisted since 2023.
This prolonged downturn in freight activity has primarily driven negative absorption in older industrial assets, but sublease availability is now rising in newer properties as tenants adjust and right-size their space requirements. With discounted sublease space entering major markets, rent growth—which has already stalled—is likely to face further downward pressure.
Overall, downside risks remain elevated. An escalation or prolonged period of higher tariffs, combined with further weakness in consumer goods spending, could push the industrial vacancy rate into the 8% to 9% range, creating additional headwinds for national rent growth.
Conversely, easing inflation and a rebound in consumer confidence could support stronger-than-expected absorption and rent performance across the industrial sector.
At present, however, persistent economic uncertainty, excess supply, and ongoing trade risks suggest that absorption and rent growth are more likely to fall short of forecasts rather than exceed them.
Source: Original reporting by Juan Arias, CoStar News.
