**Q3 Industrial Market: Tenants Are Coming Back—Kind Of**
After several quarters marked by uncertainty due to fluctuating consumer sentiment, a softening labor market, and evolving tariff policies, industrial tenants made a noticeable return in Q3, taking action and absorbing new industrial space.
According to insights from leading commercial real estate firms, net absorption improved over the previous quarter. Despite ongoing—though reduced—new deliveries, vacancy rates remained relatively steady.
JLL, in its latest market report, explained, “Industrial occupiers reached an inflection point where operational needs outweighed caution, compelling them to secure space they could no longer delay.” This resurgence in leasing activity is narrowing the gap between supply and demand, signaling greater market stability heading into the end of the year. CBRE echoed these sentiments in its U.S. Industrial Figures report.
Colliers noted that “tenant demand surged to its highest level since Q1 2023,” despite supply deliveries continuing at a muted pace. However, not all data painted such an optimistic picture. Lee & Associates reported that, although net absorption did improve, overall demand was lackluster and failed to match the volume of newly delivered space. Ongoing concerns about tariffs and interest rates continued to hamper tenant expansion.
**Flight to Quality: A Demand for Modern Space**
A significant trend in Q3 has been the shift toward newer, higher-quality industrial facilities. Cushman & Wakefield observed that large corporate users are strategically optimizing their supply chain networks by consolidating operations into modern, high-efficiency regional hubs—a trend that CBRE and JLL also affirmed.
JLL noted, “Class A properties with contemporary features, efficient layouts, and strategic locations continue to command significant premiums and attract the majority of leasing activity.” In contrast, older industrial properties are facing mounting pressure, as tenants increasingly seek modern, efficient facilities.
**Size Does Matter**
Not all industrial spaces are equal when it comes to tenant interest. Lee & Associates found that smaller buildings—those under 50,000 square feet—are experiencing the greatest demand. Larger properties, particularly those exceeding 100,000 square feet, are dealing with higher vacancy rates.
CBRE reported relatively limited leasing activity for mega facilities over 700,000 square feet, while mid-sized assets (100,000 to 300,000 square feet) experienced the most significant year-over-year leasing gains.
Cushman & Wakefield further highlighted that small-bay warehouses under 100,000 square feet continue to maintain the tightest vacancy rates, whereas larger buildings over 500,000 square feet saw more elevated vacancy levels.
**Looking Ahead: Q4 and Into 2026**
As 2025 winds down, forecasts suggest continued moderation in construction activity and ongoing compression in vacancy rates. JLL noted that “a disciplined development strategy, combined with lengthy permitting and construction timelines,” will likely constrain new supply well into 2026, contributing to market rebalancing.
CBRE’s data showed that the current construction pipeline amounts to just 0.7% of existing inventory. The limited amount of newly built, first-generation space expected for delivery in 2026 is likely to help stabilize vacancy rates. JLL analysts agreed, stating that constrained new supply would support this balance.
In terms of rents, Colliers predicted that pricing will begin to stabilize, returning to historic growth trends over the coming quarters.
While demand is forecasted to remain strong for newly built, high-quality warehouses, Cushman & Wakefield expects vacancy rates to rise slightly before stabilizing. The continued slowdown in construction starts will be a contributing factor into 2026. However, the firm remains bullish on build-to-suit projects, which are expected to stay active as major occupiers continue seeking customized, efficient facilities.
As the industrial sector emerges from a period of caution, the next year will likely be shaped by a selective recovery and a flight to efficiency, with new builds and mid-sized spaces continuing to capture the lion’s share of tenant interest.
