**Q3 Industrial Market Overview: Tenants Are Coming Back—Sort Of**
After several quarters marked by uncertainty driven by consumer sentiment, a softening job market, and shifting tariff policies, industrial tenants began returning to the market in Q3 2025, taking up industrial space once again.
Reports from leading commercial real estate firms highlighted a rise in net absorption compared to the previous quarter, while vacancy rates held steady despite ongoing—though reduced—deliveries of new industrial properties.
“Industrial occupiers reached an inflection point where operational needs outweighed caution, compelling them to secure space they could no longer delay,” noted JLL in their Market Dynamics report. This shift narrowed the gap between supply and demand, signaling improving market stability heading into the end of the year, as also emphasized by CBRE.
According to Colliers’ analysis, tenant demand surged to its highest level since Q1 2023. At the same time, new supply deliveries have slowed significantly in recent months. However, Lee & Associates offered a more tempered view, stating that while absorption was up, overall demand remained soft and lagged behind new supply volumes. Tenant growth also continued to be affected by tariff worries and elevated interest rates.
**A Shift Toward Modern Facilities**
A prominent trend during the quarter was the continued “flight to quality.” Cushman & Wakefield reported that large corporate occupiers were consolidating their supply chain operations into modern, high-utilization regional hubs. CBRE and JLL echoed these findings, with JLL highlighting that “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 facilities are facing increasing pressure as tenants adjust their preferences toward modern assets with greater operating efficiencies.
**Space Size as a Differentiator**
The size of industrial properties played a major role in leasing activity this quarter. Lee & Associates reported higher vacancy rates in larger industrial buildings, particularly those above 100,000 square feet, while facilities under 50,000 square feet remained in strong demand.
CBRE noted soft leasing activity for very large facilities exceeding 700,000 square feet, with smaller mid-sized spaces (100,000 to 300,000 square feet) witnessing the most substantial year-over-year growth. Cushman & Wakefield added that small-bay warehouses under 100,000 square feet had the tightest vacancy rates, while larger buildings of 500,000 square feet and above saw more elevated vacancy levels.
**Looking Ahead: Q4 2025 and Early 2026**
Looking to the remainder of the year and into 2026, forecasts across the board indicate a continued slowdown in new construction and tightening in vacancy rates. JLL pointed out that protracted permitting and construction timelines, coupled with a more disciplined development strategy, should keep new supply additions constrained well into 2026. This will further support the market’s ongoing rebalancing.
CBRE estimated that currently underway construction represents just 0.7% of the existing industrial inventory. The limited pipeline of first-generation space expected to complete in 2026 should help keep the vacancy rate from rising significantly.
Rental rates are also expected to stabilize, according to Colliers, as growth returns to historic averages. Cushman & Wakefield predicted tenant demand will concentrate in modern facilities, though vacancies may still increase slightly before leveling out. They added that while speculative construction starts are subdued, build-to-suit demand should remain healthy, especially among large corporate users seeking customized and efficient operational footprints.
In summary, Q3 2025 marks a turning point for the industrial sector. While caution still exists, clear signs point to returning demand, albeit highly selective. The market is gradually finding its footing, with modern, midsize facilities leading the charge into what could be a more balanced 2026.
