Industrial Construction Hits Decade Low Amid Tariff Pressures
July 9, 2025
Industrial construction starts in 2025 may drop to their lowest point in over a decade, totaling just 86.9 million square feet through May, according to CommercialCafe’s latest monthly report.
Analysts point to new tariffs imposed by the Trump administration as a key factor weighing on development. This slowdown could undermine earlier expectations of a strong rebound in 2026.
Persistently high interest rates have already driven up construction costs, stifling new projects. But the most significant threat, according to the report, may be a 50% tariff on imported steel. In 2024, U.S. firms imported $32 billion worth of steel—demand that far exceeds domestic production capacity. The situation is further complicated by the deeply integrated supply chains between the U.S. and Canada.
The ripple effects of higher tariffs on steel and aluminum may go beyond construction. Manufacturers looking to reshore operations could instead shift production out of China and into lower-tariff countries like Vietnam, India, or Mexico.
“The uncertainty of the tariff policy may be a heavier burden on decision makers than the weight of the tariffs established thus far,” said Peter Kolaczynski, director at CommercialEdge.
Tariff-related uncertainty is also slowing leasing activity. Many tenants have delayed leasing decisions, which has slowed absorption of newly delivered industrial space. The national industrial vacancy rate stood at 8.5% in May—down 30 basis points from April, but 290 basis points higher than May 2024.
Despite the overall slowdown, several markets remain active. Nationwide, 342.3 million square feet of industrial space—or 1.7% of total inventory—was under construction in May, and 117.8 million square feet had been delivered year-to-date, according to Yardi Research.
Top Markets for Industrial Construction
- Dallas–Fort Worth: 28.09 million SF (2.8% of inventory)
- Phoenix: 16.87 million SF
- Houston: 14.9 million SF (more than double the year before)
- Memphis: 12.52 million SF
- Atlanta: 10.19 million SF
- Boston: Smallest pipeline at 0.99 million SF
Rental Rates and Growth
The national average in-place rent for industrial space was $8.54 per square foot in May, up $0.05 from April and 6.3% year-over-year. New leases signed in the past year carried an average premium of $1.79 above existing rents—down from $2.25 in May 2024.
Markets with the highest new lease premiums included:
- Bridgeport: $4.01 higher than market average
- Miami: $3.82
- New Jersey: $3.59
- Charlotte: $3.58
- Seattle: $3.06
Leading the nation in rent growth:
- Miami: Up 9.8% to $12.72/SF (despite an 11.7% vacancy rate)
- New Jersey: Up 9.2% to $11.89/SF
- Atlanta: Up 9.1% to $6.33/SF
- Dallas–Fort Worth: Up 8.6% to $6.46/SF
- Philadelphia: Up 8.3% to $8.33/SF
Sales and Investment Trends
From January to May, $21.4 billion in industrial properties traded hands at an average of $133 per square foot.
Top Performers:
- New Jersey: $1.48B in sales, $276.08/SF (3rd highest price nationally)
- Dallas–Fort Worth: $1.275B
- Chicago: $1.049B
- Los Angeles: $929M
- Phoenix: $862M at $187/SF
Other top 10 metros by sales volume included the Twin Cities, Inland Empire, Orange County, Houston, and Charlotte.
Regional Highlights
- West: Higher-than-average vacancies, including Denver at 11.1%; California markets remain the most expensive.
- Phoenix: Leading in industrial development, but with a slower pace than 2024 (16.9M SF vs. 38.7M SF).
- Midwest: Twin Cities had the region’s highest rents, though still below the national average. Chicago led in investment volume.
- South: Atlanta and Tampa maintained below-average vacancy rates. Baltimore led in sales prices at $176/SF.
- Northeast: New Jersey dominated the region with newly signed leases averaging $15.48/SF, far above the in-place rent of $11.89. Boston posted strong rent growth and had the nation’s smallest construction pipeline. Bridgeport was the most affordable and had the lowest vacancy rate. Philadelphia led the U.S. in space under construction, with 8.4 million SF.
Source: GlobeSt.