Industrial Demand Overtakes New Supply As U.S. Market Begins To Tighten

After several years of rapid warehouse development, the U.S. industrial real estate market is showing signs of tightening as tenant demand has begun to outpace new construction.

According to Colliers, net absorption reached 58.9 million square feet during the second quarter, surpassing the 53.4 million square feet of new industrial space delivered. It marks the first time since 2022 that occupier demand has exceeded new supply, signaling that the market is gradually working through the wave of speculative construction that followed the pandemic-era logistics boom.

Demand also continued to strengthen from earlier in the year. Net absorption increased from 50 million square feet in the first quarter and more than doubled the 27.5 million square feet recorded during the same period last year. At the same time, deliveries slowed sharply from 74.7 million square feet a year ago, helping reduce the national vacancy rate to 7.3%, down slightly from the previous quarter.

Regional Markets Tell Different Stories

Market conditions varied widely across the country. The South remained the nation’s most active industrial region, accounting for roughly half of all second-quarter absorption with 29.3 million square feet. Houston led the country with 7.5 million square feet of net absorption, followed by Dallas-Fort Worth at 4.7 million square feet and Atlanta at 4.5 million.

Despite that strong leasing activity, the South continues to carry the largest development pipeline and the highest regional vacancy rate at 8.4%. Nearly half of all industrial space under construction nationwide is located in the region, led by Dallas-Fort Worth, Houston and Atlanta.

The Midwest remained the country’s tightest industrial market, posting a vacancy rate of just 5.4%. Demand narrowly exceeded new deliveries during the quarter, while Columbus and Indianapolis ranked among the region’s strongest performers. Indianapolis, in particular, recorded a significant year-over-year decline in vacancy.

In the West, leasing activity outpaced construction by a wide margin. Net absorption totaled 16 million square feet compared with only 8.6 million square feet of new deliveries. Los Angeles and Phoenix led regional demand, while several West Coast markets—including the San Francisco Bay Area, Seattle, Portland and San Diego—reported negative absorption.

The Northeast delivered the weakest performance. The region absorbed only 573,000 square feet while adding 5.2 million square feet of new inventory. Vacancy climbed to 8.1%, and the New York metropolitan area posted nearly 4.9 million square feet of negative absorption.

Development Activity Begins To Recover

Developers are cautiously returning to the market after pulling back over the past year. The national construction pipeline expanded to 314.3 million square feet during the second quarter, representing an 8% increase from the prior quarter and a roughly 15% gain from its low point at the end of 2025. Even so, Colliers expects new development to remain below previous highs as elevated construction costs, stricter lending conditions and higher vacancies in some markets continue to limit speculative building.

Rent Growth Remains Under Pressure

While demand has improved, rental rates have yet to respond. Average asking rents for warehouse and distribution space declined 1.6% from a year earlier to approximately $10.36 per square foot. Pricing has remained relatively resilient in the Midwest and select Southern markets, while rents have softened in several coastal markets and areas where new supply has outpaced demand.

The latest figures suggest the industrial sector is entering a more balanced phase, with slowing deliveries allowing stronger tenant demand to gradually absorb excess inventory. Although conditions remain uneven across regions, the market appears to be moving away from the oversupply concerns that emerged during the industry’s record construction cycle.

Source: GlobeSt