Industrial Development Will Slow This Year, According To CommercialEdge

Industrial development in the U.S. is expected to slow down this year, despite strong demand for data centers and manufacturing buildings, according to CommercialEdge.

The Yardi-owned company forecasts that a significant rise in new construction in 2025 is unlikely.

Across the country, businesses are still working through an oversupply of industrial space built during 2021 and 2022. Industrial starts dropped in 2024 to 236 million square feet, marking a 35% decline from 2023 and more than a 60% drop from 2022, as reported by CommercialEdge.

However, certain regions are still seeing growth. Phoenix remains the leading market with a pipeline of 22.4 million square feet, followed by Dallas-Fort Worth (18.9 million), Houston (12.4 million), and Kansas City, Missouri (11.5 million).

This year, the focus in the industrial sector will largely be on developing data centers and manufacturing facilities, as demand for these spaces persists. CommercialEdge notes that in recent years, warehouses and distribution centers made up 90% of industrial starts.

While there is continued demand for data centers and manufacturing facilities, these developments carry some risk. Data center demand is tied to the ongoing investment in artificial intelligence by technology companies, while demand for manufacturing space could slow if the Trump administration imposes tariffs or if the economy experiences a downturn.

Industrial property performance metrics from the end of last year showed mixed results, with variations by location. Nationally, in-place rents increased to $8.30 per square foot in December, reflecting a 6.6% year-over-year growth. However, the national industrial vacancy rate reached 8% in December, double the rate from two years ago. Vacancies also rose by 50 basis points in December compared to November, according to CommercialEdge. In several cities in the West, though, vacancies remain significantly lower than the national average.

Source: Scotsman Guide