Versatile Mid-Sized Facilities Become Preferred Option For Industrial Tenants

According to JLL’s latest industrial market dynamics report, demand is rising for flexible industrial spaces and short-term leases in key strategic areas as companies respond to shifting trade conditions fueled by tariffs and global economic uncertainty.

The report notes that escalating trade tensions and inflationary pressures are pushing businesses to reevaluate their operations and real estate strategies. Many companies have paused expansion and adopted conservative hiring practices, particularly those in sectors reliant on exports or imported materials. Industries most affected by trade-related volatility include manufacturing, agriculture, and automotive.

Despite the challenging landscape, new types of industrial tenants have emerged in recent quarters, including clean energy firms, data center service providers focused on hardware salvage, and specialized cleaning companies. Still, core sectors such as logistics, third-party logistics, construction materials, and manufacturing continue to dominate leasing activity.

In the first quarter, industrial leasing activity rose 7.5% from the previous quarter, reaching 123.3 million square feet. Versatile mid-sized facilities—those ranging from 50,000 to 250,000 square feet—made up 43% of all leases, a sign of their consistent demand and lower volatility over the past five years. In contrast, demand for properties over 750,000 square feet has proven more cyclical and unpredictable.

The overall vacancy rate edged up to 7.3%, increasing by 20 basis points from the previous quarter due to continued deliveries of unoccupied space. However, net absorption saw a year-over-year jump of 43.4%, totaling 40 million square feet, supported by robust leasing activity and several large build-to-suit move-ins. The automotive sector played a major role in this growth, accounting for 4.3 million square feet, with Tesla occupying 2.3 million in Texas and Toyota opening a two-million-square-foot battery plant in North Carolina.

While the influx of vacant buildings has temporarily pushed vacancy rates higher, JLL expects this trend to be short-lived. Industrial deliveries held steady at 79.6 million square feet from the prior quarter, but the pipeline has shrunk nearly 30% year-over-year to 253.2 million square feet—the lowest level since 2015. Of that, nearly 87% is expected to be delivered within the year.

Meanwhile, the report highlights an urgent need to modernize U.S. manufacturing infrastructure, noting that the average facility is over 50 years old. Manufacturing buildings now represent 16% of the current industrial pipeline—a 14.2% increase year-over-year. New leasing activity in this sector also rose 17.4% quarter-over-quarter, indicating renewed investment in production space.

Source: GlobeSt.