by Jake Wilson, on Jun 11, 2025 7:15:00 AM
The U.S. industrial real estate market is undergoing a significant transition. After years of record-breaking speculative warehouse development, supply has finally outpaced demand, pushing vacancy rates to 10-year highs and shifting negotiating power from landlords to tenants.
At Site Selection Group (SSG), we monitor these trends closely to help our clients secure favorable lease terms in this evolving environment.
Source: CoStar
Supply growth slows as developers pull back
Following a surge in new construction that began in 2021, industrial development peaked in Q3 2022, with more than 180 million square feet breaking ground. Deliveries culminated in Q4 2023 and have declined steadily since. By Q2 2025, construction starts had dropped to the lowest level in over a decade.
Developers were bullish during the pandemic, driven by skyrocketing demand and rising rental rates. However, supply eventually exceeded demand, and the market has begun to rebalance.
Source: CoStar
Vacancy rates hit a decade high
The oversupply of speculative development has led to slower absorption and an increase in vacancies. In Q2 2025, the national industrial vacancy rate reached 7.1%—a stark contrast to the 10-year low of 3.78% just two years ago.
Larger warehouse spaces (100,000+ SF) are being hit hardest, with a vacancy rate of 7.6% and an average time on market exceeding 13 months. In contrast, smaller buildings are faring better due to limited new supply:
- 50,000–100,000 SF: 5.6% vacancy
- Under 50,000 SF: 3.8% vacancy
Here are the top 15 U.S. industrial markets (with over 100 million SF of inventory) experiencing the highest vacancy rates:
Market |
Vacancy Rate |
Available SF (Direct) |
| Charleston, SC | 16.10% | 17,503,307 |
| San Francisco, CA | 13.00% | 14,119,997 |
| Austin, TX | 12.80% | 29,571,732 |
| Spartanburg, SC | 12.60% | 13,187,033 |
| Phoenix, AZ | 12.60% | 67,993,197 |
| Savannah, GA | 12.20% | 21,105,121 |
| Reno, NV | 11.00% | 13,716,517 |
| Las Vegas, NV | 10.10% | 24,565,731 |
| Indianapolis, IN | 9.60% | 39,989,497 |
| Stockton, CA | 9.60% | 14,991,425 |
| Charlotte, NC | 9.50% | 40,309,021 |
| San Antonio, TX | 9.50% | 21,526,517 |
| Dallas-Fort Worth, TX | 9.30% | 131,996,127 |
| Memphis, TN | 8.90% | 35,709,147 |
| San Diego, CA | 8.90% | 21,345,938 |
Global and political factors add to uncertainty
Beyond oversupply, market uncertainty is also being driven by political developments and global trade disruptions. Tariff policies have led to a decline in U.S. imports, which in turn affects demand for logistics space. Reduced consumer spending and economic caution may further impact the sector.
However, the push for domestic manufacturing could increase demand for production facilities. While much remains speculative, the current theme is clear: Uncertainty is prevalent across the market.
What tenants need to know
The power dynamic in industrial leasing has shifted. In oversupplied markets, landlords are increasingly offering concessions such as free rent and tenant improvement (TI) allowances to attract occupiers. Although rental rates are still projected to rise, the pace of growth is slowing.
Despite this, tenants facing renewals may still encounter significant rate increases, especially those coming off long-term leases signed before the pandemic. For example, market rents averaged $12.16 PSF in Q2 2025—nearly double the $6.73 PSF average in 2015. Even with rent growth slowing to 2% year-over-year (down from 12% in 2022), lease renewals could still bring sticker shock.
Source: CoStar
How to capitalize on current conditions
Now is the time for tenants to act. Whether negotiating a new lease or preparing for a renewal, early planning is essential to maintaining leverage.
Site Selection Group helps clients:
- Understand local market trends
- Identify and evaluate alternative spaces
- Assess landlord financials and loan maturities
The oversupply presents a rare opportunity for tenants to lock in more favorable terms. With the right strategy, tenants can turn today’s market conditions to their advantage.
