Industrial

• Global trade dynamics continue to shift under ongoing tariff and policy changes, reshaping supply chains while U.S. logistics demand remains anchored in domestic consumption.

• Industrial occupiers are emphasizing long-term network optimization and expansion, prioritizing strategic locations and future-ready facilities over short-term market fluctuations.

• New development will remain limited as elevated construction costs and compressed margins constrain near-term supply.

U.S. logistics real estate demand is largely insulated from direct impacts of trade-related shocks, a trend supported by longstanding structural characteristics. Only 15 percent of U.S. logistics demand is tied directly to global trade, while 75 percent is tied to locations near population centers for deliveries to U.S. consumers. This anchors demand around major metropolitan areas, providing a stabilizing foundation for logistics real estate, even as trade policies evolve. While port and intermodal hubs are more exposed, the broader market is defined by domestic-facing activity, including e-commerce fulfillment, essential goods distribution, and retail restocking.

Market-level data further underscore the resilient demand drivers. High-population port markets such as Southern California demonstrate that only about 25 percent of occupier demand is directly trade-related. Even in regions with notable import exposure, diversification across industries and sourcing strategies has mitigated downside risk. Industrial real estate user behavior has shifted in 2025 to focus on long-term leasing strategies over the short-term fluctuations in goods sourcing, reinforcing the future-proofed nature of global supply chains. 

Still, the industry remains watchful for tariff-related impacts on consumer spending. An economist characterized today’s landscape as a “bifurcated economy.” Higher-income households, supported by equity market and home equity wealth, continue to spend, while lower-income households are under acute financial strain from high costs and are very cautious with spending. This divergence sustains headline consumption but masks underlying fragility, as real disposable income growth is insufficient to sustain broad-based consumption. Retail sales have remained strong at +4.2 percent year-over-year for the first half (1H) of 2025 but continued pressure leads many economists to believe this will decelerate. As of September 2025, evidence of the cautious consumer is already visible in soft discretionary spending, from home improvement to travel, even as spending on essentials holds up. 

The very structure of global trade is undergoing a transformation, not only because of tariffs, but as part of a broader long-term shift from single-origin sourcing that pre-dates April 2 tariff announcements. A freight expert noted that production is no longer anchored in a single dominant hub but is fragmenting into the “China + many” model. The drivers are both geopolitical and commercial: the United States seeks to reduce vulnerability to Chinese supply chains, while industrial users seek greater resiliency in sourcing. Tariffs imposed on Chinese products since the first Trump presidency have also accelerated diversification of sourcing beyond China, supported by bipartisan efforts during the Biden presidency. Still, as of October 2025, tariffs have not reversed U.S. reliance on imports, as labor competencies, supplier networks, and available resources remain competitive constraints for large-scale U.S. manufacturing. 

User demand in 2026 reflects both macroeconomic concerns and strategic repositioning. New leasing volume, proposals, and tenants in the market grew in Q2 2025 compared to the first quarter as more users shifted their priorities toward long-term supply chain buildouts despite prolonged uncertainty. On the other hand, many occupiers remain cautious, with leasing decisions delayed or escalated to higher executive levels. On net, the pipeline volume of new requirements is healthy, while the pace of leasing remains slower than historical norms.

Occupier behavior varies significantly by industry according to an expert on industrial users, with essential sectors such as food and beverage or health care navigating tariff-related risks more effectively, while others with complex global sourcing models and varying consumer demand are hitting pause as they wait for clarity on materials, energy availability, and cost structures that remain in flux. 

E-commerce demand remains stable but more rationalized, with growth led by logistics users optimizing for automation and fulfillment speed. Online retail continues to capture a growing share, and U.S. e-commerce penetration is projected to reach 30 percent by 2030, up from 24 percent today, according to the U.S. Census Bureau and Prologis Research estimates that this share shift alone would generate 250 million to 350 million square feet of logistics demand by 2030. Retailers’ real estate strategy reflects this: strategies now reflect a reduction in storefronts, down 2.4 percent in total since the pre-pandemic period, and expansion of logistics space to meet e-fulfillment needs, seen in logistics footprints expanding 12 percent in the same period. Retailers and cross-border platforms drive leasing in key hubs while diversifying into secondary and urban markets to meet consumer expectations.

Reshoring is happening for select industries, with investments concentrated in markets in the Southeast and Central United States where lower labor and real estate costs provide long-term advantages. In these areas, manufacturing now accounts for 20 percent of new leasing, up from 13 percent pre-pandemic. An expert on manufacturing leasing says manufacturing activity in the Central United States is experiencing a steady shift, led by light manufacturing and reshoring of high-value technology sectors such as electronics, semiconductors, and components for data centers and consumer devices, along with defense and aerospace companies. While these moves reflect the onshoring of high-value and national security priorities and long-term supply chain strategy, large-scale expansion is still constrained by several structural barriers including power infrastructure, skilled labor availability, and material costs. Advanced manufacturing users, in particular, face challenges filling roles that cannot be automated in the near term, and many are weighing capital outlays for automation as a substitute for labor that is either unavailable or too costly to recruit within the United States. While the trend is positive for manufacturing, the magnitude of growth will likely plateau with the majority of logistics real estate demand still focused on serving consumption.

New supply will remain constrained in 2026, as 2025 year-to-date starts are down 25 percent compared to the 2017–2019 average. As a result, deliveries in 2026 will be down more than 70 percent versus the pandemic peak. In the United States, replacement cost rents are roughly 20 percent above class A market rents, a spread that continues to curtail new supply in most markets. Only Texas and parts of the Southeast are recording an increase in starts; demand in these locations is strong enough to support absorption of new buildings. The build-to-suit share of starts is also rising to historical averages (approximately 20 percent share), indicating emerging scarcity of suitable available buildings and strong demand for best-in-class, tailored facilities. During the recovery stages of prior downcycles, demand is often the strongest for large, new buildings, but with construction of more than 750,000 square feet of buildings down 85 percent according to Prologis Research, big-box scarcity could arise in 2026. 

Access to reliable power infrastructure has emerged as a significant gating factor in the development of new industrial product, contributing to both construction delays and constrained future supply. Across multiple markets, larger users are encountering one- to two-year delays for sufficient power access, with even standard upgrades requiring up to 12 months, according to a development expert. Developers are increasingly forced to pre-purchase power or engage in on-demand energy agreements to secure future capacity, adding both cost and complexity to project planning. The issue is further compounded by energy regulation and pricing volatility, particularly for AI-related and environmental, social, and governance–compliant developments. Consequently, older product is often retained for light manufacturing due to its power availability. 

Innovations in industrial products are evolving in response to rising costs, regulatory pressure, and operational complexity, according to an expert in new construction technology. Developers are experimenting with software-enabled precast panels and thinner slab-laying methods to reduce material usage and manage structural costs. Drones are increasingly deployed for real-time site surveys and construction monitoring, improving reporting efficiency and reducing labor demands. While many of these technologies are in the early stage, they reflect a shift toward simpler, scalable solutions aimed at controlling development risk and maintaining competitiveness in a high-cost environment.

Industrial real estate transactions could fall further as investors recalibrate their needs amid a high cost of capital and navigate uncertainty. The first half of 2025 was marked with volatility with transaction volume in Q1 rising 1 percent versus the same period in 2024, followed by a dip of 6.3 percent in Q2 year-over-year. Cost of capital remains high and previous expectations of transaction volumes have been pushed off as investors focus more on investments they can control. This has driven interest in smaller vehicles where investors can focus on asset selection and active management, recognizing that location, year built, and operator quality have become critical to performance. Data centers have become the latest focus of investor enthusiasm, with construction and capital flows accelerating, pulling from infrastructure and commercial real estate allocation buckets. 

According to a capital markets expert, investors continue to direct money to institutional assets poised for long-term performance. Cross-border investment into the United States has slowed, but domestic capital remains strong, with smaller funds, net asset value real estate investment trusts, and opportunity zone vehicles increasingly active. 

Trade policy changes have created ripples through industrial real estate in 2025 and will continue to shape the future of the sector into 2026, even as the bulk of demand remains centered on consumption. Industrial users are navigating the changes to global supply chains and heightened economic uncertainty while shifting focus to long-term drivers amidst volatility. Trade and economic uncertainty will continue to introduce volatility to industrial demand into 2026.