Industrial Vacancy Climbs But Will Peak This Year, Colliers Says

The wave of pandemic-era warehouse development will weigh on the industrial sector in the near term, but stabilization is expected by the end of the year, according to a new report from Colliers. 

Industrial vacancy, at 7.1%, is at its highest level since 2015, but the 14-basis-point increase from the previous quarter was the smallest since the end of 2022. The delivery of new construction — which peaked at the end of 2022 with 711M SF under development — is expected to nudge vacancy higher, but the wave will crest by the end of the year, Colliers predicts. 

“Across all U.S. regions, vacancy rates are rising more gradually, because construction completions are falling below pre-pandemic levels, narrowing the gap between supply and demand,” the report’s authors said. 

The 65M SF of new space that was completed in the first quarter is the lowest total volume since 2019 and less than half of the 163M SF that was delivered in the third quarter of 2023, which marked the peak of quarterly completions.

Another 279M SF of industrial space is under construction, but new starts fell dramatically as the Federal Reserve began a streak of interest rate hikes in March 2022 and investors began to worry about potential oversupply. 

The construction pipeline is expected to further contract to around 250M SF by the end of the year, according to Colliers. 

Net absorption across the industrial sector was 35M SF in the first quarter, roughly 4M SF ahead of the same period last year. Despite the elevated vacancy rate, asking rents grew 6% year-over-year.

The impacts of President Donald Trump’s trade war haven't yet had time to fully percolate through the economy, and there is a wide range of opinions about what new tariff policy means for industrial space. 

Uncertainty around where levies will land could be a drag on transaction volume, but Colliers doesn’t expect the impact to be strong enough to derail the stabilization of the sector. 

“Although the uncertainty about the economy, tariffs, and policy duration may delay a significant rebound in demand over the coming quarters, net absorption is expected to remain positive through the end of 2025,” the authors wrote. 

Some early impacts of tariff policy are being felt in port cities, where a steep decline in Chinese imports has shifted supply chains and space needs. 

Prologis, the world’s largest warehouse owner and developer, said leasing activity was down roughly 20% in the first two weeks of April compared to the prior year. The firm cut up to $1B from its potential development pipeline to maintain its full-year guidance at the end of the first quarter. 

“Prior to April 2, industrial fundamentals were improving, and had it not been for the recent uncertainty from global tariffs and their downstream impacts, we would have raised our expectations for 2025,” Chief Financial Officer Tim Arndt said during the call. “Instead, we're electing to maintain earnings guidance, as there are no policy conclusions right now to plan differently.”