'It's Pretty Wild': How (Most) Industrial Got Its Mojo Back
A dramatic falloff in new development, growth in domestic manufacturing and increased demand created by data center development are combining to bring down vacancy rates in major U.S. industrial markets.
Well, apart from the West Coast.
That was the view of a group of sector experts who laid out the prospects for the industrial sector at the National Association of Real Estate Editors Conference in Miami this week.
When it comes to the impact of Covid, offices get most of the headlines. But it had a dramatic impact on the industrial market as well, primarily because it instigated a wave of overdevelopment that drove vacancy rates from around 3% in 2021 to 7% in 2025, data from Cushman & Wakefield showed.
“That [vacancy peak] is now in the rearview mirror,” said Cushman & Wakefield U.S. Vice Chair Christopher Thomson, whose license plate reads “Sell Dirt.”
Absorption will rise and vacancy rates will fall partly because the market has course-corrected and new development starts have dropped dramatically, said Clay Thelen, CEO at Becknell Industrial, a Midwest-focused industrial developer.
New industrial construction hit 670M SF in 2023, but that figure has fallen to 220M SF today, Thelen said.
Markets seeing strong population growth, like Houston, Dallas-Fort Worth, Phoenix and Miami, are posting positive absorption levels. In contrast, West Coast markets like Los Angeles’ Inland Empire continue to suffer from high levels of oversupply.
“The whole West Coast is getting smoked,” said Reed Vestal, CEO of Houston-based industrial developer, investor and broker Junction Commercial Real Estate.
Low construction is combining with solid demand from two sources, one an old story in industrial, one more recent: e-commerce and manufacturing.
While e-commerce as a proportion of all sales has not continued to skyrocket, it remains at a healthy 18%, Thelen said.
As for manufacturing, Becknell said the firm’s data found that manufacturing-related industrial demand had risen from a fairly steady 19%-20% of total demand a few years ago to around 25% today, and the firm predicts that could reach 30% by 2028.
“Typically, a manufacturer isn't going to ship and store in the same facility in which they produce, and so they'll build an industrial facility that's mission critical to their operations close by,” he said.
Vestal said Houston and Dallas-Fort Worth are areas where large-scale industrial development is viable as population growth continues to push demand up.
There is a particularly strong need at the big-box end of the market.
“Houston wasn't historically a million-square-foot type of city, Dallas-Fort Worth was, but there's more million-square-footers built in Houston in the last five years than anywhere in the country,” Vestal said. “I think there's one available right now, so it's pretty wild. We can't build them fast enough.”
A potential cloud on the horizon is the availability of cheap nonrecourse debt for developers, a situation that can fuel overbuilding.
Vestal added that while data centers are not necessarily competing for land in markets like Houston, they are in North and West Texas markets.
Instead, Houston is seeing demand from companies that provide services for those data centers and artificial intelligence companies — in that sense, the data center boom is spilling over into adjacent industrial markets.
“It is affecting the groups that are supplying these data centers, so it's driving rents up, it's driving land pricing up, and it is making an impact,” Vestal said.
