The U.S. industrial market is set to enter a new phase in 2025, driven by a return to pre-pandemic demand fundamentals. With shifting consumer behavior and evolving global supply chains, industrial occupiers are adjusting their strategies to ensure resilience, enhance warehouse efficiency, and meet the growing needs of modern consumers. This article explores key trends shaping the U.S. industrial market in 2025, focusing on the impact of third-party logistics (3PL) providers, the flight to quality, and emerging industrial markets.
The Rise of 3PLs and Outsourcing Distribution
One of the most significant trends in the U.S. industrial market in 2025 will be the growing demand for space from third-party logistics (3PL) providers. As the economy becomes more complex and e-commerce continues to drive growth, businesses are increasingly outsourcing their distribution operations to 3PLs for three key reasons: increased import flexibility, capital preservation, and a focus on core business competencies.
Outsourcing to 3PLs offers retailers and wholesalers more inventory flexibility, helping them navigate uncertainties such as labor disruptions, extreme weather events, and geopolitical tensions. With 3PLs handling distribution logistics, companies can focus on driving revenue through product development, sales, and customer service. As a result, 3PLs are expected to account for approximately 35% of all industrial leasing activity in 2025.
Stabilizing Leasing Activity and Low Net Absorption
Despite leasing activity remaining well above pre-pandemic levels, the market is expected to stabilize in 2025 at around 800 million square feet—less than the record-breaking volumes seen in 2021 and 2022. While leasing remains robust, net absorption is expected to be low, as much of the new leasing will come at the expense of older, less efficient facilities.
Buildings constructed before 2000 accounted for more than 100 million square feet of negative absorption in 2024, while newer facilities completed after 2022 recorded over 200 million square feet of positive absorption. This trend is expected to continue in 2025, as demand for modern, high-quality industrial space remains strong, pushing older buildings further into obsolescence.
Flight to Quality and the Challenges for Older Buildings
The ongoing flight to quality in the industrial sector will remain a defining characteristic of 2025. Occupiers will increasingly seek out new, state-of-the-art facilities that offer automation, advanced technology, and employee amenities. As a result, demand for older buildings, particularly those constructed before 2000, will continue to decline, leading to higher vacancy rates in these properties.
For owners of older, vacant buildings, there are three main options: hold the property and wait for the market to rebound, invest capital in modernizing and adding amenities, or sell the building to an owner-occupier who doesn’t require modern features. The latter option may be particularly appealing for buyers seeking to avoid high leasing costs and gain ownership of a functional property at a lower price.
Construction Slows, But New Space Remains Available
The pace of new industrial construction is expected to slow in 2025 due to a reduction in construction starts. While the amount of available space has been abundant in recent years, with over 1 billion square feet of new supply delivered since the first quarter of 2023, a slowdown in construction completions will limit new space availability. Nevertheless, more than 400 million square feet of new industrial space remained vacant in Q3 2024, providing ample opportunities for tenants seeking high-quality space in prime locations.
This relatively high level of first-generation space will continue to support the flight to quality, as occupiers seek out newer, more efficient properties that meet the demands of modern supply chains and consumers.
The E-Commerce Surge and Its Impact on Industrial Demand
E-commerce remains a powerful driver of industrial space demand, and its influence is set to grow in the coming years. In Q3 2024, e-commerce sales accounted for a record-high 23.2% of total retail sales, excluding autos and gasoline, and are expected to reach 25% by the end of 2025. As e-commerce continues to reshape consumer shopping habits, demand for warehouse and distribution space will increase, particularly in core industrial markets that serve e-commerce fulfillment needs.
The surge in e-commerce will continue to fuel demand for industrial space in key markets like the Inland Empire, Dallas-Fort Worth, Atlanta, Chicago, and the New Jersey/Pennsylvania region. These markets are well-positioned to capitalize on the growth of online retail, offering proximity to large consumer bases and access to efficient transportation networks.
Emerging Industrial Markets and the Reshoring of Manufacturing
In addition to established industrial hubs, emerging markets in both the U.S. and Mexico will play an increasingly important role in the industrial real estate landscape. Cities such as Houston, Kansas City, Louisville, Nashville, and Raleigh-Durham are gaining traction as part of the reshoring of manufacturing to North America. This shift is largely driven by the need for supply chain resiliency and the desire to reduce dependence on offshore manufacturing.
Mexico’s industrial market is also seeing growth, with a record-low vacancy rate driving the need for additional U.S.-based distribution centers. These centers will be strategically located near the U.S.-Mexico border or along major north-south highways such as Interstates 29 and 35, enabling efficient storage and distribution of goods manufactured in Mexico. The reshoring of manufacturing, combined with the potential for rising tariffs on products from Asia and Europe, will increase demand for U.S. warehouses, particularly in markets such as San Antonio, Austin, Dallas-Fort Worth, Oklahoma City, and Minneapolis.
A Shifting Landscape for Industrial Real Estate
As the U.S. industrial market enters 2025, the return of pre-pandemic demand drivers will create new opportunities and challenges for occupiers, developers, and investors. The rise of 3PLs, the flight to quality, and the reshoring of manufacturing are key trends that will shape the market in the coming years. As businesses focus on supply chain resiliency, adapting to e-commerce growth, and meeting the demands of modern consumers, the industrial real estate sector will continue to be a critical component of economic growth and development.
Investors and developers will need to carefully navigate this evolving market, considering factors such as location, facility quality, and supply chain needs to position themselves for success in a rapidly changing industrial landscape.
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