US 3Q Industrial Market Update

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US 3Q Industrial Market Update

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US 3Q Industrial Market Update

I’m your host Victor ~~Menesce~~ 📝Menasce. On today’s show, we’re talking about a recently published market report on industrial. The U.S. industrial market continued to demonstrate strength and balance in the third quarter of this year, showing clear signs of stabilization after two years of turbulence.

Despite the macroeconomic headwinds from slowing consumer demand to policy uncertainty and tariffs, industrial real estate remains the most fundamentally sound asset across all commercial property types. Cushman & Wakefield just published their third quarter 20~~25~~ 📝24 U.S. industrial market beat where national net absorption reached 45.1 million square feet in the third quarter. That’s a 30 percent quarter-over-quarter increase or a 33 percent year-over-year increase. It marks the strongest quarterly demand reading in more than a year and confirms two consecutive quarters of positive momentum.

Year-to-date absorption stood at 108 million square feet, roughly in line with the same period last year, and it signals a healthy steady-state market rather than one experiencing contraction or overheating.

But there are some things that we do need to pay attention to. The rebound in absorption was broadly based with two-thirds of U.S. markets showing positive demand. Leading the charge were Dallas–Ft. Worth — that’s no surprise — Indianapolis, Houston, Central New Jersey, Phoenix, and Kansas City, each recording more than 3 million square feet of quarterly absorption.

But the key is the flight to quality. That trend remains evident. Buildings constructed since 2020 added 196 million square feet of absorption to date. Older, less functional properties saw 88 million square feet of occupancy losses. So, it’s not just a matter of buying any industrial property. There’s absolutely a flight to quality. It shows that tenants are concentrating on operations in modern, efficient logistics facilities that support automation and higher power needs.

Several markets that experienced softness earlier this year, including Atlanta, Central New Jersey, and San Diego, have now moved back into positive territory. In total, 12 markets posted over 2 million square feet of absorption, doubling the number from the prior quarter.

We’re going to focus a little bit today on Florida. This is an area where we’re active. Florida’s industrial sector continues to show resilience across major metros, and it’s buoyed by strong in-migration, sustained e-commerce demand, and the state’s expanding role as a logistics gateway.

So let’s look at a few of the benchmark markets from the third quarter. And we’ll start with Tampa. They posted 173,000 square feet of absorption for the third quarter, maintaining modest but steady growth after strong gains earlier in the year.

Orlando absorbed 1.55 million square feet, reflecting a robust logistics network. Within a four-hour drive of Orlando you have access to a population of 20 million people. That’s what makes Orlando such a logistics hub for the state of Florida.

You’ve got Fort Myers and Naples. They came in nearly flat with a negative 22,000 square feet, and it’s suggesting short-term equilibrium after several quarters of expansion.

Saint Petersburg and Clearwater — I think this encompasses Bradenton, Florida where we’re located — recorded 162,000 square feet of positive absorption. It’s showing that the smaller bay industrial product remains in steady demand across the Gulf Coast.

Together these four markets accounted for roughly 1.9 million square feet of absorption in the quarter, and it demonstrates that demand across the state, while uneven, remains positive and balanced.

Go a little further north to Savannah, Georgia, a barometer for port-driven industrial activity. It recorded minus 1.72 million square feet of negative absorption in the third quarter. That follows an extraordinary two-year period of construction and port expansion. The local market’s temporary softness stems from the ~~deliver~~ 📝delivery of new space that is still in lease-up, not a decline in underlying demand.

Atlanta continued to improve. The market swung from negative absorption in the year to a strong 2.7 million square feet of positive absorption in the third quarter. These comparisons illustrate the regional diversity of the industrial landscape. Florida’s markets are exhibiting measured but sustainable growth, with very tight supply, minimal vacancy expansion, and major Southeast hubs like Atlanta and Savannah are experiencing more of a cyclical adjustment tied to the large-scale speculative deliveries.

Public-wide vacancy held steady at 7.1 percent in the third quarter, unchanged quarter-over-quarter, and it’s up 70 basis points year-over-year, a small increase. New supply slowed significantly with only 63.6 million square feet of new space delivered during the quarter. That’s a 32.5 percent drop from last year — the lowest delivery rate in eight years.

Construction starts remained muted, bringing the overall under-construction pipeline to 269 million square feet. That’s down 13% year-over-year. The build-to-suit projects now represent 39% of the pipeline, up from 34% a year ago. It reflects occupiers’ preference for customized facilities that meet specific operational needs.

In Florida that trend is also visible across major metros. Developers have shifted from speculative projects to user-driven developments, particularly near the ports of Tampa, Jacksonville, and Miami, where the logistics operators are looking for modern space but face land constraints.

When we look at rents, nationally asking rents averaged $10.10 a square foot in the third quarter, a 1.7% increase over last year, and that represents a cooling from the 4% annual growth in 2024. The Northeast and West regions saw modest declines of 3% and 3.7% respectively. Still, rents remain about 60% above pre-pandemic levels nationwide.

Florida’s rents continue to outperform national averages, particularly in in-fill submarkets near major population centers, e.g. Tampa and Orlando. Asking rents for Class A distribution space is in the range of $10.50 to $11 a square ~~feet~~ 📝foot. Coastal markets like Fort Myers and St. Pete’s command a premium for smaller bay ~~cading~~ 📝catering to regional suppliers and contractors.

As we look ahead, Cushman & Wakefield expect industrial fundamentals to remain healthy through next year, with vacancy rising slightly before stabilizing around the 7% range. Construction starts remain constrained by financing costs and material pricing, but strong build-to-suit activities are expected. Rent growth is likely to decelerate further in the short term.

Key Takeaways

1. Regional differentiation matters. Tampa, Orlando, St. Pete’s, Bradenton illustrate consistent local demand-driven performance. Logistics hubs like Savannah and Atlanta show more volatility tied to large speculative projects.

2. Modern assets win. Newer facilities continue to outperform legacy buildings that might be functionally obsolete.

3. Capital efficiency is absolutely key. With interest rates still elevated, projects must be capital efficient and tenant-secured. Unleveraged or poorly structured plays face greater risk.

So, in short the U.S. industrial market is not booming, it’s balancing after years of expansion and correction. The sector is on solid footing. For disciplined investors and developers that are focused on execution, getting the right tenants, and location fundamentals, the next phase could be a great opportunity.

As you think about that, have an awesome rest of your day. Go make some great things happen. And we’ll talk to you again tomorrow.

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