Industrial Markets Entering More Sustainable Phase
A new survey from Colliers, The Markets That Move, looked at the top 25 industrial markets, which generate roughly two-thirds of new demand, supply and construction pipeline, found that with supply and demand moving back into balance the sector is entering a more sustainable phase — setting the stage for the next wave of expansion.
Here's a look at some specific aspects of this growth. (excerpted from report)
Inventory Growth
After peaking at 5.9% year-over-year growth in Q4 2023, inventory growth cooled to 1.1%, while the largest 25 markets posted a slightly higher rate of 1.3%.
On average, the top 25 markets added 7.6M SF of industrial space over the past year. Ten markets added more space than the average, while 15 added less.
Phoenix led all markets with 4.9% inventory growth over the past year, adding 21.3M SF. This surge has lifted its vacancy rate into the double digits, to 11.5%, although it has dropped from a high of 13.2% two quarters earlier.
Generally, markets with the fastest inventory growth are seeing vacancy rates above the national average of 7.4%, while vacancy is lower in markets with more moderate growth.
New Supply
New supply totaled 285.3M SF in the U.S. over the past four quarters, a 41% drop from the 485.2M SF delivered in the previous four quarters. The top 25 markets accounted for 67% of that volume, adding 192.1M SF, also down 41% year-over-year.
Phoenix delivered 21.3M SF of new space over the past year, leading all markets, although this was 37% below the 33.9M SF added in the preceding four quarters.
In Dallas–Fort Worth, with the largest decline in new supply, just 18.5M SF delivered, 63% below the 49.4M SF completed in the previous four quarters.
New supply declined in 22 of the 25 largest markets compared with the prior four quarters, increasing only in Philadelphia and Portland.
Construction
Industrial space under construction declined to 270M SF, 62% below the 2022 peak of 711M SF and the lowest level since Q3 2018. The top 25 markets accounted for 171M SF, or 64% of the national pipeline.
Construction activity fell year-over-year in 16 of the 25 largest markets. Phoenix saw the steepest drop, from 26.2M SF a year ago to 11.4M SF at the end of Q3.
Pipelines expanded in seven major markets, largely driven by build-to-suit projects. Dallas– Fort Worth posted the largest increase, rising 11.7M SF to 31.3M SF — the biggest pipeline in the country. Houston followed with a 7.9M SF increase, bringing its total to 21.8M SF.
The construction pipeline is expected to contract further, bottoming out near 260M SF over the next few quarters until vacancy tightens and new starts gain momentum, setting the stage for the next development cycle.
Vacancy
The U.S. industrial vacancy rate rose 71 basis points over the past year to 7.4%; however, it increased by only four basis points in Q3, the slowest quarterly rise since 2022. Vacancy in the 25 largest markets was slightly lower, at 7.2%, up 62 basis points year-over-year.
Phoenix posted the highest vacancy rate in major markets, at 11.5%, although that had been trending down from a peak of 13.2% from two quarters ago and is now five basis points lower than a year earlier.
Vacancy increased in 18 of the 25 largest markets over the past year, led by Memphis, up 263 basis points, to 10.3%. Vacancy rates declined in seven markets, falling most sharply in Indianapolis, to 9.3%, 191 basis points below its peak of 11.2% a year ago.
Industrial vacancy has been rising for the past three years and could peak near 7.6% in early 2026 as demand improves and new supply remains constrained. Even in markets with vacancy above 10%, increases are slowing and nearing their cyclical high, although elevated supply will prolong a return to historical norms
Demand
Industrial net absorption totaled 171M SF over the past four quarters, down 1.4% from the prior year. The top 25 markets contributed 110M SF of that demand — an increase of 4.6% year-over-year. • Dallas-Fort Worth had the greatest net absorption over the past year, 19.6M SF, followed by Phoenix, 18.5M SF; Chicago, 15.0M SF; Houston, 10.2M SF; and Indianapolis, 9.8M SF
On average, net absorption was essentially flat year-over-year, indicating stabilization in demand.
After a slow 2024 and a sluggish first half of 2025, net absorption surged in Q3 to its strongest level since early 2023. With leasing strengthening across all building sizes, demand is expected to accelerate in 2026, with net absorption forecast to exceed 220M SF, 37% above 2025 expectations.
The authors of the report note that the "combination of slower construction, steadier
quarterly absorption, and moderating rent gains suggest that the sector is shifting from
pandemic-era extremes into a more sustainable, long-run equilibrium."
With regard to the next wave of development, they offered this analysis:
Speculative industrial development is expected to remain limited in the near term, with most new construction focused on build-to-suit projects that reduce risk in a slower leasing environment. In markets with low vacancy, strong demand, and limited new supply, well-located speculative activity is likely to return first, driven by rising tenant competition and higher replacement-cost rents that improve project feasibility.