Industrial Vacancy Rate Sees Slight Increase in Q3

In the third quarter of 2025, the U.S. industrial vacancy rate rose by just four basis points to 7.4%, the smallest quarterly increase since  Q4 2022, according to Colliers.

Nearing its cyclical peak, the rate is expected to stabilize over the coming quarters as demand picks up and new supply remains limited.

Over the past year, vacancy has risen the most in the Northeast, up 146 basis points to 8%, while the Midwest remains the tightest region at 5.5%, increasing just six basis points year over year. 

Strong new supply has pushed vacancy to 8.5% in the South, the highest of any region. Although most markets experienced an uptick in vacancy, 14 markets posted year-over-year declines.

Net absorption reached 60M SF in the third quarter, the highest quarterly total since Q1 2023 and a 148% increase from 24M SF last quarter. Despite the jump in demand, year-to-date net absorption totaled 118M SF, just below the 123M SF during the same period in 2024.

Phoenix and Indianapolis each recorded more than 7M SF of net absorption, driven by strong big-box activity, build-to-suit deliveries, and large user sales.
  
New supply of 65M SF was the lowest since Q1 2019 and a fraction of what was being delivered during the height of the recent construction boom, when new supply surpassed 100M SF for nine consecutive quarters between mid-2022 and mid-2024.

Construction Activity

Industrial space under construction fell to 270M SF in the third quarter, the lowest level since 2018 and a 62% decrease from the 2022 peak of 711M SF. This figure is expected to bottom during the next few quarters as new starts gradually increase, particularly in markets with lower vacancy and fewer concerns of oversupply.

Year-over-year, construction is up in 21 markets, led by Dallas-Fort Worth, Houston, Richmond, Jacksonville, and Minneapolis-St. Paul. This shift signals a more balanced development pipeline, with new projects increasingly concentrated in markets demonstrating sustained tenant demand.

Lease Rates

After rising more than 15% annually in 2022 and 2023, warehouse and distribution rent growth has moderated, increasing just 2% over the past year to an average of $10.35/SF.

Although several markets have seen rents decline in recent quarters, stabilization is expected in the near term as rent growth returns to long-term historical trends.