The U.S. industrial sector strengthened in the fourth quarter, delivering its strongest absorption in two years. Robust leasing activity broadened and vacancy growth nearly stalled, signaling the market is nearing peak vacancy. Demand continues to favor modern, efficient facilities as occupiers upgrade supply chains and take advantage of favorable market conditions ahead of upcoming lease expirations. Performance varied across regions but is showing broader-based improvement with 44 of 53 markets experiencing positive Q4 absorption compared with 40 in Q3. Inland logistics and manufacturing hubs continued to capture the largest share of demand.
Development activity fluctuated in 2025, growing by a few million square feet in Q3 upon a pop in new starts, and dropping again in Q4. This suggests the construction contraction has bottomed and the pipeline is stabilizing at levels more aligned with demand. Capital markets activity remained solid, with investment volume rising year-over-year as buyers pursued newer, larger-format assets supported by improving fundamentals and pricing stability. Meanwhile, manufacturing investment, supply-chain reconfiguration and data center expansion continue to reinforce and influence long-term industrial demand, positioning the market for continued recovery heading into 2026.
Key Takeaways:
- Net absorption reached approximately 62 million square feet in the fourth quarter, the strongest quarterly performance in two years.
- Vacancy rose only two basis points to 7.5%, indicating the market is nearing peak vacancy.
- The construction pipeline declined to roughly 282 million square feet and is likely to fluctuate around that level over the coming year.
- Larger-format space in the pipeline is heavily pre-committed, reflecting disciplined development and growing tenant preference for build-to-suit and state-of-the-art speculative facilities.
- Industrial investment volume rose 12% year-over-year to $104 billion, supported by increased transactions involving newer and larger properties.
