The U.S. industrial real estate sector is experiencing a significant shift, with warehouse vacancy rates climbing to 7.1% in the second quarter of 2025—the highest level since 2014. This uptick reflects a confluence of factors, including fluctuating trade policies, pandemic-induced overexpansion, and evolving market dynamics.
Businesses across the United States have been grappling with the implications of the Trump administration’s tariff policies. Anticipating potential trade disruptions, many companies accelerated inventory accumulation earlier this year. However, as tariffs were implemented and later adjusted, a wave of uncertainty ensued, prompting firms to reevaluate their leasing strategies. Jason Tolliver, head of logistics and industrial real estate at Cushman & Wakefield, noted that the market has been moving in “fits and starts” over the past three months, with companies pausing leasing decisions amid the shifting trade landscape.
In response to the evolving economic environment, companies have increasingly turned to subleasing as a means to optimize their existing warehouse space. The amount of U.S. warehouse space listed for sublease reached a record high of more than 225 million square feet in the second quarter, marking a 25% increase from the same period a year earlier. This trend indicates a strategic shift by businesses to manage costs and adapt to changing demand patterns without committing to new leases.
The COVID-19 pandemic spurred a surge in e-commerce and, consequently, a rapid expansion in warehouse construction to meet the heightened demand. However, as consumer behavior normalizes and demand stabilizes, the market is now contending with an oversupply of industrial space. Developers have responded by scaling back construction efforts, with new builds down 45% year-over-year. Despite this pullback, the total warehouse inventory in 2025 remains 19% higher than in 2019, while leasing activity is 5% below 2019 levels.
The impact of rising vacancies is not uniform across the country. Larger warehouse spaces, particularly those over 100,000 square feet, are experiencing higher vacancy rates, averaging 7.6%, with some remaining on the market for over a year. In contrast, smaller facilities under 50,000 square feet have tighter vacancy rates, around 3.8%, due to limited new supply. Markets such as Charleston, SC, and Phoenix, AZ, have seen vacancy rates soar above 12%, reflecting localized challenges in balancing supply and demand.
Interestingly, warehouse rents have continued to rise, increasing by 3% to an average of $10.12 per square … . This growth is attributed to long-term lease commitments that are less sensitive to short-term market fluctuations. However, the pace of rent growth is moderating, and landlords in oversupplied markets are offering concessions to attract tenants, signaling a shift toward a more tenant-favorable environment.
While the current landscape presents challenges, there are signs of impending stabilization. The reduction in new construction, coupled with strategic subleasing and a cautious approach to leasing, suggests that the market is adjusting to a new equilibrium. As companies continue to adapt to the evolving trade policies and economic conditions, the industrial real estate sector is poised for a period of recalibration, with a focus on aligning supply with sustainable demand.