In the immediate COVID aftermath, the U.S. industrial leasing market exploded, driven by a rebounding economy, increased output, supply chain shifts, and incredible e-commerce growth.
Speculative mega-buildings in sizes exceeding one million square feet were snapped up even before ground broke on them, as manufacturing companies, third-party logistics providers and retailers fought for every scrap of available space. Rapid NOI growth drove up valuations and drove down cap rates. Investors threw everything they had into the sector, eager to capitalize on outsized occupier demand. The result was record-breaking sales volumes.
That was then.
In a previous Connect CRE article, industrial experts explained that the sector in 2025 represented the calm after a frenzied storm.
These same experts told Connect CRE that last year’s normalization period led to changing occupier expectations. “Tenant requirements evolved in 2025, as the industrial market continued its transition from rapid expansion to a more disciplined phase,” commented Lukas Huberman, BLT Enterprises’ Vice President and Director of Acquisitions.
And when it came to capital, “investor appetite for industrial has remained remarkably resilient, even after the tariff-related disruptions in Q2 2025,” according to Trent Agnew, JLL’s Senior Management Director and Industrial Group Co-Lead. “This durability stems from the sector’s recent strong leasing performance.”
The Occupier Factor: More Control, Less Chaos
The experts explained that occupier behavior in 2025 was driven by selectivity, rather than massive space grabs. Additionally, smaller, more modern facilities in targeted geographic regions were preferred over the larger, centralized spaces.
While frenzied space grabs are firmly in the past, “expansion is still occurring,” Northmarq Regional Managing Director Ryan Butler said. “It’s being driven by productivity, supply-chain resilience and cost-control, while capital is concentrated where the fundamentals and labor dynamics are the strongest.”
Steve Reents went on to say that occupiers were interested in automation-focused facilities. However, this property type tended to be “constrained in many infill markets by fragmented floor plates and aging building stock originally designed for transloading rather than high-cube automated distribution,” said Reents, who is BGO’s Managing Partner, Deputy Head of U.S. and U.S. Chief Investment Officer.
Occupiers focused on right-sizing, shorter decision cycles and flexibility, prompted by economic and tariff uncertainty. Additionally, their business forecast were cloudy due to economic volatility and tariff concerns. “Tenants had a harder time understanding from a mid- to long-term perspective how much space they needed and where it needed to be,” Centerpoint’s Executive Vice President, Head of Central Region, Jeff Thornton explained. “This created a delay in decision-making and a desire to do shorter-term deals to gain flexibility.”
According to JLL’s Elizabeth Holder, some occupiers became owners. “Many industrial users have opted to have purpose-built custom facilities which are tailored to their operational needs or strategically located,” said Holder, who serves as the company’s Senior Analyst, Industrial Research. “As industrial occupiers plan their supply chain networks for the future, direct ownership is becoming a strategic advantage for facilities they intend to keep long-term.”
Capital Still Likes Industrial
The days of insane industrial investments are over. But capital still appreciates the sector. “Investor appetite for industrial real estate has remained durable, despite ongoing interest rate uncertainty,” Reents pointed out. “The current environment has increased opportunities to acquire high-quality assets at valuations meaningfully below replacement cost.”
JLL’s Agnew explained that 2025 sales volume reached $91.3 billion, the fourth-highest annual figure on record. “Core and trophy industrial assets are currently priced at cap rates in the high 4% to mid-5% range, highlighting their retained value and positive investor sentiment,” he commented.
While cap rates and interest rates drove the industrial discussion, Mason Waite indicated that supply dynamics and competitive influences are, and will continue to, play a factor. “The path forward could likely depend less on rate volatility and more on how quickly the market absorbs excess supply,” said Waite, BKM’s Senior Managing Director of Asset Management. “We expect a clearer environment once deliveries are worked through over the next one to two years.”
Still, some of the experts expressed concerns about overvaluation. “According to Green Street, there’s a feeling by some institutions that the high demand has driven cap rates to a lower point than is justified,” Thornton remarked. “A lot of capital continues to chase industrial, driving values probably a bit higher than where they should be at the moment.”
What’s Next?
The experts unanimously agreed that industrial occupier demand will remain steady for the rest of 2026, as will investor interest. Reents predicted that accelerating NOI growth and improving fundamentals will be the main focus of 2026.
On the buyer side, improving fundamentals could lead to cap rate compression and aggressive rent-growth underwriting. “With rent growth moderating from the outsized levels of prior years, stable demand and structural drivers have supported buyer confidence in the sector’s long-term prospects,” Huberman with BLT Enterprises said.
“Markets that are experiencing the biggest uptick in leasing velocity are primed to outperform, and to see the most capital flows and buyer activity,” Agnew commented. At the same time, BGO’s Reents noted that “the coming year presents an attractive environment for value creation driven by disciplined acquisitions and active asset management.”
At the same time, quality management will play a role in asset performance and pricing. Said Waite: “Investors are placing more value on the ability to operate, especially in management-intensive segments. Strong operators can protect occupancy, manage rollover and compete effectively while new supply works through the system.”
The post The 2025 Industrial Real Estate Rebalance: Active Capital, Selective Occupiers appeared first on Connect CRE.
