Construction of industrial properties is forecast to slow in the U.S. this year despite a strong demand for data centers and manufacturing buildings, according to CommercialEdge.
“A significant increase in new construction during 2025 is unlikely,” the Yardi-owned company said.
Around the country, companies are still absorbing a glut of industrial space that was developed in 2021 and 2022. Industrial starts declined last year to 236 million square feet, down 35% from the 2023 level and more than 60% from 2022, CommericialEdge reported.
There are pockets of the country where development is thriving, though. Phoenix continued to be the hottest market with a 22.4-million-square-foot pipeline, followed by Dallas-Fort Worth (18.9 million), Houston (12.4 million) and Kansas City, Missouri (11.5 million).
Most of the action in the industrial sector will be focused this year on producing data centers and manufacturing facilities, where there remains demand for space, CommercialEdge said. In recent years, warehouses and distribution centers accounted for 90% of industrial starts.
Development of data centers and manufacturing facilities do carry some risk, however. The demand for data centers is tied to the continued investment by technology companies in artificial intelligence, the company said. Demand for manufacturing space could also slow potentially if the Trump administration imposes tariffs and the economy hits a bump.
The performance metrics of industrial properties to end last year were a mixed bag and varied by location, CommercialEdge’s data suggests.
On a nationwide basis, in-place rents increased to $8.30 per square foot in December, up 6.6% over the year. Yet, the national industrial vacancy rate was 8% in December, double the rate it was two years ago. Vacancies also ticked up 50 basis points in December compared to November, CommercialEdge reported.
Vacancies in numerous cities in the West are well below the national rate, however.
