Industrial REIT returns are flat year-to-date, reflecting in part the impact of policy uncertainty on near-term demand. Looking to later this year, and into 2026, however, analysts expect demand to start to normalize, with the potential for a return to inflationary rent growth by 2027.
“Longer term, the industrial and logistics real estate sector remains well-positioned and should continue to benefit from several secular and cyclical trends,” says Todd Thomas, managing director, equity research, at KeyBanc Capital Markets Inc.
Nick Thillman, senior equity research analyst, office and industrial REITs, at Baird, added that “balance sheets in the sector remain in rock-solid shape, and we expect REITs to lean on acquisitions if opportunities arise.”
Green Street U.S. industrial team analyst Jessica Zheng, noted, “overall deal flow hasn’t slowed meaningfully—there remains strong demand from private market investors eager to deploy capital into the industrial sector.”
Thillman, Thomas, and Zheng share further observations about the industrial real estate sector and REITs below.
What is your current outlook for the industrial/logistics real estate sector for the rest of 2025 and into 2026?
Nick Thillman: The best way to describe the current environment would be “choppy.” The sector began the year with optimism about a potential rebound in demand, as early-stage demand indicators were trending positively. However, uncertainty has crept into the market since April 2, and new tenant leasing decision timelines remain extended.
As we look ahead to the second half of 2025 and into 2026, the demand environment is expected to improve in the coming quarters, driven by consumer sentiment rebounding from the April lows, a tax bill that could help spur further business investment, and time providing more certainty on trade policies.
Todd Thomas: We forecast the industrial sector to generate above average growth versus other property types in 2025 and 2026, though core growth is moderating, and visibility is more limited than it has been in recent years. More recently, policy uncertainty appears to be weighing on the demand environment, while leasing demand was already in the process of normalizing from record peak levels experienced in the years following the pandemic.
Elevated supply growth has created additional challenges in many markets. As a result, we expect volatility to remain elevated and we are cautious on the industrial sector’s near-term outlook. However, longer term, the industrial and logistics real estate sector remains well-positioned and should continue to benefit from several secular and cyclical trends.
Jessica Zheng: Net absorption came in weaker than expected in the first quarter, and the outlook remains cautious for the second and third quarters amid continued trade policy uncertainty. Our base case assumes demand will gradually normalize by the end of 2025, assuming a more stable macroeconomic backdrop.
On the supply side, new construction starts have slowed significantly, so completions should continue to decline. By year-end, demand is expected to meet or exceed supply, helping to rebalance fundamentals. However, the national vacancy rate remains near decade highs, which is likely to temper landlord pricing power in the near term. Net effective market rents are projected to experience an approximately 5% decline in 2025, modestly positive growth in 2026, and a return to inflationary rent growth by 2027.
What does the potential reshoring of manufacturing to the U.S. mean for industrial demand?
Zheng: Reshoring has been gaining traction in high-value sectors like semiconductors, EV batteries, and solar panels, but most consumer goods—electronics, furniture, toys, apparel—will continue to be imported in our view. While manufacturing plants are often custom-built, related suppliers typically use commodity warehouse space nearby. To date, the boost in demand has been modest. In Phoenix, a major reshoring hub, these users have contributed only about 5% of annual net absorption by our estimate. Longer term, the bigger upside may come from broader economic effects—population growth, better jobs, and stronger consumption.
Secondary and tertiary markets in the Sunbelt and Midwest are best positioned to benefit, given their lower land costs and labor availability. However, with low supply barriers in many of these markets, rent growth may be limited. The best opportunities likely lie in affluent, infill submarkets within top reshoring regions—not in remote, low-cost industrial parks.
Thillman: Suppose that chatter around businesses moving manufacturing to the U.S. materializes. In that case, it will be a tailwind for warehouse demand, primarily due to the multiplier effect that will occur as companies open factories and suppliers and distributors follow suit. That said, the magnitude of its impact will be driven by the speed at which moves happen and the labor availability within the geographic regions.
Thomas: An acceleration in activity related to the reshoring of manufacturing would be a net positive for the industrial sector. Not only would it increase investment, which is positive for job creation and the overall economy, but there could be meaningful follow-on demand from suppliers and other vendors that support production and manufacturing.
Is it too early to say if permanent changes to supply chains are likely to occur?
Thillman: It is still too early to say whether permanent changes across the board are needed, given that current trade policies and tariff rates, for the most part, remain in flux. However, there are some select industries in critical infrastructure verticals (such as semiconductors, steel, aluminum, etc.) where permanent changes are afoot.
Thomas: Perhaps. Supply chains are complex and companies in various industries may respond differently. Reconfiguring a supply chain can be costly, and there are other considerations including labor availability that need to be assessed and vary by industry.
Zheng: While it is still early to determine what the long-term impact might be, it does seem likely that companies will increasingly diversify production away from China or adopt a China-plus- one sourcing strategy. The key question is which regions will capture that market share. Whether it is other parts of Asia, Europe, or Mexico, the answer could have meaningful implications for port-adjacent industrial markets.
How are industrial REITs positioned to respond to the current mix of uncertainty and potential structural changes?
Zheng: REITs that are more concentrated in high-barrier coastal markets and consumption hubs are emphasizing location-driven resilience. Meanwhile, REITs with greater exposure to non-coastal assets, such as STAG Industrial, Inc. (NYSE: STAG) and LXP Industrial Trust (NYSE: LXP), are positioning to benefit from onshoring and nearshoring trends.
Thomas: In general, industrial REITs are well-positioned within the industrial sector to navigate today’s uncertain environment. From an operational standpoint, they own high quality portfolios with well-located assets, and have sophisticated, scalable platforms with deep relationships across industry.
Importantly, they are well-capitalized with proven access to the public markets, which can provide significant benefits relative to private market competitors during times of uncertainty. Industrial REITs should be in a relatively advantaged position to capitalize on investment opportunities to the extent there are dislocations in the private markets.
Thillman: REITs overall are being measured in their approach, scaling back speculative development given the current uncertainty impacting near-term demand. Balance sheets in the sector remain in rock-solid shape, and we expect REITs to lean on acquisitions if opportunities arise. In recent years, we have seen REITs gravitate more towards markets in Texas and Florida, as continued in-migration is expected to support additional consumption, which in turn will drive demand.
Are you seeing any geographic shifts in demand or investment focus in the sector, and if so, what’s driving that?
Zheng: In the private transaction market, cap rate spreads between coastal and certain non-coastal markets with more stable recent rent performance have compressed lately. The uncertain near term outlook for certain coastal markets today is reducing the valuation premium they’ve traditionally commanded.
In the public market, Terreno Realty Corp. (NYSE: TRNO), which focuses on smaller coastal infill assets, and EastGroup Properties, Inc. (NYSE: EGP), which specializes in shallow-bay properties in the Sun Belt, are trading at premiums relative to other industrial REITs.
Thillman: At the national level, demand has been more sluggish over the past 18 months as tenants work through excess capacity from the demand pull-forward during the pandemic. However, on a relative basis, the South and Southeast have seen outsized absorption trends driven by continued in-migration and consumption trends. We have also seen a greater appetite for smaller box buildings (less than 150,000 square feet) as fundamentals in that space range have been more favorable, with tenant activity remaining stable and new deliveries being more muted in that space range.
How would you describe deal flow and transactions in the sector?
Thillman: Transaction activity was ramping up to start the year, with numerous portfolios being brought to market and capital still pushing into the space. Still, it has since cooled following the April 2 tariff announcement. Cap rates have been relatively steady over the past six months, albeit on lower volume. Looking at the buyer pool today, one of the most active groups is users, as they are less price-sensitive than other buyer groups.
Thomas: The industrial REITs’ cost of capital has bounced around quite a bit in recent months, which has created challenges in the transaction market (likely delaying and/or slowing some activity). Since commercial real estate transactions take months or more to negotiate, the day-to-day volatility can create challenges for executives looking to pin down their cost of capital. Nonetheless, certainty of execution is important for sellers, which gives the REITs a leg up against the competition.
Zheng: Based on Green Street’s sales comp data, first quarter 2025 industrial transaction volume increased 10% year-over-year, while April 2025 volume decreased by about 30% year-over-year. This is mostly in line with our expectations, as some early-stage deals were likely paused following the tariff announcements. Still, overall deal flow hasn’t slowed meaningfully—there remains strong demand from private market investors eager to deploy capital into the industrial sector.
What other trends or themes are you watching in the industrial real estate sector today?
Zheng: We’re tracking several key demand drivers. First is real retail sales, which have remained flat over the past three years after the 2021 spike. Second, we’re watching inventory strategies—many companies are operating with leaner inventory levels post-COVID, as reflected in lower inventory-to-sales ratios compared to pre-pandemic norms.
We are also monitoring U.S. seaport import volumes. Overall import levels drive national warehouse demand, while shifts in port market share and points of entry have market-level implications. Together, these factors shape the broader outlook for industrial warehouse demand.
Thomas: There are many important trends to monitor today that underpin fundamentals (i.e. supply, demand, rent trends, etc.). While trade policy may be one of the bigger topics impacting the space today, consumption remains key as it supports the flow of goods across the globe; in particular, e-commerce growth remains an important demand driver for industrial leasing demand. We think the adoption of new technology, AI, and robotics, and its impact on supply chains will be important to monitor as well.
Thillman: The one area which we are monitoring the closest is overall tenant health. As we look out over the next 18 months, we see supply continuing to moderate as current U.S. consumption trends support the belief that demand can return to its historical 200-250 million square feet annual run rate, which would result in vacancy peaking at the beginning of 2026, which would provide a runway for rent growth in the sector to resume in the second half of 2026. However, if tenant bankruptcies begin to mount, you could have dents in this narrative as the growth profile for REITs would see significant slowdowns.
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