The nation’s industrial real estate sector has cooled coming off a sustained period of intense expansion driven by pandemic-induced demand for warehousing and e-commerce distribution. However, demand for industrial space is still growing and net absorption is forecast to increase more rapidly in the second half of the year, according to the NAIOP Research Foundation’s latest Industrial Space Demand Forecast.

In the last two quarters of 2024, U.S. industrial net absorption totaled 96.9 million square feet, bringing the annual total to just 170.8 million square feet, the lowest annual rate of growth since 2011, according to the report. Given the expected negative effect of higher long-term interest rates on near-term demand for industrial space, the current forecast projects that net absorption will slow to 52.2 million square feet in the first half of 2025 and will accelerate in the second half to end the year at 156.4 million square feet of positive absorption. The authors of the forecast have widened the spread between the upper and lower bounds of the forecast to account for increased uncertainty about the direction of U.S. trade and fiscal policy and their effects on the economy and future demand for industrial real estate.

While industrial net absorption may have underperformed in 2024, the U.S. economy remained strong, with gross domestic product growing at a 2.3% annual rate in the fourth quarter and 2.8% for the full year. Job growth slowed in 2024, and unemployment remains low at just 4.0%, according to the latest reading from the Bureau of Labor Statistics. Relatively anemic demand for industrial space in the face of continued growth in consumer spending suggests that occupiers remain cautious about future economic conditions, including the potential impact of tariffs, and are therefore less willing to occupy space ahead of current needs than in earlier years. However, the U.S. economy appears healthy by most measures and is forecast to continue growing in 2025 and beyond.

“After years of record-setting expansion, tenants are slowing the pace at which they lease new space as they wait for interest rates to stabilize and for clarity on trade and fiscal policy,” said NAIOP President and CEO Marc Selvitelli. “Real estate is always cyclical, and while the rate of growth has decelerated, the sector remains robust and poised for steady growth moving forward.”

The report is authored by Hany Guirguis, Ph.D., interim dean, O'Malley School of Business and professor, economics and finance, Manhattan College, and Joshua Harris, Ph.D., executive director, Fordham Real Estate Institute, Fordham University. The model, which forecasts demand for industrial space at the national level, utilizes variables that comprise the entire supply chain and lead the demand for space, resulting in a model that can capture most changes in demand.

Download the full NAIOP Industrial Space Forecast: naiop.org/industrialdemand