The U.S. industrial real estate sector is expected to experience a slowdown in demand through the first half of 2025 before rebounding later in the year, according to a NAIOP forecast. The shift follows years of rapid expansion driven by e-commerce and logistics. Net absorption is projected to reach 52.2 million square feet in early 2025 before accelerating to 156.4 million square feet in the second half. The slowdown is primarily due to tenant caution amid economic uncertainty, interest rate concerns, and trade policy shifts. However, long-term fundamentals remain strong, with steady demand expected beyond 2025.
Labor Market Trends: Healthcare Leads Job Gains
February’s job growth of 151,000 indicates steady but slowing employment expansion. The healthcare sector led with 52,000 new jobs, while financial services (21,000) and transportation & warehousing (18,000) also saw gains. However, retail and leisure & hospitality declined, reflecting softened consumer demand. Despite an unemployment rate of 4.1%, the Federal Reserve remains cautious, holding off on immediate interest rate changes as it evaluates inflation trends and fiscal policy impacts.
Tariff Uncertainty Poses Risks for Trucking and Logistics
New U.S. tariffs on Canadian and Mexican imports could disrupt supply chains, with potential reductions in cargo volumes and higher operational costs for trucking companies. Industry leaders warn that tariffs could increase truck prices by up to $35,000, imposing a $2 billion annual burden on small carriers. With trucking responsible for 85% of U.S.-Mexico trade and 67% of U.S.-Canada trade, the sector is bracing for possible declines in freight movement, which could also impact industrial real estate demand tied to logistics and truck manufacturing.
Key Takeaways for Industrial Tenants and Investors
- Short-term industrial leasing demand may soften but should regain momentum later in 2025.
- Job growth remains stable, with healthcare and logistics driving hiring.
- Trade policy uncertainty could impact trucking, distribution networks, and industrial space utilization.
Industrial tenants and investors should stay agile, monitoring interest rates, trade policies, and economic indicators to position for opportunities as market conditions evolve.