July 2026
Warehouses for the Buildout.
Data center staging is lifting industrial rents near the campuses, insurance is falling for the eighth straight quarter, a Midtown conversion buckles, and AI models break free.
IN THE MARKET
Industrial Demand Has a Radius
The AI buildout has become an industrial tenant, and it doesn’t travel far from the campus.
A new tenant has entered the industrial market, and the national numbers don’t show it. Bloomberg reported on July 7 that Meta, Google, and other technology companies are leasing warehouse space to hold equipment for the data centers they are building. Data center-related tenants are expected to take roughly 4 million square feet in the mid-Atlantic this year against 2.8 million last year, with projections approaching 14 million by 2030. In the Washington, D.C. metro, those tenants accounted for more than 40% of new industrial leasing in 2025. Northern Virginia industrial rents are up 20% over three years. Prologis told investors on its first quarter call that data center suppliers grew from 5% to 10% of its new leasing activity in twelve months.
That is meaningful absorption in a sector where CoStar has national asking rent growth at 1.4%, the weakest reading since 2012.
THE CONSTRAINT IS CREATING THE DEMAND
In many cases, power scarcity is a major problem for real estate today. In this case it is the source of the leasing. Equipment has to be held somewhere before it can be installed, and installation is what keeps slipping. Transformers, switchgear, and servers arrive on manufacturing schedules that have not been matching construction schedules, and the gap between the two is creating a warehouse requirement.
The gap is not closing. Trammell Crow's Davis Griffin told NAIOP that the timeline to first power drives every decision his groups make, running 18 to 36 months in workable markets and five years or more in many others, with power requests in primary data center markets exceeding available capacity by two to three times. Bohler Engineering's Nate Kirschner reported clients being told they will not receive power until 2027, with some utilities projecting 2029.
Every quarter of that delay is a quarter of storage demand.
WHY IT STAYS LOCAL
Staged equipment is positioned for specific sites, and often warehoused as close as possible to where it will be energized. The same holds for the suppliers Prologis described, who are signing long-term leases specifically to move their supply chains closer to data center production hubs.
This is why the demand appears as submarket rent growth rather than national absorption, with local consequences lifting industrial near the buildout, and not everywhere.
MORATORIUMS MAP TO INDUSTRIAL LEASING CONSEQUENCES
In Colorado, Denver City Council voted unanimously in May for a one-year moratorium on data center permits and site development plan applications, effective May 21 and running to May 2027, while Jefferson County halted new zoning and development approvals the same month. In Minnesota, Minneapolis passed a six-month moratorium on facilities above 350,000 square feet, exempting smaller downtown projects, running through November 21. Luckily neither state has passed a state-wide moratorium yet like we just saw in New York.
These decisions were argued on water use and neighborhood impact with industrial absorption (obviously) not part of the debate in either city. But the leasing follows the campuses, and both of our core markets are foregoing this source of industrial demand in the near term.
The timing is unhelpful as Denver's 12-month asking rent growth is negative 2.3%, ranking 96th of 97 markets CoStar tracks, against 9.0% vacancy and 5.6 million square feet still under construction. The softness is a supply-cycle problem two years in the making. Unfortunately, the moratorium removes what could have been an active industrial demand source at a point in the cycle when the market can least absorb the loss.
WHAT WOULD BREAK IT
Goldman projects U.S. data center power demand rising from 31 gigawatts in 2025 to 66 by 2027, taking data centers from 4.1% to 8.5% of peak summer demand. The same research notes that historically only about 72% of facilities scheduled to activate within four quarters came online on time, and that reliability degrades further out.
This demand sits downstream of a capital expenditure cycle concentrated in a handful of balance sheets. If that cycle slows or redirects, the staging leases unwind first and the markets that captured them feel it before anyone else does.
ON OUR MINDS
i. What do you mean it went down?
After property insurance spiked a few years ago, rates have eased and provided an unexpected bit of relief to operating budgets. Aon reported an average 15% property rate reduction in Q1 2026, marking its eighth straight quarter of declines. CRC’s Q2 2026 REDY Index showed continued softness, with average renewal rates declining 8.8% to 13.3% month-over-month in the first half of 2026. USI’s outlook points to 5% to 20% declines for some catastrophe-exposed property accounts. That’s welcome news, even if some loss-prone and catastrophe-exposed accounts are still seeing firmer pricing.
ii. It’s harder than it looks.
Scary scene in NYC after two support columns buckled at the former Pfizer headquarters at East 42nd Street on July 7, halting work on the 1,602-unit conversion project and forcing evacuations around Grand Central. An engineer on the project has attributed the failure to crews not reinforcing columns as designed, pointing to contractor error rather than a flaw in the format itself. But it’s still a stark reminder of how difficult it can be to convert obsolete office inventory to residential. With millions of square feet underway, markets should continue to benefit from supply removals, but the complexities and risk on conversions are something to track.
iii. Moving Fast.
In some unsettling AI news, two OpenAI models broke out of a sealed testing environment and hacked into another company's live systems, on their own, in an attempt to finish a cybersecurity test. Luckily Hugging Face (the company on the receiving end) was able to catch it and shut it down. Encouraging that the defenses worked, less so that it happened at all. Coupled with news of quantum computing progress, the pace of change is hard to fathom. Quantum machines use physics rather than conventional chips to solve problems today's computers can't, and JLL doesn't expect them to get commercially real until between 2030 and 2032. One of the first things they'll be capable of is breaking the encryption that protects most of the internet, so hopefully safeguards get firmed up before release.
We remain grateful for your continued partnership and trust. If any of these topics hit close to home - whether it's a lease decision on the horizon, an acquisition or disposition question, or just a conversation about where the market is headed - we'd welcome the chance to think through it with you.
Want to discuss this with our team?
Contact Us →