June 2025
This month, we turn our attention towards emerging trends in industrial real estate.
IN THE MARKET
The Emerging Industrial Divide
As global uncertainty continues to dominate headlines - from geopolitical tensions in the Middle East to alarm over U.S. debt and deficits to trade disputes to election surprises in NYC - our attention shifts toward the more resilient end of the commercial real estate risk spectrum: industrial.
Over the past several years, industrial real estate has emerged as one of the top-performing sectors. The COVID-19 pandemic accelerated the shift from brick-and-mortar retail to e-commerce, triggering a surge in demand for logistics and distribution space. E-commerce now accounts for approximately 16% of total retail sales, with plenty of room to grow. According to CoStar, U.S. industrial supply has expanded by 2.0 billion square feet — a 12% increase — over the past five years. This rate of growth is nearly triple the pace of the previous two decades. Simultaneously, asking rents surged by more than 40%. However, after hitting a historic low of 3.8% in 2022, vacancy rates have nearly doubled to 7.4% as of Q2 2025. With rising vacancies, rent growth has stalled, turning negative in Q2 for the first time in nearly 15 years. While we don’t foresee the level of distress affecting other property types, this softening marks the first meaningful opening in years for both tenants and investors.
A CLOSER LOOK REVEALS A BIFURCATION WITHIN THE SECTOR
The rise in vacancies is concentrated primarily in larger industrial properties (over 100,000 square feet), while smaller facilities have remained resilient, maintaining sub-5% vacancy rates. This divergence is expected to continue, particularly as lease rollovers collide with the significant rent escalations of recent years. CompStak data shows that over 37% of all U.S. industrial leases are set to roll by the end of 2027, with in-place rents trailing current market levels by 33% to 75%. As a result, many tenants may opt to downsize, further tightening the small-bay market and potentially prompting the demising of larger spaces where feasible.
WHAT DOES THIS MEAN TODAY?
Tenants in smaller industrial properties may have a fleeting opportunity to secure longer-term leases under favorable terms. At the same time, industrial investors may find their first meaningful entry point in years, particularly in the small-bay segment where long term fundamentals remain compelling.
ON OUR MINDS
i. Employment.
Amazon turned heads this month after CEO Andy Jassy told employees that generative AI and AI agents may replace certain jobs and shrink its workforce in the near future. The big question now - could this be the beginning of a broader employment transformation?
ii. Energy.
Another month, another major announcement for nuclear power as New York State announces their intention to build the first major nuclear power plant in the U.S. in the last 15 years. While other energy alternatives are being explored, we expect nuclear to remain at the forefront.
iii. Investment.
Meta is getting serious about AI and associated infrastructure. Signing a 20 year agreement to buy power from an Illinois nuclear power plant. Then aggressively recruiting talent for its new “Superintelligence” lab with $100 million pay packages (not a typo).
IN THE SETT
Lamar recently returned from the Spring 2025 SIOR Conference in Las Vegas. After catching up on some well-earned sleep, he came back with valuable insights for our firm - especially around the growing role of AI in commercial real estate.
Across the industry, AI is rapidly gaining traction as a tool to streamline everything from deal sourcing and underwriting to lease review and due diligence. At our firm, we’ve already begun integrating AI to accelerate market research, unlock deeper insights and automate routine workflows - allowing us to work smarter and move faster.
While the full potential of these technologies is still unfolding - and we remain mindful of emerging safety considerations - one thing is clear: AI is poised to reshape how our industry operates. We're committed to staying ahead of the curve as this new chapter unfolds.
We remain grateful for your continued partnership and trust. Whether you're exploring new opportunities or navigating strategic decisions at the asset level, our team is here to support you every step of the way. If you’d like to take a deeper dive into any of the topics covered this month, don’t hesitate to reach out - we’re always happy to connect.
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