Industrial Vacancy Peak Likely Over as Demand Holds, Supply Slows — Cushman & Wakefield Report
The U.S. industrial real estate market entered 2026 with encouraging signs of stability, as first-quarter performance indicated a sector gradually regaining balance. According to the latest report from Cushman & Wakefield, key indicators such as vacancy, demand, and supply trends suggest that the market is moving past its recent peak in vacancy and heading toward a more sustainable phase.
One of the most notable developments in early 2026 is the decline in vacancy from its high point in late 2025. At the same time, tenant demand has remained consistent, while the volume of new supply entering the market has slowed considerably. In fact, new completions during the first quarter dropped to their lowest level since 2017, reinforcing a positive outlook for the months ahead.
Demand fundamentals remained particularly strong. The market recorded net absorption of approximately 40 million square feet during the first quarter, marking the highest first-quarter total since 2023. This represents a significant 52% increase compared to the same period last year. Although absorption levels were slightly lower than the previous two quarters, this is in line with typical seasonal trends, as the first quarter is generally the slowest period of the year.
Looking at a broader timeframe, total absorption over the past 12 months reached 198 million square feet. This figure surpasses the total annual absorption recorded in both 2024 and 2025, exceeding those levels by 31% and 8%, respectively. These numbers highlight the resilience of industrial demand despite ongoing economic and geopolitical uncertainties.
A key driver behind this sustained demand is the growing preference for modern logistics facilities. Companies are increasingly prioritizing buildings that are equipped for automation and offer higher power capacity. Properties completed since 2020 have been especially attractive, accounting for 68 million square feet of absorption in the first quarter alone. Notably, a significant portion of this demand has been concentrated in large-scale facilities exceeding 500,000 square feet, reflecting the needs of major logistics and distribution operators.
Geographic trends also reveal important shifts in market dynamics. Inland markets have emerged as dominant performers, capturing more than 90% of total net absorption in the first quarter. Cities such as Dallas-Fort Worth, Indianapolis, Phoenix, Atlanta, and Charlotte have led this growth, benefiting from evolving supply chain strategies. In contrast, several West Coast markets have continued to experience occupancy declines, largely due to tenant consolidations and relocations.
At the same time, certain port-adjacent markets along the East and Gulf Coasts have shown solid demand. Locations such as Houston, New Jersey, and Savannah have recorded healthy levels of absorption, supported by their strategic importance in global trade and logistics networks.
Leasing activity has remained robust across the country. For the fourth consecutive quarter, total leasing volume exceeded 170 million square feet, driven largely by large-format transactions. Deals involving spaces of 500,000 square feet or more have been particularly influential. Overall, national leasing activity increased by 10.3% compared to the previous year, although it declined slightly from the exceptionally high levels seen in the prior quarter.
A clear “flight to quality” trend continues to shape leasing decisions. Approximately 61% of leases for spaces larger than 100,000 square feet were signed in buildings developed within the past decade. Among larger transactions, more than half involved facilities featuring 40-foot clear heights, reflecting the operational requirements of modern tenants. Third-party logistics providers and manufacturers together accounted for 60% of leasing activity, while inland markets represented 70% of total large-scale deals.
With demand holding firm and new supply becoming more limited, the national vacancy rate appears to have passed its cyclical peak. By the end of the first quarter, vacancy stood at 7.0%, unchanged from the end of 2025 but slightly below the peak reached in the third quarter of that year. Vacancy rates declined in most regions, although the West experienced a modest increase.
Supply-side dynamics are playing a crucial role in this rebalancing process. New completions fell by 27% year over year to 54 million square feet, marking the lowest quarterly delivery level in nearly eight years. A large share of this new space—approximately 73%—was developed on a speculative basis. While construction activity is expected to remain relatively subdued throughout 2026, there are signs of renewed development in high-demand markets.
The total volume of space currently under construction has increased for the third consecutive quarter, reaching over 284 million square feet. This represents a 6.2% annual increase and the highest level since late 2024. Key markets experiencing growth in construction activity include Memphis, St. Louis, Columbus, Minneapolis, and Charlotte.
Rental trends also reflect improving market conditions. Annual asking rents rose by 2.1% in the first quarter, up from 1.1% at the end of 2025. This growth has been supported by tightening fundamentals in several inland distribution hubs. Of the markets tracked, 60% reported positive annual rent growth, with nearly 20 markets achieving increases of more than 5%. Over the longer term, some markets—including Philadelphia, Baltimore, Nashville, and Fort Lauderdale—have recorded rent growth exceeding 80%.
Despite a moderation in rent increases compared to previous years, tenants renewing leases continue to face relatively high pricing across most U.S. markets. This reflects the ongoing imbalance between strong demand and limited availability of high-quality space.
Looking ahead, the industrial real estate sector is expected to maintain steady growth throughout 2026. Demand is anticipated to strengthen further in the second half of the year, driven by continued supply chain adjustments focused on efficiency and resilience. Larger facilities, particularly those around 500,000 square feet, are likely to play a key role in future absorption trends.
As new supply remains constrained and leasing activity continues at a healthy pace, the market is moving toward a more balanced state. This transition is expected to gradually tighten available space, boost investor confidence, and sustain capital flows into the industrial sector.
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