U.S. Industrial Vacancy Rates Begin to Decline for Newer, Larger Properties
Demand for newer, large-scale industrial properties across the United States is showing signs of improvement, with vacancy rates beginning to decline for facilities larger than 500,000 square feet, according to new data from CoStar, a leading provider of commercial real estate information, analytics and online marketplaces.
The improvement reflects renewed activity from major logistics users, particularly companies seeking modern distribution facilities that support evolving supply chain strategies. While demand has strengthened for the largest and newest industrial assets, other segments of the market continue to face challenges due to elevated levels of new construction and slower absorption.
Large Industrial Properties See Increased Leasing Activity
The U.S. industrial market has experienced significant changes in recent years as companies adjusted their real estate strategies following supply chain disruptions, changing consumer behavior and economic uncertainty.
According to CoStar, industrial properties exceeding 500,000 square feet have benefited from increased leasing activity, particularly from large logistics operators returning to the market since the second half of 2025.
A major factor behind improving vacancy conditions in this segment has been the delivery of build-to-suit projects, where properties are developed specifically for individual tenants. These customized facilities have helped drive absorption and reduce available space among the largest industrial properties.
“Large logistics occupiers have returned to the market since the latter half of 2025, and a significant amount of absorption was driven by the delivery of build-to-suit properties,” said Juan Arias, national director of industrial analytics at CoStar Group.
However, leasing strategies have also shifted. Average lease terms for the largest industrial transactions have shortened from approximately seven years in 2022 to around five years today.
Industry analysts believe this change reflects a more cautious approach among occupiers as businesses continue to navigate uncertainty surrounding supply chains, trade conditions and consumer demand.
Companies are increasingly prioritizing flexibility, choosing shorter commitments that allow them to adjust their warehouse footprints as market conditions change.
Smaller Industrial Properties Remain More Stable
While large facilities are seeing improving conditions, smaller industrial properties continue to demonstrate relatively strong performance.
Small-bay industrial properties currently have an overall availability rate of approximately 6.4%, significantly lower than the broader logistics market rate of 10.9%.
Limited construction activity and consistent leasing demand have helped maintain tighter vacancy levels in this segment. However, economic uncertainty has affected small business expansion plans over the past year, creating challenges for newly delivered smaller industrial spaces.
Markets that experienced significant additions of small-bay inventory are seeing higher vacancy levels. Phoenix and Austin, for example, have recorded more substantial small-bay supply growth in recent years, resulting in elevated availability compared with other major markets.
New Supply Creates Pressure in Mid-Sized Facilities
Although demand is improving in some areas, the industrial sector continues to work through a significant amount of new inventory.
Properties constructed within the last five years and measuring more than 200,000 square feet have taken longer to lease, especially in the mid-sized warehouse category.
Vacancy rates for newer logistics properties remain among the highest levels recorded since 2006, with one exception: the largest properties above 500,000 square feet have shown better performance due to stronger demand from major users.
The imbalance between supply and demand has created a more competitive environment for owners and developers, particularly for recently completed speculative projects that do not have tenants secured before delivery.
Industrial Market Enters a New Phase
The latest trends suggest the U.S. industrial real estate market is moving toward a more balanced environment after several years of rapid growth, record construction activity and shifting tenant requirements.
Modern facilities with advanced logistics capabilities, strategic locations and flexible designs continue to attract strong interest from large occupiers. At the same time, owners of newer mid-sized properties may face longer leasing periods as the market absorbs additional supply.
The continued strength of e-commerce, manufacturing activity, infrastructure investment and supply chain modernization is expected to support long-term demand for industrial space.
However, changing economic conditions and tenant preferences will likely influence leasing decisions as companies focus on operational flexibility and cost management.
As the market evolves, performance differences between property types, sizes and locations are becoming increasingly important. Large, high-quality industrial assets in strong logistics hubs are showing resilience, while other segments are working through supply challenges.
CoStar’s analysis highlights the growing importance of understanding individual market dynamics as industrial real estate enters a more selective and competitive phase.
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