Trade Policy Volatility Keeps Industrial Market on Uneven Footing
The outlook for the U.S. industrial real estate market remains clouded by trade disputes and tariff uncertainty, leaving demand projections weak even as new supply continues to hit the market. According to NAIOP’s latest Industrial Space Demand Forecast, net absorption is expected to stay “nearly flat” through the second half of 2025, a sign of how political and economic volatility has slowed activity across the sector.
The report points to U.S. trade policy as one of the biggest forces shaping the industrial market. Ongoing shifts in tariffs and levies have left importers, logistics providers, and transportation companies struggling to make long-term decisions. Court challenges have added to the turmoil, with the Trump administration facing rulings against its actions in the Court of International Trade and the Federal District Court of Appeals. The administration is now appealing to the Supreme Court, seeking permission to push ahead with its trade strategy. Until there is resolution, the market is stuck in limbo, though NAIOP emphasized it is a “near certainty” that tariff rates will remain elevated for the foreseeable future.
Despite the uncertainty, some tenants who had paused leasing decisions may move forward before the end of the year. Still, supply has been outpacing demand. In the first half of 2025, 194.6 million square feet of new industrial space was delivered, according to data from CoStar cited by NAIOP. Net absorption had been projected at 52.2 million square feet during the same period but only reached 13.5 million.
The construction pipeline has also contracted sharply. Roughly 466 million square feet of space is underway nationwide, less than half the peak of 1 billion square feet recorded in late 2022. Today’s pace is closer to levels last seen in mid-2019.
Looking ahead, NAIOP outlined two scenarios—one assuming steady economic growth and another factoring in the possibility of a recession, which the group estimates at 21%. Its baseline forecast suggests absorption could remain weak through early 2026 before rebounding more strongly in the second half of that year and into 2027. For example, net absorption is projected at just 7.5 million square feet in the fourth quarter of 2025 but could climb to more than 60 million square feet by the end of 2026 under standard conditions.
In a recession scenario, leasing activity would fall even further in the short term, with negative absorption projected through early 2026. Recovery would still take hold later that year, though at slightly lower levels than in the baseline case.
Finally, NAIOP tested its forecasting model against out-of-sample data, further reinforcing the wide range of possible outcomes. The model suggests net absorption could be as low as negative 34 million or as high as nearly 25 million square feet in the second half of 2026, highlighting the considerable uncertainty facing the industrial sector.
While the report underscores the resilience of long-term demand, the near-term outlook is far from certain. With judicial decisions pending and trade policies unresolved, the industrial market is likely to remain on uneven footing until clarity emerges.
Source: GlobeSt/ALM