Investors continue to see strong demand for industrial assets in 2025, especially for Class A assets in core growth markets.
Steady demand is expected to persist, and the coastal (port-proximate), Southwestern and Southeastern regional markets are expected to continue their growth level but at a more normalized level compared to 2023 and 2024. Assets located in Southern CA, New Jersey (Northern), Dallas and Southern Florida (Miami) are still in high demand, but Chicago, Houston, Seattle, Charlotte, and Atlanta were also noted as high demand and growth markets, but to a lesser extent.
Class A properties in core U.S. Markets will continue to command more aggressive overall capitalization rates, especially in U.S. port cities. Class B and, in some cases, Class C assets in proximity (infill locations) to populated urban areas with readily available workforce are in demand as investors/occupiers seek higher yields compared to Class A assets and well as continuing to solve the last-mile dilemma in urban locations.
Value-add projects with shorter weighted average lease terms, ideally close to three years or less, continue to be on investors' radars. The ability to quickly achieve mark to market rents upon rollover and yield growth, escaping the negative spread to current financing options are the sweet spot for market activity. Nonetheless, credit and term are the drivers, and cash buyers have the competitive edge in today’s environment.
Acquisitions are moving forward, and the deal flow/interest has significantly increased over the last quarter as the buyers are back in the market. Both buyers and sellers have become more realistic with their pricing expectations, as the “bid/ask” differential continues to narrow, and capital will continue to pursue infill locations.
Industrial fundamentals are expected to remain solid throughout 2025 and into 2026, with continued rent growth, albeit at a more normalized pace (2% - 3%) than the previous three years. Nonetheless, investors are closely monitoring the interest rate environment and fluctuations in 10-Year Treasuries regarding their pricing strategies and will be tracking the effects of the recently announced U.S. tariffs.
With a strong infrastructure in place in most U.S. markets, vacancy rates still at pre-pandemic averages, the continued push for onshoring and the availability of natural resources, the long-term investment outlook for the national industrial market is positive. More specifically, in the long-term, seaport cities and major distribution hubs are expected to remain the strongest performers, especially as e-commerce continues to expand as artificial intelligence takes hold, to satisfy customer demand. However, investors will be closely monitoring the recent announcements by the current administration relative to U.S. tariff hikes and the effects on the industrial markets especially in port markets which rely on inbound cargo as a demand driver.
