The industrial sector could see increased demand for flexible industrial spaces and short-term leases in strategic locations as businesses adapt to changing trade dynamics driven by tariff activity, according to JLL’s recent industrial market dynamics report.
Businesses are likely to reassess their operational needs and real estate strategies to align with the evolving economic landscape, which is dominated by escalating trade tensions and rising prices, according to the report. Many businesses have adopted a cautious hiring approach, and occupiers that rely heavily on exports or imported inputs have halted expansion plans. JLL said manufacturing, agriculture and the automotive industry are particularly vulnerable to trade uncertainty.
New industrial tenants have been emerging in recent quarters, including clean energy, data center vendors that facilitate hardware salvage and specialized cleaning services. However, the report predicts the industrial leasing landscape will continue to be led by core industries including logistics and distribution, third-party logistics, construction materials and building fixtures, and manufacturing.
During the first quarter, leasing activity increased by 7.5% from the previous quarter to 123.3 million square feet. Occupiers showed a strong preference for versatile mid-sized facilities in the 50,000 to 250,000 square foot range, which accounted for 43% of total leasing volume. This size range has shown the most consistent demand over the past five years and has exhibited the least volatility, said JLL. Meanwhile, properties exceeding 750,000 square feet have experienced significant demand fluctuations, reflecting the cyclical nature of large-scale industrial requirements, said the report.
Vacancy is likely reaching its peak at 7.3%, which is up 20 basis points from the previous quarter due to ongoing deliveries of unoccupied space. Net absorption increased 43.4% year-over-year to a positive 40 million square feet thanks to increased leasing activity during the first quarter. Several large-scale move-ins of build-to-suit products bolstered Q1 absorption, said JLL. The automotive sector accounted for 4.3 million square feet of built-to-suit occupancy, with Tesla occupying 2.3 million square feet in Texas and Toyota occupying a two-million-square-foot battery plant in North Carolina.
JLL said the ongoing delivery of vacant buildings continued to put upward pressure on the vacancy rate, but it noted this is likely a temporary trend.
Industrial deliveries were unchanged from the previous quarter at 79.6 million square feet, but the delivery pipeline has contracted to its lowest point since 2015, shrinking nearly 30% year over year to 253.2 million square feet. Nearly 87% of the pipeline is expected to be delivered this year, said the report.
Meanwhile, modernization in the manufacturing sector is urgently needed, as the average manufacturing building is more than half a century old, said JLL. Manufacturing buildings comprise 16% of the current industrial pipeline, an increase of 14.2% year-over-year, while new manufacturing leasing activity increased 17.4% quarter-over-quarter.
Source: “Versatile Mid-Sized Facilities Emerge as Top Choice for Industrial Tenants”
