Industrial Warehouse Rents Jumped 5.7% Despite Supply Rebalancing
Min 1: E-Commerce Just Hit 25% of All Retail Sales
CBRE's numbers show e-commerce hit 23.2% of retail sales in Q3 2024 and will reach 25% by year-end 2025. Industry rule of thumb: every $1 billion in new e-commerce sales needs 1.0 million square feet of warehouse space. The projected $280 billion in additional e-commerce sales over the next five years translates to 280 million square feet of new demand—roughly 1.7% of current stock. Third-party logistics providers now grab 35% of industrial leasing as retailers outsource their distribution to maintain flexibility. An operator who built 2.5 million square feet of modern Class A warehouses across Dallas, Atlanta, and the Inland Empire during 2023 and 2024 now leases at $10.50 per square foot triple net with properties featuring 36-foot clear heights commanding 30% premiums over older buildings—generating 8.3% stabilized yields with a path to 9.5%.
Min 2: Old Buildings Lost 100 Million Square Feet While New Ones Gained 200 Million
The split in the market tells the whole story. Buildings from before 2000 shed more than 100 million square feet of occupancy in 2024 while properties completed after 2022 absorbed 200 million square feet, according to CBRE. Tenants want 36-foot clear heights, high dock door ratios, ESFR sprinklers, and robust power for automation. More than 400 million square feet of the nearly 1 billion square feet added since early 2023 still sits vacant, but the modern stuff leases first. Owners of obsolete buildings face three choices: wait it out, spend capital on upgrades, or sell to owner-users who don't need premium features. The pricing gap is brutal—obsolete assets trade at $40 to $50 per square foot while modern warehouses command $120 to $150 per square foot in the same markets.
Min 3: Construction Starts Crashed 71% from Peak
New construction starts plummeted 71% from the Q1 2022 peak. Only 60,000 units broke ground in Q3 2025—well below historical averages. Banks tightened lending while construction costs stayed elevated, with tariffs and immigration restrictions eating into returns. About 318 million square feet remains under construction nationwide, but the speculative warehouse era has ended. Developers who pivoted to build-to-suit deals with 80% pre-leasing can still get financing. Take an Indianapolis project with Eli Lilly anchoring 1.2 million square feet of manufacturing space—it commands $12 per square foot rents on a 15-year lease, delivering 12.4% unlevered returns versus spec buildings struggling to hit 7%.
Min 4: Indianapolis Expanded 19% Since 2020
Indianapolis added more than 73 million square feet between 2020 and 2023—a 19% market expansion thanks to its central location and cargo airport access. Emerging markets like Houston, Kansas City, Louisville, Nashville, and Raleigh-Durham now service manufacturing in both the U.S. and Mexico. Investors who bought stabilized portfolios in these markets at 6.8% cap rates versus 5.2% in coastal gateways captured a 160 basis point yield spread. An Indianapolis portfolio of 1.5 million square feet acquired at $85 per square foot trades 35% below Inland Empire replacement costs while serving the same Fortune 500 tenants.
Min 5: Nearshoring Could Boost Warehouse Demand 35%
Reshoring production to the U.S. and neighboring countries may increase warehouse demand by 35% over the next five years. Prologis forecasts that defense-related demand will create a new class of specialized logistics assets. Shrinking trucking capacity will drive double-digit rate hikes in 2026, amplifying the value of well-located real estate. The convergence of nearshoring, automation, and e-commerce creates a multi-year tailwind that compounds over decades—unlike the office sector fighting permanent hybrid work headwinds.
The Takeaway
Industrial warehouse rents hit $8.76 per square foot nationally, up 5.7% year-over-year, with Atlanta leading at nearly 10% as e-commerce climbs toward 25% of retail. Flight to quality drove 200 million square feet of positive absorption for post-2022 buildings while pre-2000 properties shed 100 million square feet. Construction starts crashed 71% from peak with just 60,000 units breaking ground in Q3 2025. Indianapolis expanded 19% since 2020 while nearshoring could boost demand 35% over five years. Investors deploying capital into modern Class A warehouses in emerging Midwest markets capture 160 basis point yield spreads over coastal markets, positioning for sustained growth as nearshoring, automation, and e-commerce converge.
