Consumer spending and e-commerce activity continue to support industrial demand, but rising transportation costs and shifting trade policy are creating new challenges for occupiers. Even with those near-term pressures, slowing construction, stable vacancy and continued investor interest are helping the industrial market find firmer footing heading into the second half of 2026.
Consumer Spending Is Still Supporting Industrial Demand
Retail activity remains an important tailwind for warehouse demand. Headline retail sales increased 6.7 percent year-over-year in June, while non-store sales climbed 14.2 percent. E-commerce, sporting goods and electronics retailers posted some of the strongest spending growth during the first half of the year.
That continued growth in online shopping is supporting demand for distribution and fulfillment space, particularly as retailers work to maintain efficient delivery networks and position inventory closer to consumers.
The challenge is that stronger consumer demand is being accompanied by significantly higher transportation costs. Shipping a container from East Asia to the U.S. West Coast rose from roughly $1,850 before the Middle East conflict to more than $7,000 by mid-July. Domestic trucking costs have also increased 35 percent since February.
For retailers and manufacturers, those higher costs could influence where inventory is stored, how much product is imported and how supply chains are structured going forward.
Trade Uncertainty Is Complicating Inventory Decisions
Tariff policy is adding another layer of uncertainty. New Section 301 tariffs replaced the temporary Section 122 tariffs, leaving importers and manufacturers to navigate changing costs ahead of the important holiday inventory cycle.
Higher tariffs and transportation expenses could put additional pressure on consumer prices while also encouraging companies to rethink sourcing and inventory strategies. Some occupiers may hold more inventory domestically to protect against future disruptions, while others could delay expansion decisions until trade policy becomes more predictable.
For industrial real estate, that creates a mixed near-term outlook. Supply-chain uncertainty can slow leasing decisions, but the long-term need for warehouse and distribution space remains closely tied to continued growth in consumer spending and e-commerce.
Slower Construction Is Helping Vacancy Stabilize
Industrial fundamentals have remained relatively steady despite softer absorption. Net absorption moderated during the second quarter but still remained well above year-earlier levels.
The more significant shift is occurring on the supply side. Developers delivered 46.6 million square feet of industrial space during the second quarter, the lowest quarterly total since 2014. The slowdown in construction is helping the market work through the supply added during the recent development cycle.
As a result, the national industrial vacancy rate held at 7.8 percent. That rate has now remained stable for approximately 12 months, suggesting that the imbalance between new supply and tenant demand is beginning to narrow.
Conditions also vary considerably by property size. Vacancy among warehouses larger than 200,000 square feet declined over the year ended June, while smaller facilities generally recorded increases. Buildings under 50,000 square feet, however, continued to maintain the lowest vacancy rate at just 4.6 percent.
Rent Growth Has Flattened, but Fundamentals Remain Resilient
Industrial asking rents have remained largely unchanged, sitting near mid-2023 levels and only 0.5 percent above the second quarter of 2025.
While that represents a meaningful slowdown from the rapid rent growth of earlier years, stable rents combined with declining construction could create a healthier balance between landlords and tenants. If demand continues to expand while the development pipeline contracts, landlords may regain greater pricing power over time.
The limited availability of smaller facilities may be particularly important for investors. With vacancy below 5 percent in properties under 50,000 square feet, well-located small-bay industrial assets continue to benefit from relatively tight supply.
Investors Continue to Target Industrial Assets
Capital markets activity remains another source of strength. Industrial transaction volume has continued to rise over the past year, extending a multiyear trend of increasing investment activity in the sector.
Investors appear willing to look beyond short-term disruptions in trade and transportation, focusing instead on industrial real estate's longer-term demand drivers. Consumer spending, e-commerce growth and the continued importance of efficient distribution networks are keeping the sector firmly on buyers' radar.
Pricing has also adjusted to the higher-rate environment. Average industrial cap rates increased from a low of 6.0 percent in 2022 to 6.8 percent in the second quarter of 2026. That reset may provide more attractive entry points for investors, particularly when combined with a slowing construction pipeline and stable occupancy conditions.
The Bottom Line
Industrial real estate is navigating a more complicated operating environment, but the underlying fundamentals remain resilient. Rising freight costs and changing tariff policy may weigh on short-term leasing and inventory decisions, yet strong consumer spending and continued e-commerce growth are supporting long-term warehouse demand.
At the same time, the sharp slowdown in new construction is helping stabilize vacancy, while transaction activity continues to increase and cap rates have adjusted from their previous lows. For investors, the opportunity may lie in markets and property segments where limited new supply, strong tenant demand and attractive acquisition pricing can provide a buffer against broader economic and trade uncertainty.
