Industrial Real Estate: From Oversupply Back to Absorption

Introduction

For three years the warehouse story was about supply. Developers responded to the 2020-2022 e-commerce surge by delivering record volumes of new space just as tenants finished their pandemic expansion, and national vacancy climbed from Cushman & Wakefield's 5.2% at the end of 2023 to a peak near 7% in late 2025. In 2026 the story flipped to demand. Cushman & Wakefield's Q3 2026 industrial report put vacancy at 6.8%, 20 basis points below that peak, after the strongest quarter of net absorption since early 2023, and its research head noted that demand had outpaced new supply for two consecutive quarters.

This article covers the current tape for the second-largest institutional property type: the numbers behind the turn, where the new demand is coming from, why restarting construction looks different this time, and what rents, releasing spreads and a 10-year Treasury above 5% mean for pricing. The structural case for the asset class, from e-commerce to supply chain reconfiguration, sits in the industrial real estate supercycle.

The turn shows up in every line of the Cushman & Wakefield data, not just the headline vacancy rate. New leasing topped 200 million square feet for a second straight quarter, a pace not seen since 2022, deliveries are falling, and the construction pipeline has started to refill.

The most telling detail is where vacancy is falling fastest. The big-box segment, buildings of 500,000 square feet or more, was the most overbuilt part of the market because those were the projects developers could underwrite at scale in 2021 and 2022. Its vacancy dropped 280 basis points in a year to 7.4%, which means the glut is clearing from the top down rather than lingering in the largest boxes.

Net Absorption

Net absorption is the change in occupied space over a period: square feet newly leased and occupied, minus square feet vacated. It measures real demand after move-outs, so it is the figure to compare with new deliveries. When net absorption runs ahead of completions, vacancy falls; when deliveries outrun it, as they did through 2023-2025, vacancy rises even if gross leasing looks healthy.

Different vacancy trackers give different levels. Colliers, Yardi Matrix and JLL each measure vacancy on their own inventory and definitions, and their national rates have ranged from below 7% to around 9% this year. The direction is the same across them, and direction is what matters for a cycle call; the level should always be quoted with its source.

The 2026 demand base is broader than the e-commerce wave that drove 2020 and 2021, and it is landing in different places. Cushman & Wakefield found that inland markets took about 80% of year-to-date net absorption, extending the shift toward distribution hubs in the middle of the country described in port proximity versus inland distribution. Port markets have recovered too: Houston, New Jersey, the Inland Empire, Savannah and Miami led a rebound that had already passed full-year 2025 demand by the third quarter.

The tenants are also changing. Prologis, the largest industrial owner, told investors in its Q3 2026 results that customers are running lean on inventory and that excess capacity in their networks has largely cleared, which is the precondition for new leasing. It named three demand drivers:

Building quality decides who captures the demand. Warehouses delivered after 2020 absorbed about 202 million square feet so far in 2026, while stock built between 2000 and 2019 lost roughly 78 million square feet of occupancy across 2024 and 2025 before stabilizing this year. Tenants are paying for clear heights, power and truck courts that older buildings lack, the same flight to quality seen in office, only with far better fundamentals underneath it.

The obvious risk in any recovery is that developers overbuild again. The pipeline is clearly growing: at about 324 million square feet, space under construction is up 23% on a year earlier. What makes this restart different is its composition. Cushman & Wakefield reported that build-to-suit projects, buildings developed for a committed tenant, make up about 35% of the pipeline and more than 55% of the space underway in buildings of 500,000 square feet or more. Pre-leased construction adds supply and demand at the same time.

Speculative development also faces a pricing hurdle. On its Q3 2026 earnings call, Prologis management said the rents needed to justify new projects sit about 27% above current market rents, which should keep speculative starts in check. Prologis itself raised its 2026 development-start guidance to $5.0 billion to $5.75 billion, citing a large fourth quarter of build-to-suit projects.

Replacement Cost Rent

The rent a new building must achieve for development to earn an acceptable return on land, construction and financing costs. When market rents sit below replacement cost rent, speculative building is uneconomic and supply stays constrained; when market rents rise above it, developers break ground and new supply follows, usually with a lag of 12 to 24 months.

That gap is why speculative supply should stay contained even as total starts pick up. The risk is local oversupply rather than a national glut. Texas alone accounted for about 47 million square feet of deliveries so far in 2026, roughly a quarter of the US total, and markets that take a disproportionate share of new construction can soften while the national numbers improve.

Market rents have begun to firm. Cushman & Wakefield measured national asking rent growth at 4% year over year, with 74% of the 83 markets it tracks posting gains, up from 70% in the second quarter. That is modest next to the double-digit increases of 2021 and 2022, but it ends the flat-to-falling stretch that accompanied rising vacancy.

The more powerful driver of industrial cash flow is the lease mark-to-market. Leases signed in 2019 through 2021 were set at rents far below today's, so every expiration resets rent sharply higher even when market rents are flat. The metrics behind that roll-up are explained in industrial KPIs: releasing spreads, NOI and occupancy.

That embedded growth is now being tested by rates. In CBRE's H1 2026 cap rate survey, industrial was among the sectors where cap rates compressed during the first half, behind only neighborhood retail and hotels, with prime logistics already priced at the tight end of the stack (see the current cap rate environment). Since then, the Fed's September hike and a 10-year Treasury above 5% have pushed fixed-rate debt toward 7%, putting negative leverage back on new acquisitions. Prologis management said on the same call that the move in rates is likely to slow transactions and could weigh on values, and that its own bar for deploying capital is now higher.

Buyers have shown what they will pay for that embedded growth, and 2026 produced three very different industrial deals:

The two take-privates are the take-private playbook in its simplest form: private capital valued the rent roll-up more highly than public investors did. The SEGRO bid is the strategic version: the largest industrial landlord using its own shares to buy scale in European logistics. All three were struck before the 10-year crossed 5%, and how they fit the wider REIT M&A tape is covered in recent mega-deals across property types.

The next few quarters will show whether the industrial recovery can absorb the rate shock. Cushman & Wakefield expects vacancy to tighten modestly further by year-end as new supply stays subdued. Three variables will decide how the turn holds up:

With demand broadening across manufacturing and data center users and replacement costs capping speculative supply, the sector meets the higher-rate period from a position of strength it did not have a year ago.