Market Forecast 2026 Mid-Year
Industrial
Outlook
THE INDUSTRIAL SECTOR IS GAINING MOMENTUM ACROSS EXPANDING DEMAND DRIVERS
The industrial sector continues to strengthen following a period of moderation between 2023 and early 2025.
Leasing activity has improved as occupiers regain confidence, supply chains stabilize, and businesses invest in modern facilities that support automation, advanced manufacturing, and evolving distribution needs. Demand is also being supported by e-commerce activity, reshoring initiatives, and growing infrastructure requirements tied to artificial intelligence and data center development. Large transactions are also gaining momentum as industrial leases over 200,000 square feet signed during the first half of 2026 are nearly 20% above last year’s first half total.
Although economic uncertainty remains, industrial real estate continues to be one of the most resilient property sectors because of its essential role in logistics, manufacturing, and digital infrastructure.
INDUSTRIAL VACANCY STABILIZES AS THE MARKET MOVES TOWARD BALANCE
Industrial vacancy appears to have reached, or is approaching, its cyclical peak across many markets.
Demand from tenants is beginning to absorb the wave of new supply delivered over the past several years, though performance continues to vary by property type. Big-box warehouse and distribution facilities have experienced the largest increase in vacancy, rising from roughly 3% in 2022 to 10.2% at mid-year 2026. In contrast, infill industrial properties and data centers remain significantly tighter, with vacancy rates of 4.8% and 1.8%, respectively.
Demand for power-intensive facilities continues to grow as AI adoption, cloud computing, and automation drive unprecedented requirements for data center capacity and advanced manufacturing facilities. Overall, Western U.S. industrial vacancy ended 2Q 2026 at 8.4%, suggesting the market has likely moved through its most supply-heavy phase and is positioned for gradual improvement as construction activity slows.
Vacancy Rate by Market
| Market | 4Q 2019 | 2Q 2025 | 2Q 2026 |
|---|---|---|---|
| Reno | 5.3% | 11.4% | 13.0% |
| Las Vegas | 4.4% | 11.7% | 11.7% |
| Phoenix | 7.4% | 13.5% | 11.4% |
| Oakland/East Bay | 4.6% | 9.8% | 10.3% |
| Seattle | 3.6% | 8.1% | 9.5% |
| San Diego | 5.4% | 9.0% | 9.4% |
| SF Peninsula | 4.3% | 9.4% | 8.8% |
| Inland Empire | 4.4% | 8.1% | 8.6% |
| Portland | 3.4% | 6.6% | 8.1% |
| Sacramento | 4.3% | 6.6% | 7.4% |
| Orange County | 3.1% | 5.9% | 6.9% |
| Los Angeles | 2.4% | 6.5% | 6.9% |
| Silicon Valley | 1.8% | 4.8% | 5.1% |
| Western U.S. | 4.0% | 7.8% | 8.4% |
Source: CoStar, Kidder Mathews Research
Western U.S. Vacancy Rates Vary By Segment
| Segment | 2022 | 2Q 2026 |
|---|---|---|
| Total Industrial | 2.8% | 8.4% |
| Data Centers | 2.4% | 1.8% |
| Big Box (200K+ SF) | 3.3% | 10.2% |
| Industrial (50K–200K SF) | 3.3% | 9.9% |
| Industrial (Under 50K SF) | 2.2% | 4.8% |
Source: CoStar, Kidder Mathews Research
INDUSTRIAL LEASING ACTIVITY RISES ABOVE HISTORICAL AVERAGES AS DEMAND NORMALIZES
Industrial leasing activity continues to strengthen in 2026.
Western U.S. leasing volume averaged a four-quarter total of 247 million square feet between 2023 and mid-year 2026, exceeding the pre-pandemic 10-year average of 235 million square feet and reflecting a return to more normalized demand levels. Logistics providers, manufacturers, and retail distributors continue to drive activity, while occupiers increasingly favor modern facilities with greater power capacity, higher clear heights, and infrastructure that supports automation and AI-enabled operations.
Although leasing volumes remain below the extraordinary pace recorded in 2021, demand remains healthy and broadly aligned with long-term market fundamentals.
Western U.S. Vacancy & Availability
| Period | Annual Avg. Leasing Volume |
|---|---|
| 2000–2019 (20-year pre-COVID avg.) | 180M SF |
| 2010–2019 (10-year pre-COVID avg.) | 235M SF |
| 2020–2022 (2-year post-COVID avg.) | 265M SF |
| 2023–mid-2026 (5-year post-COVID avg.) | 247M SF |
Source: CoStar, Kidder Mathews Research
REDUCED CONSTRUCTION ACTIVITY LOWERS FUTURE OVERSUPPLY RISK
One of the most significant shifts in industrial market fundamentals has been the sharp contraction of the development pipeline.
New deliveries in 2025 declined by more than 45% from recent peaks, while space under construction fell by more than 60% from 2023 highs and new starts dropped roughly 65% from late-2022 levels.
Developers have become increasingly selective, prioritizing build-to-suit projects and facilities with strong preleasing commitments over speculative development. This pullback should support a healthier balance between supply and demand over the next several years. At the same time, continued demand for modern logistics facilities, advanced manufacturing space, and data center infrastructure is reinforcing the sector’s long-term fundamentals.
Development Pipeline is Resetting
| Year | Annualized Deliveries | Annualized Construction Starts | Under Construction |
|---|---|---|---|
| 2022 | 107.0M SF | 149.3M SF | 171.1M SF |
| 2023 | 126.2M SF | 99.2M SF | 144.3M SF |
| 2024 | 129.2M SF | 66.0M SF | 81.5M SF |
| 2025 | 75.1M SF | 58.1M SF | 66.4M SF |
Source: CoStar, Kidder Mathews Research (rolling 4-quarter annualized figures).
Investment Market Activity
| Period | Total Sales Volume (Rolling 4-Qtr Total) | Avg. $/SF (4-Qtr Rolling Avg.) |
|---|---|---|
| 4Q 2023 | $20.4B | $231.40 |
| 4Q 2024 | $21.5B | $225.26 |
| 4Q 2025 | $23.9B | $231.95 |
| 2Q 2026 | $26.9B | $222 |
Source: CoStar, Real Capital Analytics
INDUSTRIAL OUTLOOK: STEADY PERFORMANCE AS THE MARKET REBALANCES
The industrial sector continues to move toward a more balanced and stable environment.
Vacancy rates are stabilizing, leasing activity remains consistent with historical averages, and new construction has slowed considerably. Facilities with heavy power capabilities that support logistics, automation, manufacturing, and AI-related infrastructure are expected to outperform, while older properties may require upgrades to remain competitive.
Supported by disciplined supply growth and durable demand drivers, the industrial sector remains one of the strongest areas of commercial real estate and is well positioned for steady performance through 2026 and beyond.
Western U.S. Industrial Forecast
| Year | New Deliveries | Net Absorption | Total Vacancy Rate |
|---|---|---|---|
| 2024 | 128.6M SF | 5.4M SF | 7.3% |
| 2025 | 69.9M SF | 12.3M SF | 8.3% |
| 2026F | 56.0M SF | 45.0M SF | 8.3% |
| 2027F | 53.0M SF | 55.0M SF | 8.0% |
| 2028F | 50.0M SF | 75.0M SF | 7.4% |
Source: CoStar, Kidder Mathews Research. “F” = forecast.
Frequently Asked Questions
What is the industrial vacancy rate in the Western U.S. as of mid-2026?
Western U.S. industrial vacancy stood at 8.4% at the end of the second quarter of 2026, according to Kidder Mathews research. This suggests the market has moved through its most supply-heavy phase and is positioned for gradual improvement as construction activity slows. Vacancy performance varies significantly by property type, from under 2% for data centers to over 10% for big-box warehouses.
How does big-box warehouse vacancy compare to smaller industrial buildings?
Big-box warehouse and distribution facilities (200,000 square feet and larger) carry the highest vacancy in the sector at 10.2% as of mid-year 2026, up from roughly 3% in 2022, according to Kidder Mathews research. By comparison, infill industrial properties are far tighter at 4.8% vacancy. Big-box space absorbed the bulk of new supply delivered in recent years, which explains the wider gap.
What is the vacancy rate for data centers compared to traditional industrial space?
Data centers had a vacancy rate of just 1.8% at mid-year 2026, making them the tightest industrial property type tracked, according to Kidder Mathews research. This compares to 8.4% for the overall Western U.S. industrial market and 10.2% for big-box facilities. Demand for data centers is being driven by AI adoption, cloud computing, and automation requiring specialized power and infrastructure.
How much industrial space is being leased in the Western U.S. right now?
Western U.S. industrial leasing volume averaged 247 million square feet on a four-quarter rolling basis between 2023 and mid-year 2026, according to Kidder Mathews research. This exceeds the pre-pandemic 10-year average (2010–2019) of 235 million square feet, indicating a return to normalized demand levels. Leasing remains below the extraordinary 265 million square foot annual average recorded during 2020–2022, but is broadly aligned with long-term fundamentals.
Are large industrial lease transactions increasing in 2026?
Yes. Industrial leases over 200,000 square feet signed during the first half of 2026 were nearly 20% above the total recorded in the first half of 2025, according to Kidder Mathews research. This growth in large-block activity reflects rising confidence among logistics providers, manufacturers, and retail distributors, along with growing demand tied to automation and AI-driven infrastructure needs.
Is new industrial construction slowing down in the Western U.S.?
Yes, industrial construction has contracted sharply. New deliveries in 2025 declined by more than 45% from recent peaks, space under construction fell by more than 60% from 2023 highs, and new construction starts dropped roughly 65% from late-2022 levels, according to Kidder Mathews research. Developers have become more selective, prioritizing build-to-suit projects with strong preleasing commitments over speculative development.
What is the average sale price per square foot for industrial properties in the Western U.S.?
The average sale price for Western U.S. industrial property was approximately $222 per square foot on a four-quarter rolling average basis as of the second quarter of 2026 (data source: CoStar, Real Capital Analytics; Kidder Mathews research). Pricing has held relatively stable in recent quarters even as overall sales transaction volume has moderated from its 2021–2022 peak.
What’s driving industrial real estate demand in 2026?
Industrial demand is being driven by improved occupier confidence, stabilizing supply chains, e-commerce activity, reshoring initiatives, and growing infrastructure needs tied to artificial intelligence and data center development, according to Kidder Mathews research. Occupiers increasingly favor modern facilities with greater power capacity, higher clear heights, and infrastructure that supports automation and AI-enabled operations. Logistics providers, manufacturers, and retail distributors continue to be the primary demand drivers.
Has industrial vacancy peaked, or is it still rising in the Western U.S.?
Industrial vacancy appears to have reached, or be approaching, its cyclical peak across many Western U.S. markets, according to Kidder Mathews research. Overall vacancy ended the second quarter of 2026 at 8.4%, with tenant demand beginning to absorb the wave of new supply delivered over the past several years. With new deliveries down more than 45% from recent peaks, the market is positioned for gradual improvement as construction activity continues to slow.
Which industrial property types are expected to outperform going forward?
Facilities with heavy power capabilities that support logistics, automation, manufacturing, and AI-related infrastructure are expected to outperform, according to Kidder Mathews research. Data centers (1.8% vacancy) and infill industrial properties (4.8% vacancy) already show significantly tighter conditions than big-box space (10.2% vacancy). Older properties lacking these capabilities may require upgrades to remain competitive as the market rebalances.
ContactGARY BARAGONA |
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