2025 Industrial Real Estate Market Trends: Emerging Hotspots for Small Businesses
Last Updated: January 2026
As we close out 2025, the industrial real estate landscape has undergone a significant transformation — and for small businesses, the picture is more nuanced than headlines suggest. While national vacancy rates have climbed to levels not seen since 2013, a closer look reveals a tale of two markets: large distribution centers sitting vacant while small-bay spaces remain nearly impossible to find.
This bifurcation creates both opportunity and challenge for small businesses. If you need a 500,000 square foot distribution center, you’re in luck, landlords are offering aggressive concessions. But if you’re searching for a 5,000 to 50,000 square foot space? Competition remains fierce, and rents continue climbing.
Key Takeaways
- National industrial vacancy rose to 7.5% in 2025, up from 3.8% in late 2024 — but the market is stabilizing as construction slows to decade lows
- Small-bay industrial space (under 50,000 SF) remains critically tight at 3.5% vacancy — nearly half the rate of large-format warehouses at 10%
- Midwest markets emerged as top performers: Kansas City (5% vacancy), Cleveland (most affordable), Indianapolis, and Columbus lead absorption
- Small businesses now have negotiating leverage on larger spaces, but face intense competition for small-bay units in high-growth markets
- Reshoring and manufacturing expansion are creating new opportunities in the Southeast and Texas corridors, with 20% of new industrial leasing tied to manufacturing
Current State of Industrial Real Estate
The industrial sector has entered a period of recalibration after several years of unprecedented growth. Here’s where the market stands heading into 2026:
Market Overview (Q4 2025 Data)
Based on the latest industry figures from Cushman & Wakefield, CBRE, and Yardi Matrix:
- Vacancy rates have risen to 7.1-7.5% nationally — up 250 basis points from late 2024, but stabilizing
- National in-place rents average $8.72-$9.90 per square foot (NNN), with new leases averaging $10.07/SF
- Rent growth has decelerated sharply to 1.3-4.7% year-over-year, the slowest pace since 2012
- Construction has dropped to decade lows, with only 268-340 million SF under construction — down 60% from the 2022 peak
- Net absorption recovered strongly in H2 2025, reaching 176.8 million SF for the year
Source: Cushman & Wakefield Q4 2025 U.S. Industrial MarketBeat, Yardi Matrix October 2025
7.5%
National Industrial Vacancy
3.5%
Small-Bay Vacancy (Under 50K SF)
40%+
Small-Bay Rent Growth Since 2020
Key Factors Influencing the Market
Several macro trends continue to shape the industrial landscape:
- Reshoring of manufacturing operations, with 20% of new leasing tied to manufacturing
- Supply chain diversification strategies driving “just-in-case” inventory needs
- Last-mile delivery requirements favoring infill locations
- Power capacity constraints becoming a critical site selection factor
- Construction costs up 44% since the pandemic, limiting new development
The Great Bifurcation: Why Small Businesses Face a Different Market
Here’s what the headline vacancy numbers don’t tell you: the industrial market has split into two distinct segments with dramatically different dynamics.
Large-Format Warehouses (300,000+ SF)
- Vacancy: ~10% and rising in many markets
- Abundant options for large tenants
- Landlords offering 2-4 months free rent, generous TI allowances
- Best negotiating environment in five years
Small-Bay Industrial (Under 50,000 SF)
- Vacancy: 3.4-5.2% nationally — near record lows
- Virtually no new construction in the pipeline (just 0.5% of existing stock)
- Rents up 40%+ since 2020
- Properties lease in under 5 months vs. 11-13 months for larger spaces
This bifurcation exists because developers spent 2021-2023 building massive distribution centers while ignoring smaller multi-tenant properties. The result? Even if national vacancy hits 8-9%, small-bay vacancy would likely stay below the pre-pandemic 15-year average of 5.4%.
What This Means for Small Businesses
If you need a small warehouse (5,000-50,000 SF), don’t expect a tenant-friendly market. Small-bay vacancy remains critically tight, and new construction represents just 0.5% of existing stock. Start your search early and be prepared to move quickly when you find the right space.
Emerging Regional Hotspots for Small Businesses
Regional dynamics have shifted significantly in 2025. While some Sunbelt markets that dominated headlines are now struggling with oversupply, the Midwest has quietly emerged as the most compelling region for small business industrial users.
| Midwest Value Markets | Southeast Growth Markets | Texas Triangle | Western Alternatives | |
|---|---|---|---|---|
| 2025 Outlook | Strong — Tightening vacancy, limited new supply | Mixed — Manufacturing growth offset by some oversupply | Normalizing — Absorbing 2022-2024 supply wave | Improving — Secondary markets outperforming CA |
| Key Markets | Kansas City, Indianapolis, Columbus, Cleveland, Detroit | Nashville, Charlotte, Greenville-Spartanburg, Savannah | Dallas-Fort Worth, Houston, San Antonio, Austin | Reno, Salt Lake City, Phoenix, Las Vegas |
| Vacancy Range | 4.0% – 6.5% | 6.0% – 9.0% | 7.0% – 10.0% | 6.5% – 11.0% |
| Avg. Lease Rate (NNN) | $6.50 – $9.50/SF | $7.50 – $11.00/SF | $8.00 – $12.00/SF | $8.50 – $14.00/SF |
| Why It Works | Central US location, intermodal access, lowest costs nationwide | EV/battery manufacturing boom, port access, population growth | Corporate relocations, no state income tax, massive infrastructure | California alternative at 50-70% of the cost |
| Watch Out For | Labor availability in smaller metros | Some markets (Atlanta) seeing temporary oversupply | Property taxes, elevated vacancy in some submarkets | Phoenix/Las Vegas oversupply in large-format |
Midwest: The Quiet Winner of 2025
The Midwest emerged as the standout performer in 2025, and it’s not hard to see why. Five of the seven most affordable major markets for industrial sales are located in the region, with Cleveland averaging just $56 per square foot — the lowest nationwide.
Kansas City retained its position as the nation’s tightest major industrial market, with vacancy stabilizing around 5% for several consecutive months. The city’s central location and intermodal capabilities make it ideal for national distribution.
Indianapolis and Columbus led absorption among inland markets, driven by 3PL expansion and their strategic positions as regional distribution hubs. Columbus saw 9.8 million SF of net absorption in 2025, while Indianapolis absorbed 13.7 million SF.
Detroit tops the ULI/PwC Emerging Trends rankings for Midwest industrial prospects in 2026, with investors citing industrial as the best buying opportunity in the market.
For small businesses, the Midwest offers a compelling value proposition: you can often secure twice the space for the same monthly cost as coastal markets, while maintaining excellent access to both coasts via ground shipping.
Pro Tip
Kansas City, Indianapolis, and Columbus offer one-day truck access to over 60% of the U.S. population. For small businesses shipping nationally, these markets can reduce total logistics costs by 15-25% compared to coastal alternatives — even after factoring in slightly longer West Coast transit times.
Southeast: Manufacturing Reshoring Creates New Opportunities
The Southeast continues its evolution from a distribution-focused region to a manufacturing powerhouse. Manufacturing now accounts for 20% of new industrial leasing across the Southeast and Central U.S., driven by:
- EV and battery manufacturing expansion (Georgia, Tennessee, Alabama)
- Pharmaceutical manufacturing growth (North Carolina spillover into Tennessee, Florida)
- Semiconductor supply chain development
- Automotive supplier relocations
Nashville remains a top performer, with leasing volumes 50%+ above the prior two-year average. The combination of population growth, skilled workforce, and infrastructure investment continues to attract both manufacturers and distributors.
Greenville-Spartanburg and Charlotte benefit from the automotive manufacturing cluster, while Savannah leverages its expanded port capacity to serve import-dependent businesses.
However, not all Southeast markets are thriving equally. Atlanta recorded net negative absorption in 2025 (~2.2 million SF) as a wave of speculative construction delivered into softening demand. The market remains structurally sound but will take 12-18 months to absorb excess supply.
Texas Triangle: Absorbing the Supply Wave
Texas markets are working through the largest construction pipeline in the nation, but the long-term fundamentals remain compelling. Dallas-Fort Worth led all U.S. markets in net absorption at 31.1 million SF in 2025 — a testament to the region’s sustained demand drivers.
Dallas-Fort Worth
- Current vacancy: 9.6% (up from 3.7%, but healthy given supply delivered)
- Small-bay availability: ~6.1% (down from 8.7% a decade ago)
- 2025 Highlights: Google leased 2.2 million SF; CJ Logistics took 1.07 million SF
- Outlook: Construction at decade lows positions market for tightening in 2026
Houston
- Remarkable resilience with 5.5% rent growth despite 137.8 million SF delivered since 2020
- Port activity and petrochemical investment drive sustained demand
- Vacancy at 6.2% — among the tightest in Texas
Austin
- Facing oversupply challenges with inventory expanded ~60% since 2020
- Tenant-favorable conditions, but long-term growth story intact
- Best market for negotiating aggressive lease terms
Emerging Property Types for Small Businesses
The definition of industrial real estate continues to expand, with several categories showing particular promise for small businesses:
Multi-Tenant Light Industrial
Typical configuration: 800-5,000 sq ft units with flexible buildouts, shared loading areas, and mixed office/warehouse space.
Ideal for: Light manufacturing, small batch production, e-commerce startups, and service businesses with equipment storage needs.
2025 Reality: This segment faces the most acute supply shortage. Vacancy sits below 4% in most markets, and virtually no new product is under construction.
Flex Space Developments
Typical configuration: 2,000-10,000 sq ft units with higher office percentage (30-50%), enhanced power capacity, and modern technology infrastructure.
Ideal for: Technology hardware companies, R&D operations, high-value product manufacturing, and businesses requiring customer-facing components.
2025 Reality: Flex vacancy is roughly 8.0% nationally — comparable to the broader market — offering more options than pure small-bay warehouse.
Converted Retail Spaces
Typical configuration: Former big-box retail locations with good access and visibility, extensive parking, and adaptable interior layouts.
Ideal for: Last-mile fulfillment, businesses with customer pickup needs, showroom/warehouse combinations, and manufacturing with retail components.
2025 Reality: These conversions offer unique opportunities in infill locations where traditional industrial development is restricted.
Industrial Condominiums
Typical configuration: Ownership rather than lease model, 1,500-7,500 sq ft units, shared common expenses, and owner-controlled improvements.
Ideal for: Established small businesses seeking fixed occupancy costs, companies requiring specialized buildouts, and operations with long-term location needs.
2025 Reality: Industrial condo development has slowed due to construction costs, but existing product trades actively as small businesses seek to lock in real estate costs.
Key Factors Small Businesses Should Consider in 2026
The market dynamics of 2025 have created a new decision framework for small businesses evaluating industrial space:
1. Right-Size Your Search
If you need 50,000+ SF, you have leverage. Landlords are offering 2-4 months free rent, $5-15/SF tenant improvement allowances, and flexible lease terms that weren’t available 18 months ago.
If you need under 50,000 SF, be realistic. Small-bay space remains in short supply, and you’ll face competition from contractors, service businesses, e-commerce startups, and local distributors all chasing the same inventory.
2. Consider Secondary Submarkets
Primary submarkets in major metros command premium rents and tight availability. Secondary submarkets — slightly further from urban cores — often offer 15-30% savings with minimal operational impact. Properties in these areas that seemed unacceptable in 2021 now represent solid value.
3. Factor in Power Requirements
Power capacity has become a critical factor in site selection. 30% of significant industrial deals now require heavy power capacity (compared to less than 5% a decade ago), and lead times for securing electrical capacity can extend to two years. If your operation requires significant power, start the conversation early.
4. Evaluate Total Occupancy Cost
Texas property taxes, California’s regulatory costs, and varying NNN expense structures mean that base rent comparisons don’t tell the full story. A $9/SF lease in Texas may have similar all-in costs to a $7/SF lease in the Midwest once operating expenses are factored in.
Strategic Approaches for Small Businesses
Given current market conditions, small businesses should consider these strategies when seeking industrial space:
Consider Class B or C Properties
Older but functional industrial properties often offer significant cost advantages while providing the essential functionality most small businesses need. The premium for Class A space ranges from 35-40% above Class B/C — a gap that’s harder to justify when budgets are tight.
Explore Sale-Leaseback Options
Current market conditions may make sale-leaseback transactions attractive for businesses that own their facilities. This frees up capital while securing long-term occupancy.
Investigate Adaptive Reuse
Former retail, office, or other commercial properties being converted to industrial use often offer competitive rates and good locations that wouldn’t otherwise be available for industrial use.
Leverage Economic Development Programs
Many regions offer incentives designed for small businesses bringing jobs and investment to targeted areas. The Midwest and Southeast are particularly aggressive with these programs.
Look Beyond Traditional Industrial Parks
Some of the best values for small businesses exist in mixed-use areas or commercial zones that permit light industrial uses.
Future Outlook: What to Watch in 2026
Several factors will shape industrial real estate for small businesses in the coming year:
Supply Pipeline Contracting: Construction starts hit decade lows in 2025, with quarterly completions projected to fall below the pre-pandemic average by mid-2026. This supply discipline should support vacancy stabilization and eventual tightening.
Manufacturing Reshoring Acceleration: 25% of global trade could relocate by 2026 due to supply chain diversification. The Midwest and Southeast are primary beneficiaries, with EV battery plants, semiconductor facilities, and nearshored manufacturing driving new industrial demand.
Build-to-Suit Dominance: 40% of space currently under construction is build-to-suit, up from 22% in 2024. Developers have become more selective, favoring pre-leased projects over speculative construction.
Power and Infrastructure Constraints: Electrical capacity constraints are becoming a material factor in site selection. Markets with available power capacity will outperform those where lead times extend beyond 12-18 months.
Tariff and Trade Policy Uncertainty: Trade policy shifts continue to influence tenant decision-making, with some businesses accelerating leasing decisions while others remain on the sidelines.
Frequently Asked Questions
Is now a good time to lease industrial space for my small business?
It depends on the size you need. For spaces over 50,000 SF, you have the best negotiating leverage since 2020, with landlords offering concessions like free rent and tenant improvement allowances. For small-bay spaces under 50,000 SF, the market remains tight with limited availability and continued rent growth. Either way, start your search 6-9 months before you need to move.
Which markets offer the best value for small business warehouse space in 2025?
The Midwest offers the best combination of affordability and tight vacancy. Kansas City, Indianapolis, Columbus, and Cleveland all provide industrial space at $6-9/SF NNN — roughly 40-60% below coastal markets — with central locations that enable efficient national distribution. For businesses serving regional markets, secondary Southeast metros like Greenville and Memphis also offer compelling value.
Why is small-bay industrial space so hard to find?
Developers have focused almost exclusively on large-format distribution centers (300,000+ SF) over the past five years, leaving small-bay inventory structurally undersupplied. Currently, small-bay space under construction represents just 0.5% of existing stock. Combined with steady demand from contractors, service businesses, and small e-commerce operations, this supply shortage has kept small-bay vacancy below 5% even as overall industrial vacancy rose to 7.5%.
Should I be concerned about rising industrial vacancy rates?
The headline vacancy increase from 3.8% to 7.5% reflects a return to long-term norms, not market distress. Construction has dropped to decade lows, and net absorption strengthened significantly in H2 2025. Most analysts expect vacancy to peak in mid-2026 and then begin declining as the market absorbs remaining supply. For small businesses, the key metric to watch is small-bay vacancy, which has remained tight throughout the market adjustment.
What lease concessions can I negotiate in the current market?
For larger spaces (50,000+ SF), expect 2-4 months of free rent, tenant improvement allowances of $5-15/SF, and flexible lease terms including early termination options. For small-bay spaces, concessions are limited, though you may find opportunities in secondary submarkets or older Class B/C properties. Build-to-suit arrangements remain available for tenants needing 50,000+ SF with specialized requirements.
Navigating the 2026 Industrial Landscape
Despite the normalization from pandemic-era growth, small businesses have meaningful opportunities in today’s industrial market — if they understand the nuances.
The elevated vacancy in large-format space creates negotiating leverage for businesses ready to scale up. The persistent tightness in small-bay space requires early planning and flexibility on location. And the regional shifts that have made the Midwest increasingly attractive offer genuine cost advantages for businesses willing to look beyond traditional coastal markets.
The most successful small businesses will approach their real estate decisions strategically: understanding the difference between headline vacancy and the reality of their specific size range, evaluating total occupancy cost rather than just base rent, and starting their search well before deadlines force rushed decisions.
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Browse Available PropertiesThis report synthesizes data from Cushman & Wakefield Q4 2025, CBRE 2025 Midyear Review, Yardi Matrix October 2025, CommercialCafe December 2025, Plante Moran Q3 2025, ULI/PwC Emerging Trends 2026, Colliers, CoStar, and Lee & Associates research.
