Florida
It’s hard to make a warehouse these days if you can’t make a decision. The 90-day pause on the Trump administration’s sweeping global tariffs is set to expire July 9. And, while it’s going to be a scramble for nearly every asset class, the country’s industrial market has already seen a significant slowdown in construction starts and leasing decisions.
Industrial construction starts in the U.S. are on pace in 2025 to hit their lowest level this decade, given the 86.9 million square feet in starts through May of this year, according to a new report from data tracker CommercialCafe. Developers started on 116.1 million square feet during the same time period in 2024 and on 158.3 million feet in 2023. The peak for this decade was in 2022 with 228.5 million square feet through May that year. Tariffs are not the whole story. Some 342.3 million square feet were under construction nationally as of May, while only 117.8 million square feet have been delivered so far this year. That’s compared to the roughly 650 million square feet delivered in 2023, the report found.The drop in construction starts is largely a result of companies catching up with the overabundance, or “glut,” of new construction delivered during the COVID-19 pandemic, when developers built in a frenzy to keep up with demand, according to Gregory Healy, head of industrial services for North America at Savills.
The slowdown in construction starts also means fewer options for tenants, who are often hesitant to commit to long-term leases or build their own facilities until solid trade policies are formed. Master Wall — which manufactures exterior insulation finishing systems, air and water barriers, coatings and adhesives — is one of those tenants dealing with the uncertainty. A few years ago, Master Wall moved its production facility out of the Atlanta metro area to build a new plant and office in Columbus, Ga., where it rezoned a property and met with an architect to discuss financial needs, Steve Smithwick, founder and CEO of Master Wall, said.
“We were more than surprised at the cost of new construction,” Smithwick said in a statement. “Even though we are in the manufacturing business to make wall components, the cost exceeded our expectations. Bottom line, with the interest rate being in the 5 to 7 percent range, we abandoned the goal of building a new manufacturing and home office facility. Since then, we have been searching for existing buildings that could meet our needs.”And when it comes to leasing for Master Wall — which rents space in Florida, Pennsylvania, Texas, Utah and Georgia — Smithwick said he noticed a “substantial increase” in rents, with rent on its Florida lease increasing 90 percent over the previous five-year lease rate. Still, it seems most industrial tenants are going the renewal route, as the renewal market has been “pretty healthy” lately, Knee said.
One landlord seeing that renewal trend is private equity firm Redfearn Capital, which specializes in the acquisition, development and management of industrial properties across the Southeast, specifically bulk distribution centers, warehouses and manufacturing facilities. Its more than 250 industrial tenants include Beacon Roofing Supply, ABC Supply, FedEx, Sherwin-Williams and Goodman Manufacturing. “From what we’ve seen with our own tenants, any time there’s uncertainty, especially with something that impacts pricing and profitability, you’re seeing a lot of these tenants just pause decision-making, which makes it really hard for developers or landlords to project what the next six months or 12 months is going to look like,” said Alex Redfearn, CEO and founder of Redfearn Capital.
“Most tenants are just renewing and staying in place rather than relocating and taking a big jump in their rent expenses at this point,” Redfearn added.“So it’s something I think we’ll continue to see until there’s some final shakeout on the tariffs.”
In fact, the national industrial vacancy rate rose to 8.5 percent in May, up 290 basis points year-over-year but down 30 basis points from April, according to CommercialCafe. In New Jersey, specifically, about 9.6 million square feet is currently under construction, of which only about 25 percent is pre-leased, compared to the average pre-lease rate of 75 to 80 percent in its “heyday,” according to Knee. As for sublease availability, 160.5 million square feet of industrial space was available for sublease nationally at the end of the first quarter of this year — higher than sublease availability during both the pandemic and the Global Financial Crisis from 2007 to 2009, Healy said. Tenants’ hesitancy to commit to new space also stems from the “concern of eroding consumer demand” resulting from the tariffs, as consumers may begin to limit spending to avoid added costs, Healy said.
“If we demand less goods, then we have lower demand for these warehouses, which will in turn decrease the demand for new construction,” Healy said.
“Whether companies decide to absorb as much as they can to mitigate the impact of tariffs, or whether they pass those costs on to consumers — which ultimately they will do — will probably decrease overall consumption, andthat decreased consumption is really the underlying reason for weakening demand.”
Redfearn said his approach to the situation is simple: forbearance.
“Everything just takes longer, so we just have to be patient,” he said. “I think buying on a good basis and leasing at market rents, not above market, is a way to keep the buildings leased.”
Original https://commercialobserver.com/2025/07/industrial-construction-starts-2025-tariffs/
