Industrial Space Posts First Negative Demand in 15 Years as Commercial Real Estate Cools

Tariffs, high interest rates, and fresh supply combined to push industrial demand into the red.

A Duncan Toy Company employee moves toys at the company's warehouse in Columbus, Indiana, on April 16, 2025. Nearly 100 days into President Donald Trump's White House return, US businesses are scrambling to adjust to fast-changing trade policies. The $40 billion toy industry, which heavily relies on production in China, is hard hit, companies tell AFP. Duncan's entire product range is designed and developed in the United States, chief executive of Duncan Toys Company Josh Staph said, but it makes almost all the toys in China. Photo by LEANDRO LOZADA / AFP

The U.S. industrial property market registered its first quarterly drop in demand since 2010, underscoring mounting pressures across the broader commercial real estate market as high borrowing costs and economic uncertainty weigh on tenants and investors.

In the second quarter, occupiers gave back 11.3 million square feet of industrial space—a core subset of commercial real estate (CRE) that includes warehouses, logistical facilities, and manufacturing sites, according to an August report from NAIOP, the Commercial Real Estate Development Association. This left just 27 million square feet absorbed—barely a third of earlier projections—and marked the first negative quarter in 15 years.