Industrial Real Estate Market Hits Historic Slump as Tariff Uncertainty Takes Toll

Warehouse demand shrinks for first time in 15 years as trade policy anxiety and economic headwinds converge

The U.S. industrial real estate market is experiencing its most significant downturn since the Great Recession, with warehouse leasing demand falling by 11.3 million square feet in the second quarter of 2025—the first quarterly decline in 15 years, according to a new report from the NAIOP Research Foundation.

The slump reflects a perfect storm of economic uncertainties, with trade policy anxiety leading the charge. The Trump administration’s “tariff Palooza announcement” on April 2nd sent shockwaves through supply chains, even though many of those tariffs were subsequently lowered or scrapped.

“Deal making is going to always pause when there’s uncertainty,” explains Josh Harris, a real estate professor at Fordham University and co-author of the NAIOP Industrial Space Demand Forecast. “So if you don’t feel like, boy, if I don’t make a decision today, somebody else is going to take that space away from me, you might just delay unless you really need it.”

The industrial real estate downturn is being reinforced by dramatic shifts in international trade flows. China’s General Administration of Customs reported that exports to the U.S. fell by 33 percent in August 2025 compared to the same month last year, marking the fifth consecutive month of double-digit declines. This massive drop in shipments directly translates to reduced demand for warehouse space where imported goods are typically stored and distributed.

The impact is reverberating through the logistics sector. Yusen Logistics confirmed in August that “volumes from China are down significantly” as manufacturing shifts to other countries due to “tariff uncertainty.” Meanwhile, Maersk North America reported a 17 percent decline in China/Hong Kong-to-U.S. volumes, particularly affecting air cargo for e-commerce operations that rely heavily on warehouse facilities.

The Guardian reported that the export decline is directly linked to “tariff tensions,” with the U.S. imposing an additional 30 percent in tariffs this year. However, the trade disruption extends beyond direct bilateral flows—China’s shipments to Southeast Asian nations rose by nearly 23 percent according to the Association of Southeast Asian Nations (ASEAN), indicating a strategic “trade diversion” that’s reshaping global supply chains and warehouse demand patterns.

The industrial space market, which is essentially synonymous with warehouses today, absorbed only 27.0 million square feet in the first half of 2025—less than half the 52.2 million square feet that had been forecast. The decline was driven by what the report’s authors, Hany Guirguis of Manhattan University and Joshua Harris of Fordham University, describe as “increasing macroeconomic uncertainty caused by unclear tariff policies and persistently high interest rates.”

The impact is being felt across key industrial markets. In Georgia, where Asian automakers like Hyundai and Kia have established major operations, industrial real estate developer Gregory Bowler Jr. has witnessed a dramatic shift. “We have seen a slowdown in that leasing really since April,” Bowler told Marketplace, referring to the period immediately following the tariff announcement.

The automotive supply chain, which relies heavily on imported parts stored in warehouses near the Port of Savannah before assembly and distribution, has been particularly affected. “A lot of it was being shipped in through the ports and then stored and or transported to Atlanta and stored and assembled for the ultimate car to be distributed out,” Bowler explained.

The warehouse market’s challenges have been compounded by the fading of “frontloading” effects from earlier in the year. According to the Times of India, businesses had accelerated shipments in previous months to get ahead of impending tariff deadlines, temporarily boosting warehouse demand. However, as these effects dissipated through the summer, the underlying weakness in trade flows became more apparent, contributing to the August decline in both imports and warehouse absorption.

The warehouse downturn extends beyond trade policy concerns. The Sunbelt region, traditionally a hotbed for industrial development, is experiencing a double hit as housing construction slumps alongside warehouse demand.

“Construction materials are huge demand drivers for industrial warehouse,” notes an industry analyst quoted in the Marketplace report. “Furnishing, home goods, everything even from cabinetry makers take big spaces.”

The employment picture adds another layer of concern. Warehouse employment has dropped by approximately 27,000 jobs year-over-year, according to recent jobs data, while the broader economy shows signs of cooling with modest job growth in July and significant downward revisions to earlier employment figures.

The uncertainty is creating operational nightmares for warehouse operators. Weston Labar, chief strategy officer at Waterfront Logistics, describes the current environment as “pretty topsy-turvy.”

“In some weeks, we have so much work that we, I hate to say don’t know what to do with it, because we do know what to do with it, but it’s just really busy,” Labar told Marketplace. “And then other weeks, it’s a little bit like a ghost town… So, unstable is what I would call this year.”

The volatility is forcing companies to compete more aggressively for workers, with some skilled warehouse employees leaving for more stable positions in fast food, where minimum wage increases have made those jobs more attractive. “If you’ve got skilled workers and they find that they could get more steady hours and steady pay, making $20 or $25 an hour in fast food, maybe again, they shift and go to a different industry altogether,” Labar explained.

Despite the current challenges, the NAIOP forecast suggests the downturn may be temporary. The report projects that net absorption will remain nearly flat through the second half of 2025 at just 2.8 million square feet, but expects a recovery beginning in the second quarter of 2026, with full-year absorption reaching 119.3 million square feet.

The recovery timeline depends largely on reduced uncertainty around trade policy and potential Federal Reserve interest rate cuts. “Falling rates and greater clarity on tariffs could reduce uncertainty and spur greater demand for industrial space, leading to a return to positive absorption in early 2026,” the authors write.

However, the market faces structural headwinds. With 194.6 million square feet of new industrial space delivered in the first half of 2025 and roughly 466 million square feet still under construction, supply continues to outstrip demand. The vacancy rate has already increased by 50 basis points to 6.7 percent, and may continue rising until demand catches up with new deliveries.

Beth Gutelius, an urban planning researcher at the University of Illinois, Chicago, views the warehouse slump as a broader economic indicator. “I think it is a bit of a leading indicator, especially if you look at employment with the real estate market, which are both softening right now,” she told Marketplace.

As the industrial real estate market navigates this unprecedented period of uncertainty, the sector that has been a bellwether for economic activity finds itself at the center of broader questions about trade policy, supply chain resilience, and economic stability in an increasingly volatile global environment. With China-to-U.S. trade flows down by a third and supply chains actively diversifying away from traditional routes, the warehouse industry faces a fundamental recalibration that could reshape the sector for years to come.