By Nicholas Drohan, Senior Associate

Bottom Line Up Front: Industrial real estate is experiencing a dramatic bifurcation as tenants abandon older facilities for modern, tech-enabled warehouses, while AI-driven data center demand creates unprecedented investment opportunities for savvy investors looking to capitalize on these trends.

The Great Industrial Divide

The industrial CRE sector is witnessing an unprecedented shift to new vintage, modernized deliveries. In 2024, buildings constructed before 2000 accounted for more than 100 million square feet of negative absorption, while those completed after 2022 posted over 200 million square feet of positive absorption¹.

Despite ongoing economic uncertainty, U.S. industrial demand remained resilient with net absorption of 29.6 million square feet in Q2 2025². However, more than 50 million square feet of that absorption occurred in newer buildings, while older facilities continue to lose tenants.

3PL Providers Drive New Demand

Third-party logistics providers now control 34.1% of bulk industrial leasing activity (100,000+ sq. ft.), up from 30.6% last year³. This surge toward outsourcing creates predictable demand patterns that lenders increasingly favor, as 3PLs typically sign longer leases and have proven business models.

Data Centers: The $7 Trillion Opportunity

AI demand is driving explosive data center growth. McKinsey projects 205 incremental gigawatts of AI-related capacity between 2025 and 2030, requiring an estimated $7.9 trillion in capital expenditures⁴. U.S. data center financings jumped from $30 billion in 2024 to an expected $60 billion this year.

Lenders are creating attractive financing structures by splitting loans between the CRE portion (land/construction financing) and tech equipment (FF&E/C&I financing), providing better blended rates for borrowers.

Market Dynamics Show Discipline

National industrial vacancy reached 7.1% in Q2 2025—the first time above 7% since 2014. However, small warehouses under 100,000 sf remain tight at 4.4% vacancy and command a 31% premium over larger spaces².

Construction has fallen dramatically, with completions down 45% year-over-year. Importantly, build-to-suit deliveries doubled from 17% to 30% of all completions in H1 2025², signaling disciplined, pre-leased development.

Supply Chain Reshuffling Creates Opportunities

Trade policy impacts are reshaping demand geography. The West Region posted negative absorption, with the Inland Empire and Los Angeles losing 1.8 and 1.1 million square feet respectively².

This creates opportunities in markets near the Mexico border and key interstate corridors, including San Antonio, Austin, Dallas-Fort Worth, Kansas City, and Minneapolis.

Strategic Takeaway

Industrial real estate is experiencing a generational reset demanding strategic precision. The flight to quality only accelerates value destruction in older vintage assets while generating healthy returns for modernized data center facilities. The AI-driven data center boom represents the largest infrastructure buildout in modern history—creating unprecedented financing opportunities for those positioned to capitalize on these new trends.

Sources: ¹ CBRE Research, U.S. Real Estate Market Outlook 2025 ² Cushman & Wakefield, Q2 2025 U.S. Industrial MarketBeat Report ³ CBRE, U.S. Real Estate Market Outlook 2025 – Industrial & Logistics ⁴ McKinsey & Company, “The cost of compute: A $7 trillion race to scale data centers,” April 2025