2025 Global Outlook – The Industrial Sector

Indus­tri­al absorp­tion explod­ed dur­ing the pan­dem­ic, and high lev­els of ten­ant demand per­sist­ed for sev­er­al years. This phe­nom­e­non start­ed in the U.S., but quick­ly found its way to the U.K., then to con­ti­nen­tal Europe, and final­ly to Asia and oth­er coun­tries such as Cana­da and Brazil. Watch­ing these trends take place in suc­ces­sion was tru­ly a text­book case of glob­al pat­tern recog­ni­tion. The fun­da­men­tal dri­vers that kick-start­ed that wave of demand are well past their peak, even if they con­tin­ue to have influ­ence into the near future.

In the U.S., we’ve seen a mod­er­a­tion in demand and rent growth from what were unsus­tain­able highs. Like the ini­tial uptick, this slow­ing start­ed in the U.S., spilled over to the U.K., and has found its way into Europe and Asia more recent­ly. Despite the soft­en­ing in fun­da­men­tals, cap­i­tal mar­kets have remained enam­ored with the indus­tri­al sec­tor. As such, the sec­tor remains fair­ly if not ful­ly priced.1 This is par­tic­u­lar­ly true for assets with short-term rollover of sea­soned leas­es where buy­ers can under­write large NOI gains on expir­ing leas­es giv­en the accrued mar­ket rent growth that has occurred since the lease was signed. By way of exam­ple, con­sid­er the chart below, which illus­trates a five-year Syd­ney indus­tri­al lease with CPI-based annu­al rent increas­es that reset to mar­ket every five years.


Industrial Market Rent Growth Has Created Embedded NOI Growth