2025 Industrial Real Estate: Buy Now or Wait?
- CUPS Realty
- Sep 19
- 2 min read
In 2025, the federal funds rate remains around 4.5%. With tight credit and high borrowing costs, industrial real estate can no longer rely on heavy leverage—asset fundamentals now matter most.
The warehouse boom has cooled. Rents are still rising nationwide, but at a slower pace, while vacancies have climbed to 7.5%–9%, giving tenants leverage for longer rent-free periods. Yet new supply in Q2 2025 was only 71.5 million sq. ft.—the lowest since 2019—with just 241 million sq. ft. under construction, far below prior peaks.
California mirrors national trends but with sharp regional contrasts:
Southern California: Vacancies have rebounded. LA County hit ~6.3% in Q2, a 10-year high; the Inland Empire rose to 8.3%.
Northern California: Bay Area warehouses show ~6% vacancy.
Core markets: LA city and port-adjacent assets remain resilient, with vacancies under 5%.
Rents have stabilized, with some correction. Class A warehouses in LA now lease below $2/sq. ft. per month.
Industrial Real Estate: Buy or Hold?
Lease expiry risks: LA vacancy has hit 6.8%, and reletting cycles are lengthening. Empty space means carrying loan costs.
Below-market rents: Older leases often yield cash flow insufficient to cover today’s financing costs.
Secondary markets: Inland Empire vacancies are 7%–9%, making edge locations more vulnerable.
Debt pressure: High leverage in a high-rate era can quickly turn cash flow negative.
When holding pays off
Strong tenants: Long-term leases with creditworthy occupiers ensure steady income. Brookfield’s $428M deal for 53 warehouses (96% leased) in July shows this logic.
Scarce land: Core hubs like LA and the Bay Area face supply constraints. Even with vacancies rising, long-term demand remains tight.
Key investor metrics
Debt coverage: Can cash flow service interest?
Regional supply-demand: NAIOP projects a soft 2025 but recovery in 2026–27.
Replacement cost: In California, building new warehouses costs $100–$250/sq. ft. plus land/approvals. If resale prices dip below this, buying makes more sense than building.
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