Industrial property demand projected to cool; Healthcare leads job gains; Tariffs could weigh on trucking business

U.S. industrial space demand has tapered off in recent quarters after a pandemic-fueled surge in warehousing and e-commerce distribution. That slowdown is expected to continue in the first half of 2025 before demand picks up in the second half, according to a new forecast report from NAIOP.

The outlook calls for net industrial space absorption — tenant move-ins minus move-outs — to reach 52.2 million square feet in the first half of this year, accelerating to 156.4 million square feet in the second half. The trade group noted net absorption posted at 96.9 million square feet in the second half of 2024, bringing the full-year total to 170.8 million square feet, the lowest annual growth since 2011.

“After years of record-setting expansion, tenants are slowing the pace at which they lease new space as they wait for interest rates to stabilize and for clarity on trade and fiscal policy,” NAIOP President and CEO Marc Selvitelli said in a statement. “Real estate is always cyclical, and while the rate of growth has decelerated, the sector remains robust and poised for steady growth moving forward.”

Authored by economists Hany Guirguis of Manhattan University and Joshua Harris of Fordham University, the NAIOP forecast said industrial property users remain cautious about future economic conditions despite consumer spending growth that remains healthy by historical standards.

Prospective industrial tenants are less willing to occupy space ahead of current needs than in previous years, but that could change as the economy by most measures is expected to continue growing in 2025 and beyond, the economists said.

The latest jobs report was not expected to spur immediate changes in interest rates by the Federal Reserve, after the U.S. added a lower-than-expected but still healthy 151,000 jobs in February. The unemployment rate was 4.1%, up from 4% in January but staying low by historical standards.

Labor Department numbers showed top industry gainers included healthcare at 52,000, financial services at 21,000 and transportation and warehousing at 18,000. Retail posted a decline of 6,000 from the prior month, with leisure and hospitality down 16,000, both reflecting slowed consumer demand. Federal government jobs declined by 10,000 amid ongoing agency reductions.

With its next rate-setting meeting scheduled for March 18-19, Federal Reserve Chairman Jerome Powell said Friday that the central bank is waiting to see how trade and other policy shifts by the Trump administration play out before making its next interest rate shift. Powell told a monetary policy forum that “uncertainty around the changes and their likely effects remains high.”

“Taken as a whole, the February employment report was a touch softer than expected, but not weak enough to move the Federal Reserve off the sidelines while it waits for more progress on lowering inflation,” said Nancy Vanden Houten, lead U.S. economist at research firm Oxford Economics, in a statement on the latest job numbers.

The Associated Builders and Contractors trade group said February’s growth of 19,000 for construction jobs marked the industry’s strongest month for growth since the third quarter of 2024.

“Federal job and spending cuts, as well as elevated uncertainty, could eventually diminish construction activity at the margins, but those effects have yet to appear in these employment data,” ABC Chief Economist Anirban Basu said in a statement. 

The trucking industry is among several now watching closely for the results of pending U.S. trade tariffs on goods from Canada and Mexico, with some analysts warning of reduced cargo volumes and the need to reduce workforces tied to cross-border freight transit.

The American Trucking Associations trade group said potential reductions in cargo business could significantly affect around 100,000 full-time truckers hauling about 85% of goods traded with Mexico and 67% of goods traded with Canada.

“Not only will tariffs reduce cross-border freight, but they will also increase operational costs,” ATA CEO Chris Spear said in a statement. “The price tag of a new truck could rise by up to $35,000, amounting to a $2 billion annual tax and putting new equipment out of reach for small carriers.”

Other analysts have reported that shifts in trucking volume often affect demand for real estate tied to truck manufacturing, storage and dispatching.

According to the Canadian Trucking Alliance trade group, trucking moves about 70% of the nearly $80 billion in goods transported monthly between the U.S. and Canada. Recent trade group surveys found customers of Canadian trucking companies have already begun canceling orders in the weeks leading up to a 25% U.S. tariff on Canadian goods, now slated to take effect April 2.