May 2026 Industrial Report: Consequences of Iran Conflict Affect Industrial Sector

Key Takeaways:

• Ongoing conflicts in Iran and the wider region, in addition to the disruption of shipping through the Strait of Hormuz, are taking a toll on global supply chains and logistics costs.
• In-place rents for industrial space averaged $9.08 per square foot at the end of April, marking a 5.3% year-over-year (Y-o-Y) increase.
• Industrial vacancies reached 9.1% nationwide last month after a 30-basis-point (bps) increase since April 2025.
• Currently, 359.6 million square feet of industrial space is being built across the U.S., representing roughly 1.7% of stock.
• Industrial sales totaled nearly $24 billion in April, with Dallas, New Jersey, Detroit, Atlanta, and Chicago each surpassing $1 billion in market-wide sales volume.

Regional Highlights:

• Phoenix tops Western markets for industrial sales with $948 million in transactions to date as Denver sales volume grows 297% Y-o-Y.
• Kansas City, Mo., continues to have the lowest vacancy rate among major U.S. industrial markets at 5%.
• Dallas’ pipeline reaches 28.7 million square feet, while Baltimore industrial development hits a 125% Y-o-Y expansion.
• Philadelphia remains the most affordable Northeastern hub with industrial rates averaging $8.61 per square foot in April, just below the $9.08 national threshold.

Trends & Industry News

Consequences of Conflict Ripple Through Industrial Sector

Global logistics costs and supply chains are starting to feel the effect of the ongoing conflict in Iran and the disruption to shipping through the Strait of Hormuz. The most immediate and consequential disruption is the energy shock.

Prior to the current conflict, approximately 20% of global oil supply moved through the strait. Accordingly, shuttering it has caused one of the largest shocks suffered by the global oil market as gasoline, jet, and maritime fuel prices have all risen sharply — and, in turn, increased shipping costs at every point along the supply chain.

What’s more, damage sustained by refining facilities in the region raises questions about how quickly energy markets will stabilize once the conflict against Iran ends.

“As manufacturing and logistics investment and growth strategies are being evaluated and adjusted with higher transportation costs, spending from the inflation-fatigued consumer and what $4.50 gas changes in how people spend are of concern.”

Peter Kolaczynski, Director, Yardi Research

That said, higher transportation costs will increase the value of location in the industrial real estate sector because reducing delivery distances and keeping inventory closer to customers will become a key priority. Thus, similar to strategies implemented at the start of pandemic, site selection will likely become a primary driver of leasing decisions yet again. Consequently, buyers are likely to favor infill facilities, properties adjacent to seaports, rail hubs and highway networks.

Looking at the wider context, the longer the conflict continues, the more the global economy will struggle with higher energy costs, longer shipping times and tighter supply of many industrial inputs. As such, this disruption is likely to accelerate the regionalization of supply chains that followed the onset of the pandemic.

Finally, higher energy costs will weigh down consumer spending, which is likely to negatively affect the demand for goods. A slowdown in consumer spending is also likely to reduce warehouse demand for distribution and fulfillment space as compared to the start-of-the-decade highs of the e-commerce expansion-driven boom in industrial leasing.

Rents & Occupancy

Rent Growth Softens in Southern California Markets

During the month of April, national in-place rents for industrial space averaged $9.08 per square foot. This represented a $0.05 increase from the preceding month and a 5.3% rise in the last 12 months. Zooming in to individual market levels, Atlanta maintained its leading position for in-place rent growth with an 8.1% Y-o-Y increase last month. Then, California’s Inland Empire market followed in second place (7.1%). Meanwhile, Miami industrial space saw the third-largest 12-month increase in rents (6.9%) followed by Tampa, Fla., (6.7%) and Boston (6.6%).

 

Nationally, the vacancy rate finished at 9.1%, reflecting a 30-bps increase throughout the course of the last 12 months. Notably, vacancies have generally plateaued since the second half of last year. At the same time, deliveries have leveled off and demand remains solid, although unspectacular.

In the same way, the national spread has also narrowed in recent quarters with newly signed leases now slightly below dominating market averages in many areas. This indicates that negotiating leverage has shifted back toward tenants — a trend that’s currently visible in Southern California.

Specifically, the red-hot rent growth recorded in the Orange County and Los Angeles markets in the recent past has now slowed as new leases are being priced at less than the in-place averages. For example, leases for industrial space in Los Angeles signed within the last year were $1.51 per square foot lower than the market average, whereas, in Orange County, they were $0.61 lower.

However, this dynamic is unlikely to persist. That’s because space for new development in Southern California is more limited than it was at the start of the decade and the supply boom in the region has subsided. Furthermore, the ports of Los Angeles and Long Beach remain the busiest in the country. Together, this combination of factors supports long-term demand.

Supply

Dallas Maintains Lead in Construction Pipeline

Currently, 359.6 million square feet of industrial space is under construction nationally, representing 1.7% of total stock. Within this environment, Dallas continues to outpace all other markets when it comes to industrial supply. More precisely, in April, developers here had 28.6 million square feet of space underway, representing 2.7% of stock.

It’s worth noting that the Texas market was one of the few to see construction starts increase in 2025: The 28 million square feet of new industrial space in Dallas led the U.S. last year and slightly eclipsed the market’s 2024 total of 24.7 million square feet.

What’s more, in 2022 and 2023, developers here delivered a staggering 116.8 million square feet of industrial space (11.1% of stock) and added another 51.6 million square feet from 2024 through 2025. As a result, the supply surge of recent years boosted the market’s vacancy rate to 9.7%. Still, demand in the region has been consistently solid and developers remain bullish on Dallas’ long-term fundamentals.

Transactions

Philadelphia YTD Sales Surpass $700 Million

According to Yardi Matrix data, the industrial sector saw $23.9 billion in transactions during the first four months of the year with assets trading at an average price of $138 per square foot.

With that, transactions closed in the City of Brotherly Love during the first three months of this year made for the second-strongest Q1 in the last seven years, second only to Q1 2025. And, while the average sale price per square foot dropped from the highs of last year’s Q4, values nevertheless remained on an upward trend.

As a matter of fact, one of the highest rates of sale price growth in the country has been in Philadelphia, where strong demand for logistics space, a densely populated area and an efficient port have sustained investor appetite for local assets. Accordingly, the average sale price of industrial space in Philadelphia has grown more than 150% from 2019 to 2026. Then, in the first four months of the year, sales closed here surpassed $700 million to place Philadelphia slightly ahead of California’s Inland Empire for sales at the start of Q2.

Western Markets

Denver Logs 297% Surge in Y-o-Y Industrial Sales

Across Western markets, Phoenix has overtaken Los Angeles in terms of year-to-date industrial sales following a 49% month-over-month jump that brought its total volume up to $948 million in April. More precisely, Phoenix prices averaged $162 per square foot, up roughly 4% compared to the previous month, but 12% lower year-over-year.

Phoenix’s 19.4-million-square-foot pipeline represents roughly 4.3% of the market’s current stock, which rose 26% Y-o-Y. In this case, the list of industrial projects currently under construction in the metro features massive developments such as Burlington’s 2-million-square-foot distribution center in Buckeye, Ariz., and LG Energy Solution’s 1.3-million-square-foot battery manufacturing campus in Queen Creek, Ariz.

Meanwhile, Seattle boasted the highest monthly percentage growth by shooting up 178% to reach $541 million with deals such as Amazon’s $220 million acquisition of the Frederickson industrial portfolio (which changed hands in the closing days of April) driving up total volume. Finally, year-over-year, Denver and Portland, Ore., recorded the most significant increases at 297% and 295%, respectively.

 

Down in Inland Empire, Calif., average rents increased 7% during the last 12 months to reach $12.22 per square foot in April. This was the second-highest percentage increase in this period, behind Atlanta (8%). Likewise, lease rates grew 3% month-over-month in California’s Central Valley — the highest uptick across Western markets and second only to Nashville, Tenn., (3.2%) at the national level. At the opposite end, Denver witnessed the most noteworthy dip in average industrial rents after going from $9.87 per square foot in March to $9.66 per square foot in April.

Otherwise, vacancy rates in all but three Western markets (Inland Empire, Calif.; Orange County, Calif.; and Phoenix) remain firmly above the national average of 9.1%. Meanwhile, in Seattle, the vacancy rate grew by 330 bps Y-o-Y to reach the 11.6% mark in April.

Midwestern Markets

Cincinnati & Detroit Vacancies Surge 150 bps Y-o-Y

Kansas City, Mo., has the lowest vacancy rate not just among Midwestern markets, but nationally, as well, standing at 5% as of April. In fact, vacancies for industrial properties in Kansas City remained stable and unchanged both compared to the previous month, as well as throughout a 12-month period.

Next, Cincinnati — which currently has a 10% vacancy rate — is the only market in the region to exceed the national average after a 150-bps Y-o-Y increase. Moreover, Cincinnati recorded one of the most significant regional upticks (5.6%) in industrial rents in the last 12 months, while still maintaining some of the most affordable leasing options on the market.

For comparison, lease spreads are relatively narrow in Detroit and Chicago — with a modest $0.30 premium on new leases compared to in-place rents — and outright negative in Kansas City, Mo., and St. Louis as landlords lower prices to attract or retain existing tenants.

 

However, Columbus, Ohio, and Chicago continue to be the main focus of Midwestern construction activity with both markets also recording significant year-over-year increases (65% and 68%, respectively). To be precise, ongoing industrial developments in Columbus make up nearly 4% of the market’s total inventory, whereas, in Chicago, developers continue to be measured in terms of speculative projects, thereby leaning more toward build-to-suit tenant developments along certain logistics corridors (such as I-55 and I-80).

To that end, projects such as Aligned Data Center’s 473,000-square-foot, CMH-02 artificial intelligence campus and the 265,000-square-foot Schaeffler plant are part of Cleveland’s expanding industrial pipeline, which has grown 112% Y-o-Y. That places it among the nation’s fastest-growing industrial markets behind the likes of Bridgeport, Conn.; Boston; and Baltimore.

Meanwhile, Chicago’s year-to-date total surpassed $1 billion in April. In this case, transactions of Chicago industrial space amounted to the second-largest total in the Midwest and fifth-largest nationwide last month.

Southern Markets

Baltimore Records 125% Y-o-Y Surge in Under-Construction Projects

Across Southern markets, Dallas boasts the most active pipeline with 28.7 million square feet of industrial space currently under development, followed by Houston with 21 million square feet. New projects represent roughly 3% of total stock in both markets. Year-over-year, Baltimore and Nashville, Tenn., stood out as their volumes of projects under construction rose by 125% and 65%, respectively. Then, in terms of month-over-month growth, Memphis, Tenn., witnessed double-digit growth (11%), while Charlotte, N.C., (6%) and Nashville, Tenn., (4%) were the only other Midwestern markets to have expanded their pipeline.

Interestingly, Nashville, Tenn., is one of the Southern markets that experienced a reduction in its vacancy rates, both compared to the previous month (30 bps) and year-over-year (210 bps). In contrast, Charlotte, N.C., currently has the highest industrial vacancies within the region at 11% after rising by 110 bps Y-o-Y.

 

Although Atlanta continues to be one of the most cost-efficient industrial markets across the South, as well as nationally — with average rents at $6.84 per square foot in April — it also claims the highest-percentage growth during the last 12 months (8.1%) to outpace the likes of Boston (6.6%) and Inland Empire, Calif. (7.1%). Even so, on a monthly basis, Nashville, Tenn., rents showed the most noticeable movement across the region with average lease rates growing 3.2% since April to $7.17 per square foot.

But, in terms of year-to-date transactions, Dallas and Atlanta dominate the region and are among the top U.S. markets with more than $1 billion in industrial assets traded since the start of the year: Dallas totaled $1.8 billion after an 86% Y-o-Y increase, while Atlanta’s sales volume shot up by an impressive 359% in the same period to total $1.2 billion.

However, since April, the most significant monthly increase in sales activity occurred in Memphis, Tenn., (729%) where year-to-date sales hit $212 million as development and investment company Industrial Provident took ownership of a 13-building portfolio totaling roughly 2.5 million square feet spread across the entire metropolitan area.

Northeastern Markets

Cost-Effective Lease Option Across Northeast: Philadelphia Industrial Rents Average $8.61 Per Square Foot in April

While Philadelphia remained the region’s most affordable industrial leasing market in April at $8.61 per square foot, its lease spread was remarkably tight. Specifically, the difference between its in-place rents and agreements signed during the trailing 12 months stood at just 5%. For comparison, other markets in the region saw much wider lease spreads, indicating a substantial premium on new leases. Namely, Boston recorded a 22% gap representing a $2.80 premium, while Bridgeport, Conn., logged a significant 32% difference that translates to a $3.30 premium for new space.

Next, while New Jersey retains its position as the most active Northeastern market in terms of industrial sales, Boston also picked up speed throughout the last month. Here, transaction volume went up 107% to a total of $628 million with average prices of $231 per square foot — the highest in across the region. There’s also been significant growth on a year-over-year basis with 140% more industrial square footage traded in Boston. To the west, Philadelphia recorded a 289% Y-o-Y hike with its year-to-date total standing at $716 million.

 

Then, despite a nearly 6% contraction since April, Boston is the second-fastest growing Northeastern industrial pipeline year-over-year (192%). Currently, it encompasses roughly 2.1 million square feet of space under construction. Boston is only outdone by New Jersey — the regional leader in terms of industrial development volume in April — which expanded its pipeline by 18% Y-o-Y to a current total of 7.4 million square feet. Notably, in this region, new projects constitute less than 2% of inventory in all but one Northeastern market (Bridgeport, Conn.), signaling a measured approach to stock development.

To that end, throughout April, markets across the region have demonstrated relative stability in regards to their vacancy rates: Philadelphia vacancies remain unchanged at 9.4%, just above the nationwide average of 9.1%, and Boston vacancies currently stand at 12.1%, marking a 180-bps rise year-over-year. And, while Bridgeport, Conn.’s rates are the lowest across the region, its vacancies have gained 250 bps Y-o-Y — the most drastic change for this indicator throughout all of our Northeastern markets.

Economic Indicators

Producer Prices Spike Due to Energy Costs

According to the U.S. Bureau of Labor Statistics, producer price increases hit a four-year high in April: The Producer Price Index (PPI) posted the largest monthly gain since March 2022 last month (1.4%) and the biggest annual increase since December 2022 (6% Y-o-Y).

While the goods portion of the PPI grew 2% from the previous month and 7.4% Y-o-Y, the services portion increased 1.2% monthly and 5.5% annually. Notably, more than 75% of the gains were driven by a 7.8% increase in the cost of energy.

 

Lastly, during the 2012-2023 wave of inflation, the trend in the PPI generally ran two to three months ahead of the Consumer Price Index. Although higher producer prices may not be fully passed on to the consumer, high energy prices will nevertheless cut into consumer spending, which, in turn, will lower demand for consumer goods and decrease firms’ pricing power.

Methodology

The monthly CommercialCafe national industrial real estate report considers data recorded throughout the course of 12 months and tracks top U.S. industrial markets with a focus on average rents; vacancies (including subleases, but excluding owner-occupied properties); deals closed; pipeline yield; forecasts; and the economic indicators most relevant to the performance of the industrial sector. Listing rate and occupancy information was based on Yardi Research data.

• Average Rents: Provided by Yardi Market Expert, a cutting-edge service that uses anonymized and aggregated data from other Yardi platforms to provide the most accurate rental and expense information available.

• Vacancy: The total square feet vacant in a market, including subleases, divided by the total square feet of industrial space in that market. Owner-occupied buildings are not included in vacancy calculations.

Stages of the supply pipeline: 

• Planned: Buildings that are currently in the process of acquiring zoning approval and permits, but have not yet begun construction.

• Under Construction: Buildings for which construction and excavation have begun.

Sales volume and price-per-square-foot calculations for portfolio transactions or those with unpublished dollar values are estimated using sales comps based on similar sales in the market and submarket; use type; location and asset ratings; sale date; and property size.

Year-to-date metrics and data include the time period between January 1 of the current year through the month prior to publishing the report.

Market boundaries in the CommercialCafe industrial report coincide with those defined by the CommercialCafe Markets Map and may differ from regional boundaries defined by other sources.

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