Signs of stabilizing demand in Q1, while uncertainty clouds the outlook

Industrial leasing activity showed signs of stabilizing in Q1 despite the unpredictable environment and occupier caution. While volumes in North America fell by 19% from the previous year, the rate of decline slowed from previous quarters. In Europe, take-up was largely unchanged from Q1 2024, whereas absorption in Asia Pacific rose by 20% year-over-year.

However, the imposition of new tariffs by the U.S. administration following the end of the quarter has led to heightened uncertainty as companies wait for additional developments and assess the impact to supply chains, production and the economy. The situation continues to be highly dynamic, and the implications varied across industries and organizations. In this context, occupiers are prioritizing short-term planning and flexibility.

Future trends: Challenges and opportunities for industrial real estate

Short-term: The outlook for industrial real estate is fluid amid an uncertain policy and trade backdrop and economic outlook. Many companies impacted by tariffs are prioritizing short-term planning and flexibility. In this environment, some are accelerating, rerouting or pausing shipments while utilizing overspill space; others are looking for short-term deals or renewals as they put additional decision-making on hold. More domestically focused companies across markets will see less of an immediate impact, though may look to increase inventory levels to build resiliency.

Long-term: The industrial real estate sector faces both challenges and opportunities. E-commerce growth and urbanization will be a continuing stalwart of demand, while the longer-term effects of evolving trade policy are still uncertain and will vary at the city, country and company level depending on tariff levels, industry composition and product substitutability. Supply chains typically require an extended period to adjust, with manufacturing facilities generally taking 3-5 years to bring online; this will slow overall decision-making for companies dependent on international trade until greater clarity emerges. The reshoring of high-value manufacturing operations which are competitive with import costs is likely to keep increasing while diversification efforts will accelerate, leading to greater demand for industrial space equipped to handle advanced production processes and related supply chains in markets less impacted by trade barriers.