Industrial Real Estate Tightens as Last-Mile Demand Surges
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The signal
The industrial real estate market has completed its post-COVID correction cycle and is now entering a period of meaningful tightening, according to Link Logistics leadership. After years of oversupply driven by aggressive pandemic-era development, the convergence of rising tenant demand with a sharply reduced construction pipeline is reshaping the landscape—with particular benefits for owner-operators positioned in small-bay, infill, last-mile locations. The shift stems from multiple demand drivers. 2 million square feet of additional industrial demand.
Data center infrastructure buildout, accelerated by AI deployment, is generating a second wave of demand—both direct (construction and maintenance teams need proximity to facilities) and indirect (spillover demand from supporting businesses). Phoenix exemplifies this dynamic, with 36 semiconductor companies locating to the Greater Phoenix area since 2021 and approximately 2 million square feet of spillover demand per gigawatt of data center construction. For supply chain professionals, this tightening presents both opportunity and urgency. 5–6% nationally—well below the 8–9% overall average—making last-mile real estate increasingly scarce and valuable.
Tenant confidence remains robust despite macroeconomic uncertainty around tariffs and trade policy, signaling operational resilience. However, the shift also means rising lease costs and reduced flexibility in site selection. Companies reliant on bulk distribution (500,000+ sq ft buildings) will find conditions more favorable after a difficult 2024, but competition for premium last-mile locations will intensify as e-commerce and 3PLs compete for network density. Strategic site planning and early lease commitment are now critical competitive advantages.
Frequently Asked Questions
What This Means for Your Supply Chain
What if last-mile infill availability drops to 4% or lower?
Model the impact of further compression in small-bay infill warehouse availability (currently 5.5–6% nationally) declining to 4% or below due to continued strong e-commerce and data center demand, combined with minimal new infill construction. Assume tenants competing for scarce last-mile locations experience 15–25% lease cost increases and extended facility search timelines, potentially delaying network deployment by 2–4 months.
Run this scenarioWhat if data center construction accelerates unexpectedly across multiple regions?
Simulate a 20–30% acceleration in data center builds (beyond current AI infrastructure buildout expectations) across Phoenix, Atlanta, Texas, and Midwest markets over the next 18 months. Model spillover demand impact: increased competition for infill facilities near data centers, localized availability compression to <5%, lease cost inflation in affected MSAs, and potential diversion of last-mile capacity from e-commerce logistics to data center support functions.
Run this scenarioWhat if e-commerce growth moderates to 5% annually instead of historical 10%+?
Model a scenario where e-commerce growth deceleration to 5% annual expansion (versus historical 10%+ growth) reduces warehouse absorption from Link Logistics' baseline of 1.2 million sq ft per $1 billion in online sales. Simulate impact on lease rates, tenant demand intensity, and infill facility utilization across major metros. Assess which market segments (bulk vs. infill) stabilize first and where pricing pressure might emerge.
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