In Industrial Real Estate, Size Is Everything Right Now

The industrial real estate market has been the commercial real estate sector’s most reliable performer for the better part of a decade, and the headline numbers for 2026 suggest it is not finished. Overall industrial leasing activity reached 490 million square feet in the first half of the year, up 27% from 2025, a pace not seen since the first half of 2022. The overall vacancy rate has held essentially flat at 8.2%. But those aggregate numbers, encouraging as they are, obscure a more interesting story about what is actually happening inside the market. When you break industrial performance down by building size, a clear and significant divergence emerges, one that has meaningful implications for how investors, developers, and tenants think about the sector going forward.

The consumer backdrop that has been driving industrial demand remains strong. E-commerce penetration, which surged during the pandemic and was widely expected to normalize as people returned to physical retail, has instead continued climbing. E-commerce now accounts for a larger share of retail sales than it did even during the height of the pandemic lockdowns, when everyone was forced to buy everything online. That sustained growth has kept warehouse demand elevated well beyond what most forecasters projected in 2022 and 2023. “Real adjusted retail sales are still going up but when you read the news, all you hear is how bad consumer sentiment is,” said Alie Baumann, Senior Director of Real Estate Intelligence at CompStak, which compiles lease-level commercial real estate transaction data and recently produced an industrial market overview in partnership with Savills. “There might be trepidation, but people are still spending.”

That spending has kept the industrial market healthy, but it has not kept rents climbing. Industrial leases have remained steady since late 2023 with year-over-year growth of just 0.4%, effectively flat. “The industrial sector has plateaued in the last few years,” Baumann said. “Some markets actually saw rents correct a bit.” That plateau is partly a function of the supply overhang left by the pandemic-era building boom, when developers raced to meet what turned out to be temporarily elevated demand and delivered more product than the market could absorb quickly. The hangover from that period is still working its way through the system in many markets, keeping overall rent growth subdued even as demand has recovered.

The aggregate numbers, however, are telling an incomplete story. When you break the industrial market down by building size, the plateau disappears for the largest assets. Lease escalations for renewals on spaces 500,000 square feet or larger averaged 84% in the first quarter, more than double the pace of rent growth for smaller renewals. Vacancy for warehouses 750,000 square feet or larger dipped to 7.3% in the first quarter from 8.3% a year earlier, while vacancy for industrial buildings between 200,000 and 500,000 square feet rose to 10.9%. The megawarehouse market is not experiencing a plateau. It is experiencing the conditions of a genuinely tight market, and the rent growth reflects that. “Many of the megawarehouse deals we are seeing are newer buildings that are purpose built for e-commerce,” Baumann said. “It is hard to find space and overcome resistance to get these built.”

That resistance is a structural constraint on supply that is keeping the largest warehouse market tighter than the overall numbers suggest. Large-format industrial development faces a different set of challenges than conventional warehouse construction. The sites capable of accommodating a 1 million square foot or larger facility are limited in most major logistics corridors. Local opposition to large distribution centers, driven by concerns about truck traffic, noise, emissions, and the visual impact of massive buildings on residential and commercial neighbors, has made entitlements increasingly difficult to obtain in many markets. Infrastructure requirements, the road access, utility capacity, and rail connections needed to serve a facility at that scale, add time and cost to the development process. The combined effect is a supply pipeline for megawarehouses that is considerably more constrained than the development activity in smaller industrial segments, which is exactly why the vacancy numbers look so different across size categories.

The demand side of the equation for very large warehouses is also broadening in ways that go beyond e-commerce. The tariff environment and the geopolitical uncertainty around global supply chains have pushed a significant number of companies toward an inventory posture that prioritizes having more space rather than less. “There has been a shift in how companies are approaching their supply chain,” Baumann said. “With all of the tariff talks and geopolitical uncertainty, companies seem to want to have more space than less.” That shift from just-in-time to just-in-case inventory management requires physical space, and the companies that need the most storage capacity are the ones looking for the largest buildings. The Global Supply Chain Pressure Index is at its highest level since July 2022, reflecting lengthening delivery times and growing order backlogs that are pushing companies to hold more inventory as a buffer against disruption. It is not just Amazon and the major e-commerce operators driving demand for megawarehouses. It is the full range of companies that have decided the risk of being caught short on inventory in a volatile trade environment outweighs the cost of leasing more space than they strictly need.

The megawarehouse segment posted the largest single-period share gain among size-based segments in 2026, approaching levels last seen in 2024. That share gain, combined with the vacancy and rent escalation data, makes the size story in industrial real estate unusually clear. The market is not uniform. It is bifurcated by building scale in ways that matter for every decision about where to invest, what to build, and what to lease. The overall picture remains positive. “Across the board it is still a landlord’s market, no matter what the size,” Baumann said. But the landlord’s market for a 1 million square foot building and the landlord’s market for a 250,000 square foot building are operating under very different conditions right now, and the data is making that distinction harder to ignore.