TAG Industrial Watch: July 5, 2025
With May’s Consumer Price Index up 20 basis points monthly and 2.4% annually, many analysts are wondering when we are going to see the price increases from the president’s tariffs. Based on reports from the warehousing and logistics industry, the answer to that question may be in real time. A recent article from CNBC highlights a logistics company that began repricing millions of products for several retailers to the tune of 8% to 15% in June. In addition to higher prices, store shelves will soon be less crowded with monthly warehouse inventory down 6% in May alone. Retailers who frontloaded the tariffs during the first quarter of the year are taking their time in restocking, even as we get closer to the back-to-school and holiday seasons. While warehouse inventory has fallen from six to three months, the current level is still adequate due to a slowdown in consumer demand.
The troubles in the warehouse and logistics industry are starting to have a big impact on the industrial real estate market as a whole. For 2.5 years, demand within small industrial properties has been in contraction mode as the appetite for space in midsize properties has shown historical weakness, recently contracting in Q1. Yet, total net absorption across all property sizes has remained in positive territory, thanks to big-box warehouses, that is, up to now. With quarterly net absorption among warehouses over 200,000 square feet flirting with contraction for only the second time since full market coverage began 18 years ago, total industrial demand is set to contract for the first time since Q1 2010 (CoStar, top 50 metros, classes A, B, & C). If U.S. import levels continue to decline as export levels hold up, the opportunity for industrial investors to exchange out of import-dependent properties and into export-dependent properties will soon become clear.
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