New York Industrial Market Faces Supply Glut as Vacancy Climbs to Decade High

February 19, 2026

By: Wiss Team

Wiss Team

New York’s industrial market reached 10.2% availability by the first quarter of 2025, marking an 11th consecutive quarter of rising vacancy and the highest rate in a decade. The metropolitan area—including portions of northern New Jersey and Westchester County—continues struggling with a fundamental imbalance: new construction keeps delivering while tenant demand remains cautious.

The Numbers Tell the Story

Vacancy has more than doubled over the past three years as speculative construction began during the pandemic-era e-commerce surges hits the market. CoStar projects industrial vacancy will peak in 2026 before conditions begin to improve, but that timeline depends on factors such as tariff policy, economic growth, and whether construction finally slows enough for demand to catch up.

The Outer Boroughs showed particularly sharp deterioration, with vacancy climbing 120 basis points quarter-over-quarter in Q3 2025 to reach 6.2%—the highest in recent history according to Cushman & Wakefield data. While still below the broader metro average, the trend indicates pressure spreading beyond traditional warehouse submarkets.

Nationally, industrial vacancy averaged 7.5% in Q3 2025 and is forecast to peak at 7.9% by Q3 2026. New York’s 10.2% significantly exceeds that national benchmark, confirming the metro as an outlier—and not in a positive direction.

The Construction Problem

Much of New York’s vacancy surge stems from a pipeline of warehouses, distribution centers, and logistics facilities that broke ground when market conditions looked dramatically different. Developers betting on sustained e-commerce growth and supply chain reshoring commitments now face a market where tenants are delaying expansion decisions or downsizing space requirements.

Over 55% of under-construction industrial space nationally sits vacant—totaling more than 189 million square feet, double the pre-pandemic maximum. When construction began on these projects, vacancy rates hovered around 4%. By the time they deliver, vacancy has nearly doubled nationally and more than doubled in New York.

The construction pullback is happening, but slowly. Annual deliveries nationally dropped 35% year over year to 280 million square feet in 2025—the lowest since 2017. But that backlog of spec space still needs to lease up before market conditions meaningfully improve.

The Tariff Factor

Victor Rodriguez, senior director of analytics at CoStar, identifies trade policy uncertainty as a significant demand constraint. “Whether you’re a retailer or whether you’re in logistics, it’s essentially resulted in occupiers saying, ‘We’re going to stay on the sidelines and we’re going to wait and see how this situation unfolds,'” Rodriguez told Commercial Observer.

President Trump’s tariff policies—including rates as high as 125% on Chinese imports—create planning paralysis for companies dependent on import logistics. Retailers can’t forecast inventory needs accurately, manufacturers can’t reliably project production costs, and logistics operators can’t commit to long-term space requirements without understanding cost structures.

The National Retail Federation forecasts continued declines in import activity through mid-2026, reinforcing headwinds for port-centric industrial demand. That particularly affects New Jersey’s port-adjacent markets, which have historically commanded premium rents due to their last-mile logistics advantages.

Regional Rent Dynamics

Industrial rents in the Northeast fell 3.8% in 2025 after surging roughly 100% from 2019 to peak levels. The correction reflects vacancy pressure and tenant leverage in negotiations. Landlords facing extended vacancy periods are offering concessions including free rent, tenant improvement allowances, and flexible lease terms.

New Jersey industrial rents averaged $12.06 per square foot at year-end 2025, still well above the national average of $8.87 but down from peak levels. The question is whether rents stabilize at current levels or face further downward pressure if vacancy rates continue to climb through 2026.

Long-term rent growth remains elevated—one-third of U.S. markets saw rents rise more than 50% between 2020 and 2025. Tenants renewing leases signed five or more years ago face significant cost increases even with recent rent corrections, creating occupancy pressure as businesses evaluate whether to renew or downsize.

The Power Infrastructure Wildcard

Beyond traditional logistics demand, industrial markets face new competition for space from power-intensive users. Data centers, advanced manufacturing, and automated distribution facilities all require robust electrical infrastructure—a resource in increasingly short supply.

Projected data center power demand will reach 12% of national electricity consumption by 2028, up from 4% in 2023 according to Berkeley Lab. That creates competition for industrial sites with adequate power capacity, potentially reshaping which locations command premium pricing.

For New York specifically, this dynamic could prove particularly challenging. The region’s aging electrical infrastructure and high energy costs already create competitive disadvantages versus Sun Belt markets. Add power scarcity driven by data center demand, and industrial tenants requiring significant electrical capacity may look elsewhere.

What Landlords Are Doing

Rising vacancy has prompted some landlords to upgrade vacant facilities to remain competitive. Properties that sat half-full during tight markets can now invest in improvements without displacing tenants.

Upgrades targeting automation-ready facilities with higher clear heights, enhanced power infrastructure, and modern loading configurations position properties for tenants prioritizing efficiency over pure square footage. Companies increasingly lease smaller spaces in higher-spec buildings rather than larger footprints in older facilities.

The strategy works if landlords have capital to invest and can afford an extended vacancy during repositioning. Properties with overleveraged capital structures or owners requiring immediate cash flow are less flexible, potentially facing distress as vacancy persists.

The 2026 Outlook

CoStar forecasts industrial demand will increase in the second half of 2026, potentially accelerating the lease-up of the supply overhang. But several headwinds remain: continued supply additions, tenant space givebacks as companies optimize operations, and continued focus on space efficiency.

Markets with elevated new-construction availability—including Trenton, New Jersey—face particular challenges in addressing oversupply. West Coast port markets, despite lower new supply risk, continue underperforming due to trade policy impacts on Chinese imports.

The longer the vacancy stays elevated, the more pressure builds on property valuations and debt service coverage. Industrial properties purchased at peak pricing in 2021-2022 face potential refinancing challenges if appraised values have declined significantly due to weaker market conditions.

For investors, the question is whether current conditions represent a buying opportunity or if further deterioration lies ahead. Cap rates have expanded as vacancy rose, but whether they’ve expanded enough to compensate for continued downside risk depends on conviction around the 2026 recovery timeline.

Industrial Real Estate Tax & Valuation Advisory

Rising vacancy rates create valuation challenges for industrial property owners facing refinancing, partnership buyouts, or disposition decisions. Wiss’s Real Estate Advisory Services help industrial property owners navigate market volatility, evaluate repositioning strategies, structure transactions for optimal tax treatment, and manage property tax assessment appeals in declining markets.

Whether you’re assessing hold-versus-sell decisions, evaluating capital improvement ROI, or managing a portfolio through market uncertainty, our team provides strategic tax and financial advisory.

Contact the Wiss Real Estate Team to discuss your property strategy.

Editorial Note: This article provides general information about industrial real estate market trends and does not constitute investment, tax, or legal advice. Property owners and investors should consult qualified advisors regarding specific investment decisions, valuation matters, and tax strategies. Wiss & Company LLP provides accounting, tax, and advisory services to industrial real estate owners, developers, and institutional investors in the New York-New Jersey metropolitan area and nationally.