When the industrial market peaked in 2022, nearly 800 million square feet of space was under construction across the U.S.—the largest development pipeline in history. Two years later, that wave has finally hit the market, and the story is shifting from euphoria to equilibrium.
To unpack what’s really happening behind the numbers, I sat down with Xander Snyder, Senior Commercial Real Estate Economist at First American. Xander’s career bridges two worlds: family-office investing and macro-economic modeling. He’s spent 15 years studying industrial markets not from a distance but from inside the deals themselves—first as an investor in Los Angeles and now as one of the industry’s most data-driven analysts.
And if you ask him what defines this next industrial chapter, he’ll tell you: rebalancing, right-sizing, and power.
“The pandemic supercharged industrial construction,” Snyder said. “You had record demand for logistics space, zero-interest financing, and global supply chains being rebuilt in real time. Developers responded exactly how they always do—by building everything they could.”
By late 2022, new industrial starts hit a historic peak, about 700 to 800 million square feet under construction nationwide. But as those projects delivered, the market cooled fast. “Demand softened, new construction starts fell off, and now we’re in a classic rebalancing phase,” Snyder said.
That means markets across the Midwest, Chicago, Indianapolis, Columbus, Detroit, and Minneapolis are digesting years of overbuilding. Some are handling it well. Others are showing signs of strain.
Snyder’s data breaks the region into four categories:
What’s driving these differences? Labor, logistics, and local incentives. “Industrial is the purest expression of location, location, location,” Snyder explained. “You need to be on a major artery of distribution, near affordable land, and close to a qualified labor pool. The mix of those factors determines what kind of industrial stock gets built—and how well it performs.”
Across every major Midwest metro, the size of new industrial product ballooned during the boom. In Indianapolis, average deliveries reached 350,000 square feet; Columbus averaged 300,000; Chicago trailed only slightly at 250,000.
That shift toward large-format, high-clear warehouses made sense when national tenants were racing to expand logistics networks. But it also narrowed the pool of potential occupants. “You need to be a pretty big operator to justify half a million square feet,” Snyder noted. “And when corporate occupiers start consolidating or pausing on leases, those big boxes sit.”
Right now, the vacancy spread tells the story clearly:
That imbalance explains why new construction is slowing and why smaller, older industrial spaces is suddenly outperforming.
“Small-bay is where the resilience is,” Snyder said. “Vacancy is tight, the tenant base is broad, and rent growth tends to hold up better because smaller businesses can adjust faster.”
Many of those small tenants, local manufacturers, service companies, and logistics firms were priced out of large Class A warehouses during the last cycle. Now, as those mega-boxes search for tenants, the sub-100,000-square-foot spaces are fully leased and often commanding higher rents per square foot.
Snyder sees an opening for investors and developers willing to modernize the segment. “Most small-bay stock is dated, low ceilings, limited dock space, older mechanical systems,” he said. “If you can deliver modern amenities in that size range, you’ll face less competition and more demand.”
For investors searching for yield, small-bay may also be the fastest path back to positive leverage. “Cap rates have risen roughly 150 to 170 basis points since 2022,” Snyder explained. “That’s painful for valuations but healthy for new buyers, especially those using moderate leverage and disciplined underwriting.”
Developers have noticed. Roughly 60–70% of recent deliveries were speculative builds without tenants in place. Today, that number is falling fast as lenders tighten and developers pivot to build-to-suit projects.
“In high-supply submarkets like eastern Indianapolis or Joliet, everyone’s more cautious,” Snyder said. “You can’t deliver another half-million-square-foot spec box into 10% vacancy.”
This moderation phase could last through 2026, with starts remaining subdued until vacancy levels stabilize. For investors, it’s a reminder that timing and submarket selection matter again.
As the industrial market evolves, power, literally, electrical capacity, is emerging as the next big constraint.
“The sectors driving incremental industrial demand, data centers, cold storage, and advanced manufacturing, are all incredibly energy-intensive,” Snyder said. “In some metros, the grid just can’t handle it.”
Communities across the Midwest are already pushing back. New data center proposals in Chicago’s collar counties and Indianapolis suburbs have met resistance over power costs and infrastructure stress. “Unlike warehouses, which create hundreds of jobs, data centers don’t offer the same local payoff,” Snyder noted. “If electricity prices rise for everyone else, you’ll get political opposition.”
That tension is reshaping site selection. Developers are clustering near substations, transmission corridors, and deregulated energy zones. Meanwhile, some data center REITs are exploring dedicated natural-gas or modular nuclear power sources to secure stable electricity.
In short, power is no longer just a utility; it’s a competitive moat.
Despite short-term vacancy and policy uncertainty, Snyder remains bullish on industrial as an asset class. “Ten years from now, we’ll look back and realize we still underestimated how much space we’d need,” he said.
He sees three enduring drivers:
E-commerce expansion – Even modest annual growth in online retail keeps industrial demand rising.
Supply-chain localization – Nearshoring, reshoring, and manufacturing diversification keep inventory closer to consumers.
Technology & automation – Robotics and AI require more specialized, power-dense facilities, often in industrial footprints, not office towers.
That doesn’t mean every market wins. “Chicago will rebalance slower than Indy or Columbus,” Snyder said. “But long-term, the Midwest remains one of the most strategically located regions for logistics and manufacturing in the world.”
When asked what he’d tell his younger self, Snyder didn’t talk about cap rates or construction costs, he talked about people. “Real estate is a relationship business,” he said. “Data can help you see patterns, but opportunities come from relationships. Build both.”
He’s also a believer in pairing networking with technical skills. “Learn how to model deals, understand debt structures, and pick up some coding or analytics literacy. It’s the combination that gives you an edge.”
His book recommendation? Thinking, Fast and Slow by Daniel Kahneman. “It teaches you how to spot your own cognitive biases before they cost you money,” Snyder said. “That’s as relevant to underwriting as it is to life.”
Industrial real estate isn’t crashing, it’s correcting. The frenzy of 2020–2023 built a foundation that’s now being tested by higher interest rates, vacancy normalization, and a reshuffling of tenant priorities.
The investors who win the next cycle won’t be the ones chasing scale. They’ll be the ones watching power grids, labor pools, and sub-100,000-square-foot inventory.
As Snyder put it, “The long-term demand drivers for industrial are still strong. The short-term pain is the price of recalibration.”
If you would like to learn more about the industrial commercial real estate market, please reach out to our team of commercial real estate brokers in Chicago.
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