Industrial REITs Are Quietly Having Their Best Quarter in Two Years

Industrial real estate spent most of 2023 and 2024 working through a supply glut. Developers had responded to the pandemic ecommerce boom by building an enormous amount of new warehouse space, and a lot of that capacity came online right as occupancy peaked. Vacancy rates in major logistics markets climbed from the low 3 percent range to over 7 percent in places like the Inland Empire and Phoenix. Rent growth slowed from the 15 to 20 percent annual pace of 2022 to flat or slightly negative in some submarkets.

The cycle has now turned. Q1 2026 data from CBRE, JLL, and Colliers all point in the same direction. Net absorption in US industrial markets was the strongest since Q3 2023. New supply coming online has fallen by roughly 45 percent year over year as developers pulled back after 2024 losses. The supply demand gap that hurt landlords for two years is closing fast.

Prologis, the largest industrial REIT in the country, reported Q1 core FFO up 6 percent year over year and same store NOI growth of 4.7 percent. More important, leasing spreads on new and renewal leases came in at 52 percent on a cash basis. That means tenants rolling off old leases are signing new leases at rents 52 percent above what they were paying. The company guided to full year same store NOI growth of 5 to 6 percent, up from 3.5 percent in 2025.

Rexford Industrial, which focuses on the Southern California infill market, had an even stronger quarter. Cash leasing spreads came in at 78 percent. The company has been one of the biggest beneficiaries of the reshoring and nearshoring trends that are pulling manufacturing and logistics back into the United States after two decades of offshoring. The competition for space in Los Angeles, San Diego, and Orange County is intense and Rexford owns the dominant portfolio.

First Industrial, which has a more diversified geographic footprint, reported occupancy of 96.8 percent with cash leasing spreads of 34 percent. Stag Industrial, focused on secondary and tertiary markets, showed occupancy of 97.1 percent. EastGroup Properties in the Sun Belt reported same store NOI growth of 5.4 percent with cash leasing spreads over 45 percent. The entire sector is performing well, not just the bellwether names.

What is driving the turn? A few things. Ecommerce penetration is growing again after stalling in 2023 and 2024. Amazon, Walmart, and Target are all in expansion mode on their logistics networks. Third party logistics providers like XPO, GXO, and Ryder are signing new contracts to support retail clients who have figured out that slow and expensive shipping hurts their business.

Reshoring is the second driver. CHIPS Act funding continues to flow to domestic semiconductor production. The Inflation Reduction Act incentives have driven significant battery and EV component manufacturing construction. Pharmaceutical companies are moving API production back to the United States after tariff threats made China based supply chains risky. All of that activity requires warehouse and distribution space in the markets that support manufacturing hubs.

Tariff policy is the third driver. With the Trump administration implementing a new tariff framework in 2025, importers have responded by holding higher inventory levels to buffer against policy volatility. That inventory has to go somewhere. Warehouse demand increases almost immediately when importers decide to hold more safety stock. CBRE estimates that the shift to higher inventory levels alone added roughly 80 to 100 million square feet of net demand over the last 18 months.

For investors considering industrial REIT exposure in 2026, there are a few things worth thinking through. Valuations in the sector have compressed over the last two years. Prologis trades at an implied cap rate of around 5.2 percent, roughly in line with the ten year average. Rexford trades at a premium to the sector given its California concentration. Smaller names like First Industrial and EastGroup trade at discounts to the sector leaders but have more concentrated geographic risk.

Dividend yields across the sector are higher than they have been at any point since 2019. Prologis yields 3.4 percent, Rexford yields 4.1 percent, First Industrial yields 3.7 percent, and Stag yields 4.2 percent. Those are not exceptional yields but they come with a growing distribution and an asset base that should continue to see rent growth above inflation for at least the next three to five years.

The risk case is worth naming. Industrial is a cyclical business. If the economy slows meaningfully in the second half of 2026, warehouse demand will follow. Large 3PLs are quick to give back space when contracts expire and volumes slow. The sector has more operating leverage than some investors appreciate. A recession scenario that pushed vacancy back toward 8 or 9 percent would hit FFO and dividend growth across the sector.

But for the base case of continued moderate economic growth, reshoring tailwinds, and supply normalization, the setup is attractive. Industrial real estate is one of the rare property sectors with durable structural demand drivers that do not depend on Fed rate cuts to work. The cycle turned in late 2025 and the Q1 results confirm it. The next twelve to eighteen months should be a good period for the sector.

Most private investors do not need specialized industrial exposure to benefit. A REIT index fund will capture much of the sector performance. For those who want concentrated exposure, Prologis is the obvious anchor. The sector is healthy. The math is working again. And after two years of underperformance, the cycle finally turned.