October 8, 2025 | BOMA International, Ella Krygiel
According to NAIOP, economic uncertainty, driven by shifting tariff policies and persistently high interest rates, has taken their toll on industrial real estate activity. Only 27 million square feet were absorbed in the first half of 2025, with demand shrinking by 11.3 million square feet in the second quarter — marking the first quarterly decline since 2010.
As a result, construction costs have reached new heights, adding pressures to projects, both planned and underway. A Cushman & Wakefield analysis estimates that current tariff rates will increase construction material costs by 9% compared to last year. In fact, among all property types, they found that data centers are the most impacted, with a 9.6% cost increase in 2025.
These issues and others were discussed during the JLL webinar, “Cost Optimization in Manufacturing Real Estate: Responding to Global Economic Uncertainty,” recorded on October 7. The panel was moderated by Don Dowden, Managing Director, Manufacturing, and included Scott Little, Senior Director, Consulting; Daniel Rooney, Managing Director, Consulting; Richard Thompson, International Director, Supply Chain & Logistics Solutions, Americas; and Matt Weko, President, Consumer Goods & Services, Work Dynamics.
The panelists spoke about the importance of optimizing supply chain networks, which can yield 8-12% cost savings, and the growing shift toward regionalization as a way to reduce transportation costs and mitigate risk. They also highlighted the need for data-driven decision-making, centralized real estate strategies and the use of technology, especially AI, to improve efficiency.
“Resurgence in manufacturing is real,” said Thompson. “Freight costs are typically the number one operating cost which are continuing to go up.” He also noted that labor and inventory costs are climbing as well.
Despite these challenges, the panelists outlined ways for CRE professionals to stay prepared in this uncertain environment, especially at a time when many companies are hesitant to make any dramatic changes to their portfolios.
“Understand where you stand in terms of utilization efficiency within the manufacturing and distribution portfolio,” Rooney emphasized. He spoke about the importance of organizing and analyzing your data. Understanding the total cost of ownership—across operating and capital expenses, and by site and location—can help companies make smarter, more strategic decisions.
Dowden added: “Oftentimes, we go to clients and they’re focusing on delivering savings through FM, which are really pennies on the dollar compared to what could be savings that could be generated with portfolio optimization.”
Looking ahead, some are questioning whether contracts should avoid cost increases by sourcing products domestically. However, according to Cushman & Wakefield, that shift may take time. At present, U.S. production capacity cannot meet domestic demand for most key building materials. They suggest that significant investment and modernization of existing facilities will be needed if the U.S. is to become self-sufficient in sourcing.
GlobeSt. encourages CRE professionals to respond proactively to these changes, offering the following advice:
- Start Early on Tariff Mitigation: Begin identifying and addressing tariff exposure early in the project lifecycle.
- Implement Integrated Project Controls: Use detailed planning and controls from the outset, especially for complex projects at risk of cost overruns.
- Engage Local Stakeholders Strategically: Work closely with local officials and utility providers not only for compliance but also to anticipate challenges and tap into regional resources.
Overall, while economic uncertainty has caused industrial net absorption to fall flat over the second half of 2025, the NAIOP forecast predicts that demand will begin to grow again in 2026. This outlook reinforces the importance of proactive planning and strategic decision-making now, as companies position themselves for what’s ahead.
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