The industrial real estate sector had one of the most dramatic run-ups in commercial real estate history. From 2020 through 2022, demand from e-commerce, supply chain restructuring, and pandemic-era inventory stockpiling drove vacancy to historic lows and rents to levels that seemed implausible a decade earlier. Then the correction came. Overbuilding in secondary markets, inventory normalization, and economic uncertainty cooled the frenzied pace. By 2025, the story had become more complicated to tell.
But here is what that narrative misses: inside the headline numbers, a quiet and permanent bifurcation has taken hold. Industrial real estate is no longer a single market. It is two markets — buildings with the electrical infrastructure to support modern operations, and everything else. The gap between them is widening, and it is not going to close. This is one of the most consequential dynamics across the 20 CRE sectors BestCRE covers, and it sits at the intersection of Asset Classes, Market Analytics, and Underwriting.
The Spec Premium Was Born After 2020
When e-commerce acceleration forced the logistics industry to move faster and operate at greater density, warehouses had to get smarter. Automated storage and retrieval systems, conveyor networks, robotics-assisted picking, EV charging for last-mile delivery fleets, cold chain automation — all of it requires power. Not the modest electrical service that a conventional warehouse was designed to carry, but significantly higher amperage, more sophisticated electrical distribution, and the structural capacity to handle the loads that modern operations demand.
Buildings constructed or substantially renovated after 2020 were generally designed with these requirements in mind. They went up with heavier electrical service — often 3,000 to 4,000 amps at 277/480V — robust clear heights, and mechanical systems that could flex as tenant needs evolved. Buildings constructed before that window frequently were not. Retrofitting older facilities for higher electrical capacity is possible, but it is not a quick fix. The process requires utility approvals, new service entrance equipment, internal distribution upgrades, and often structural modifications. Depending on the utility and the jurisdiction, that timeline runs six to twelve months at minimum, and frequently longer in markets where the utility’s own interconnection queue is backed up.
The market has responded exactly as you would expect. Power-ready buildings lease faster — not necessarily at higher face rents in every case, but with stronger absorption, shorter concession packages, and better tenant retention. Modern facilities with post-2020 specs are generating up to 90 percent more net operating income per square foot than older stock, according to CBRE research. Only 25 percent of the current U.S. industrial inventory was built after 2010. That scarcity is the structural story underneath the headline vacancy numbers that have caused concern in some markets.
Automation Is the Engine, Not the Exception
The electrical spec premium exists because automation has moved from competitive advantage to operational necessity for most large industrial tenants. Third-party logistics operators, e-commerce fulfillment tenants, and manufacturers dealing with persistent labor market tightness have all accelerated automation deployment over the past three years. Robotics-assisted picking, autonomous mobile robots navigating warehouse floors, and AI-driven inventory management systems all share a common requirement: they need power, reliable power, and in quantities that older buildings were never designed to deliver.
This shift has changed what tenants evaluate during site selection in a fundamental way. As Blake Chroman of Sitex Group has described it, the conversation has moved beyond rent. Tenants are evaluating total occupancy cost — which means factoring in the cost of downtime from inadequate infrastructure, the timeline and expense of electrical upgrades if the building does not already meet their requirements, and the operational drag of running automation-dependent workflows in a facility that was designed for manual labor. When you run those numbers, a building with $0.05 per square foot higher base rent but move-in-ready electrical service frequently wins on total cost over a building that looks cheaper on the rent line but requires a six-month upgrade and a capital investment to reach operational readiness.
Sustainability considerations are compounding this dynamic. Rooftop solar installations, energy-efficient HVAC systems, and pre-purchased power capacity have moved from ESG talking points to leasing velocity drivers. Link Logistics has identified sustainability infrastructure as a clear determinant of how quickly buildings lease. Tenants operating under Scope 1 and Scope 2 emissions commitments are actively prioritizing buildings where they can plug into renewable power or install their own generation without structural obstacles. A building that cannot support a solar installation — whether because the roof was not engineered for the load, or because the electrical service cannot absorb the output — is a building that loses a growing category of tenant before the conversation even starts.
Reshoring Is Adding a New Layer of Power Demand
Manufacturing reshoring and nearshoring have introduced a demand driver into industrial real estate that operates differently from logistics and e-commerce. Logistics tenants need power for automation. Manufacturing tenants need power for production — and the scale of that requirement is substantially larger, the timeline for decision-making is longer, and the commitment is typically deeper.
The projects making news illustrate the scale involved. Eli Lilly’s $6 billion manufacturing investment in Alabama is the largest private industrial project in that state’s history. Hyundai’s $7.6 billion manufacturing facility in Ellabell, Georgia represents a similar scale of commitment. These are not traditional warehouse deals. They are purpose-built, power-intensive, long-duration land plays that reshape the industrial real estate landscape of entire submarkets. Across the Southeast and Central U.S., manufacturing now accounts for 20 percent of new industrial leasing — a share that has grown meaningfully over the past two years.
The infrastructure implications reach beyond the individual facilities. When a large manufacturer commits to a location, it creates downstream demand from suppliers, component manufacturers, and logistics operators who need to be proximate to the production facility. That clustering effect multiplies the real estate footprint and compounds the grid stress on the local utility. Markets that have proactively upgraded transmission and distribution infrastructure to attract manufacturing are positioned to capture more of this demand. Markets that have not face a self-reinforcing disadvantage — manufacturers hesitate because the power is uncertain, so the utility lacks the revenue justification to upgrade, so the power remains uncertain.
For investors tracking where the best CRE data center capital is flowing, the competition between data centers and manufacturing for grid capacity in secondary and tertiary markets is a real and underreported dynamic. Both sectors are power-intensive, both are expanding into markets that were not historically industrial powerhouses, and both are arriving faster than utility infrastructure was designed to accommodate.
The Supply Pipeline Tells the Real Story
One of the most important signals in industrial real estate right now is what is not being built. The industrial construction pipeline has contracted by approximately 70 percent from its peak, with delivery levels on track to hit a post-Global Financial Crisis low by 2027. In a sector where the headline narrative has focused on oversupply concerns, this contraction is significant.
The oversupply story was real — but it was concentrated. Markets that absorbed enormous speculative development between 2021 and 2023 built ahead of demand, particularly in the Sunbelt and certain Midwestern markets, and are still working through that excess inventory. National vacancy reached approximately 7 percent by late 2025, but that headline number obscures wide dispersion. Core logistics hubs — markets where travel times allow goods to reach most of the U.S. population within one to two days — have tightened faster than secondary markets and are approaching equilibrium. Chicago, with its unmatched national distribution geometry, exemplifies the dynamic. The Midwest broadly, Texas, and the Southeast are benefiting from a combination of population growth, manufacturing reshoring, and port access that is generating sustained demand.
The pipeline contraction matters for investors with a two to three year horizon because it sets up a potential supply shortage in precisely the markets where demand remains structurest. New construction has become more expensive and more complicated — construction costs are up substantially over the past four years while rents have not kept pace with those cost increases in all markets, compressing development yields and deterring speculative starts. When demand reaccelerates — and the structural drivers of industrial demand, from e-commerce to reshoring to automation deployment, are not cyclical — the pipeline will not be there to meet it immediately. The markets best positioned to absorb that imbalance will be those with modern, power-ready inventory already in place.
What AI Is Changing in Industrial Operations
The deployment of AI inside industrial facilities is accelerating along two distinct tracks. The first is operational: AI-driven warehouse management systems, demand forecasting tools, and robotics coordination software are reducing labor requirements and increasing throughput in well-capitalized logistics operations. These tools work best in facilities with the electrical and data infrastructure to support them — another dimension of the spec premium.
The second track is real estate intelligence. AI platforms designed for CRE analysis are beginning to give industrial investors and developers tools for evaluating power availability, submarket fundamentals, and asset quality at a level of granularity that was previously available only to the largest institutional players with deep research teams. This matters because the industrial market’s bifurcation — between high-spec and legacy assets, between supply-constrained core markets and oversupplied secondary markets — requires submarket-level analysis that broad market reports cannot provide. The 9AI Framework that BestCRE uses to evaluate CRE AI platforms pays close attention to whether tools can parse this kind of nuance at the asset level, not just the market level.
The industrial operators who are leaning into AI for energy management are generating a distinct competitive advantage. Companies deploying energy storage solutions, predictive monitoring for electrical systems, and AI-optimized power consumption are not just reducing their utility costs — they are building resilience against grid volatility that is becoming a more frequent operational risk. ABB’s analysis of industrial energy management in 2026 captures this shift precisely: the industrial leaders gaining ground are treating energy as a strategic asset, not a background utility. The companies waiting for someone else to solve their power problem are watching competitors secure advantages they will pay premium prices to access later.
How Investors Should Be Reading This Market
The industrial market in 2026 rewards precision. Blanket exposure to the sector through diversified vehicles will capture the mean, but the mean is not where the premium returns are. The premium returns are in modern assets in high-conviction markets — specifically, assets with electrical infrastructure already suited for automation and manufacturing tenants, located in markets where supply-demand imbalances are developing or already present.
The acquisition case for well-specified older product is also real, but it requires underwriting discipline. A building with a strong location, good clear heights, and adequate land coverage that is currently underserved on electrical capacity can be repositioned — but only if the investor has accurately modeled the utility timeline, the capital cost of the upgrade, and the carrying cost during the gap between acquisition and tenant delivery. Those who have done that work carefully have found attractive basis opportunities in a market where institutional capital has been selective. Those who have underestimated the utility timeline have been surprised.
The emerging "lifetime landlord" model gaining traction in institutional industrial investment reflects a related insight. Long-term tenant relationships, built around operational partnership rather than transactional leasing, produce better outcomes in a market where tenant switching costs — driven largely by the cost and time required to set up automation in a new facility — have increased substantially. A tenant who has built a custom robotics deployment into a specific building’s electrical and structural specifications is not going to move for a $0.03 per square foot rent difference. Understanding that dynamic changes how landlords should approach renewals, capital investment decisions, and tenant communication.
For practitioners also evaluating the best CRE office market as a parallel bifurcation story, the structural parallel is worth noting. Both sectors are experiencing a flight to quality — to assets that meet the operational and infrastructure requirements of modern occupiers — and both are penalizing legacy assets that cannot meet those requirements without significant capital investment. The mechanism is different in each sector, but the underlying dynamic is the same: the asset that was adequate five years ago is no longer adequate today, and the gap is not narrowing.
The Spec Premium Is the Story
Industrial real estate is not in distress. It is in differentiation. The markets and assets where supply-demand fundamentals are favorable are performing well and will continue to do so as the construction pipeline stays constrained. The markets and assets where legacy spec product is competing against modern alternatives will continue to face pressure.
The electrical spec premium is the clearest expression of that differentiation. It is not a temporary feature of a hot cycle — it is a structural consequence of the automation and manufacturing reshoring trends that are reshaping the demand side of the industrial market permanently. Power-ready buildings were always preferable. In 2026, they are increasingly irreplaceable.
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Frequently Asked Questions
What is the electrical spec premium in industrial real estate?
The electrical spec premium refers to the leasing and valuation advantage held by industrial buildings with high-capacity electrical infrastructure — typically 3,000 to 4,000 amps at 277/480V — compared to older buildings with lower electrical service. As automation, robotics, and EV charging become standard operational requirements for logistics and manufacturing tenants, buildings that can support those loads without costly and time-consuming upgrades lease faster, retain tenants longer, and generate significantly higher net operating income per square foot.
How long does it take to upgrade an older industrial building’s electrical capacity?
Retrofitting an older warehouse for higher electrical capacity typically takes six to twelve months at minimum, and often longer in markets where the local utility is managing a backlog of interconnection requests. The process requires utility coordination, new service entrance equipment, internal electrical distribution upgrades, and in some cases structural modifications. Investors underwriting the repositioning of legacy industrial assets need to model this timeline accurately, including carrying costs during the gap between acquisition and tenant-ready delivery.
Which U.S. industrial markets are performing best in 2026?
Core logistics hubs with strong national distribution geometry are outperforming. Chicago has particularly strong fundamentals driven by its ability to reach most of the U.S. population within one to two days. Texas and the Southeast — especially markets near the Port of Savannah — are benefiting from manufacturing reshoring and population growth. Markets where data center development is competing for the same land and grid capacity as industrial users face additional complexity in site selection and infrastructure planning.
How is manufacturing reshoring affecting industrial real estate demand?
Manufacturing reshoring is creating a distinct demand driver alongside traditional logistics and e-commerce. Manufacturing facilities typically require more power, longer lease terms, and deeper infrastructure commitments than warehouse or distribution users. Large-scale manufacturing investments, such as the Hyundai facility in Georgia and Eli Lilly’s Alabama expansion, generate downstream demand from suppliers and logistics operators who need proximity to the production facility, multiplying the real estate footprint beyond the anchor project itself.
Why are AI and automation making the electrical spec premium more durable?
Automation deployment in industrial facilities — robotics, autonomous mobile robots, AI-driven warehouse management systems — requires sustained and reliable electrical capacity that older buildings were not designed to provide. As tenants invest more heavily in custom automation buildouts within specific facilities, their switching costs increase substantially. A tenant who has integrated a robotics deployment into a building’s electrical and structural configuration is unlikely to relocate for a marginal rent advantage, making the electrical spec premium a durable feature of tenant behavior rather than a short-term market anomaly.
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