Industrial Construction Recovery Faces Higher Costs and Longer Approvals
Industrial construction is gaining momentum in 2026, but developers face a tougher test than finding demand. Power shortages, rising costs, and local opposition are complicating projects just as groundbreakings have a chance to reach their highest level since the record set in 2022.
For investors, the recovery comes with a caveat: a growing construction pipeline doesn't mean building is getting easier. Access to electricity, the time needed to secure approvals, and the cost of delivering a project are increasingly important to whether development can move forward, according to the October 2026 Yardi Matrix Industrial National Report.
Construction Starts Regain Momentum
Industrial development slowed after a wave of post-pandemic overbuilding, with starts falling to 306.8 million square feet in 2024. Activity rebounded to 342.1 million square feet in 2025, and groundbreaking reached 274.4 million square feet through the first three quarters of 2026.
If that pace continues, this year could produce the highest volume of starts since 2022. The recovery is taking hold even as developers contend with obstacles throughout the development process, from site selection through construction.
Owner-occupied projects remain a sizable part of that activity. Their share of starts reached 30.6% in 2024, 29.7% in 2025, and 27.0% through the first three quarters of 2026. Although that share has eased, businesses building for their own use continue to account for more than a quarter of industrial groundbreakings.
Phoenix Leads the Construction Pipeline
The scale of construction relative to existing inventory varies widely across markets. Phoenix has the largest pipeline by that measure, with space under construction equal to 6.9% of its industrial stock. Columbus follows at 5.1%, ahead of Dallas at 3.7%, Atlanta at 3.5% and Houston at 3.3%.
Charlotte, Indianapolis, Nashville, Baltimore and California's Central Valley round out the top 10, with construction ranging from 3.2% to 2.2% of existing inventory.
At the other end of the spectrum, Orange County's pipeline represents just 0.2% of its industrial stock. Cincinnati follows at 0.3% and Los Angeles at 0.5%. Seattle and Cleveland each stand at 0.9%, while Boston, Tampa and the Bay Area each register at 1.1%. New Jersey and Memphis complete the bottom 10 at 1.3% and 1.4%, respectively.
Those differences show how unevenly the national rebound is playing out. Investors assessing new supply face a substantially different construction picture in Phoenix or Columbus than in markets where additions represent only a small fraction of existing space.
Power Access Complicates Site Selection
Even where developers are ready to build, securing enough electricity can determine whether a site works. Yardi identifies power availability as the largest constraint in many site-selection decisions. In a recent Site Selectors Guild survey cited in the report, 79% of respondents named power access as a major factor affecting their decisions.
Electricity is not the only obstacle to project approval. Concerns about traffic, air quality and the loss of open space, along with power issues, have contributed to greater resistance from communities and local governments. That opposition is also lengthening the entitlement process.
The challenges are connected. A site must offer more than a suitable location: developers also need the infrastructure to serve it and a path through local approvals. Delays at either stage can complicate efforts to bring new space to market.
Rising Costs Test Project Economics
Once a project clears those hurdles, developers still face the expense of building it. Materials, labor, energy and financing costs all affect whether a development is financially viable.
Yardi reports that input prices for new nonresidential construction rose 11.9% year over year in September 2026, while final-demand prices for nonresidential construction increased 5.4%.
Tariffs have added pressure to key materials, with aluminum prices up 25%, steel up 28%, and copper and brass up 30%. Energy costs have also risen sharply. Diesel prices have climbed 70% since the end of February 2026 because of the Iran war.
The rebound in starts is therefore only one part of the investment picture. Industrial development is recovering, but securing power, navigating approvals, and managing construction costs will determine which projects can turn that momentum into completed buildings.
(Globe Street | By Erik Sherman)
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