Insight industrial structural growth wave ltr

Structural Drivers Propel U.S. Industrial’s Next Growth Wave MORGAN STANLEY REAL ESTATE INVESTING | August 2026

In a macro environment characterized by higher growth, higher AUTHOR

interest rates and divergent demand drivers, investors need JOHN VITOU Executive Director, Real Assets to target industries and real assets which take advantage Research and Strategy

of pockets of outsized growth. This growth will likely be closely aligned to long-term thematics including AI capex, manufacturing reshoring, and higher defense spending. Equities aligned with these mega trends have delivered +50% compounded annual growth over the last three years while industrial property values remained broadly flat.1

The cyclical operating environment appears to have moved beyond its inflection point Net absorption over the last four quarters in the main U.S. industrial markets was healthy at >260M SF and exceeded pre-Covid normal annual absorption of 225-250M SF, according to CBRE Research. Industrial demand is accelerating across regions, as LTM demand in Q2 2026 was 2x the pace of growth in Q2 2025. 2 National vacancy fell 10 basis points to 6.5% y/y and most excess availability across markets falls within the mid-sized boxes between 100-700K SF – a supply glut from the Covid-era of 2021/2022. Construction activity fell -60% from the Covid-era peak and new quarterly development starts averaged a subdued 50M SF quarterly for the last three years.3 As industrial demand ramps and limited development pipelines deliver, it appears that the U.S. industrial market has passed its cyclical inflection point, offering a compelling market setup for NOI growth over the medium- term horizon.

1 Morgan Stanley MSRSTATD Index 2 CBRE, MSREI Strategy calculations of Top 60 markets 3 CBRE, MSREI Strategy calculations of Top 60 markets

EXHIBIT 1 Coastal market weakness in recent years masked the overall strength of U.S. industrial demand; New leasing volume in 2026 is on track to exceed Pre- Covid levels by ~50%.

New Industrial Leasing Volume, United States M SF, New Leases >10K SF (excludes Renewals)

EXHIBIT 2 Improved demand across all regions over the last 12 months and outstripping development

Demand Rate v. Supply Rate, United States %, LTM Net Absorption as a % of Stock versus Speculative Development Under Construction as % of Stock

0.0% Coastal Markets Midwest Sunbelt

LTM Net Absorption as % of Stock (L) Spec U/C as % of Stock (R)

Source: CBRE Research, MSREI Strategy

2 MORGAN STANLE Y INVESTMENT MANAGEMENT | AUGUST 2026