May 2026 Industrial Report: Consequences of Iran Conflict Affect Industrial Sector 

Listen to this article

Global logistics costs and supply chains are starting to feel the effect of the ongoing conflict in Iran and the disruption to shipping through the Strait of Hormuz. The most immediate and consequential disruption is the energy shock. 

Prior to the current conflict, approximately 20% of global oil supply moved through the strait. Accordingly, shuttering it has caused one of the largest shocks suffered by the global oil market as gasoline, jet, and maritime fuel prices have all risen sharply — and, in turn, increased shipping costs at every point along the supply chain. 

What’s more, damage sustained by refining facilities in the region raises questions about how quickly energy markets will stabilize once the conflict against Iran ends. 

“As manufacturing and logistics investment and growth strategies are being evaluated and adjusted with higher transportation costs, spending from the inflation-fatigued consumer and what $4.50 gas changes in how people spend are of concern.” – Peter Kolaczynski, Director, Yardi Research 

That said, higher transportation costs will increase the value of location in the industrial real estate sector because reducing delivery distances and keeping inventory closer to customers will become a key priority. Thus, similar to strategies implemented at the start of pandemic, site selection will likely become a primary driver of leasing decisions yet again. Consequently, buyers are likely to favor infill facilities, properties adjacent to seaports, rail hubs and highway networks. 

Looking at the wider context, the longer the conflict continues, the more the global economy will struggle with higher energy costs, longer shipping times and tighter supply of many industrial inputs. As such, this disruption is likely to accelerate the regionalization of supply chains that followed the onset of the pandemic. 

Finally, higher energy costs will weigh down consumer spending, which is likely to negatively affect the demand for goods. A slowdown in consumer spending is also likely to reduce warehouse demand for distribution and fulfillment space as compared to the start-of-the-decade highs of the e-commerce expansion-driven boom in industrial leasing. 

Rents & Occupancy 

Rent Growth Softens in Southern California Markets 

During the month of April, national in-place rents for industrial space averaged $9.08 per square foot. This represented a $0.05 increase from the preceding month and a 5.3% rise in the last 12 months. Zooming in to individual market levels, Atlanta maintained its leading position for in-place rent growth with an 8.1% Y-o-Y increase last month. Then, California’s Inland Empire market followed in second place (7.1%). Meanwhile, Miami industrial space saw the third-largest 12-month increase in rents (6.9%) followed by Tampa, Fla., (6.7%) and Boston (6.6%). 

Nationally, the vacancy rate finished at 9.1%, reflecting a 30-bps increase throughout the course of the last 12 months. Notably, vacancies have generally plateaued since the second half of last year. At the same time, deliveries have leveled off and demand remains solid, although unspectacular. 

In the same way, the national spread has also narrowed in recent quarters with newly signed leases now slightly below dominating market averages in many areas. This indicates that negotiating leverage has shifted back toward tenants — a trend that’s currently visible in Southern California. 

Specifically, the red-hot rent growth recorded in the Orange County and Los Angeles markets in the recent past has now slowed as new leases are being priced at less than the in-place averages. For example, leases for industrial space in Los Angeles signed within the last year were $1.51 per square foot lower than the market average, whereas, in Orange County, they were $0.61 lower. 

However, this dynamic is unlikely to persist. That’s because space for new development in Southern California is more limited than it was at the start of the decade and the supply boom in the region has subsided. Furthermore, the ports of Los Angeles and Long Beach remain the busiest in the country. Together, this combination of factors supports long-term demand. 

Producer Prices Spike Due to Energy Costs 

According to the U.S. Bureau of Labor Statistics, producer price increases hit a four-year high in April: The Producer Price Index (PPI) posted the largest monthly gain since March 2022 last month (1.4%) and the biggest annual increase since December 2022 (6% Y-o-Y). 

While the goods portion of the PPI grew 2% from the previous month and 7.4% Y-o-Y, the services portion increased 1.2% monthly and 5.5% annually. Notably, more than 75% of the gains were driven by a 7.8% increase in the cost of energy. 

Diana Sabau Senior Content Writer, CRE News & Market Analysis 

Drawing on years of intense research in the U.S. commercial real estate market at Yardi Matrix, Diana now applies her expertise as a writer for the CommercialCafe blog. Her articles focus on CRE investment, labor market trends, and technology, and have been picked up by prestigious publications including the New York Times, GlobeSt, The Real Deal, NAIOP, MSN, and Bisnow.