U.S. warehouse construction has stopped declining, but the market is far from a full recovery.

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That’s according to a recent report from Matthieu Kulezak of Interact Analysis, which looks at the state of warehouse development across the U.S. after more than a year of slowing activity. The report says construction levels appear to have bottomed out, following a sharp pullback that began in late 2023, but ongoing cost and financing challenges continue to limit new projects.

The report notes that while construction activity is no longer falling, developers remain cautious. High interest rates, elevated building costs, and tighter lending conditions are keeping many new warehouse projects on hold. As a result, the current uptick is being driven mostly by delayed projects moving forward rather than new speculative developments.

Warehouse construction surged during and after the pandemic as retailers and logistics providers rushed to add capacity. That wave slowed as demand normalized and borrowing costs climbed, triggering a sharp pullback in new starts.

E-commerce demand has helped prevent a deeper downturn. Online shopping volumes remain high compared to pre-pandemic levels, which continues to support the need for distribution space, even as companies focus more on efficiency than expansion.

The report warns that challenges remain. Developers are still grappling with higher material and labor costs, while many customers are rethinking long-term real estate commitments amid economic uncertainty. These pressures are expected to keep construction activity muted in the near term.

Lastly, any sustained recovery will depend on easing financial conditions and clearer signals around demand growth. Until then, warehouse development is likely to remain selective, with companies prioritizing essential projects over aggressive network expansion.