Artificial intelligence infrastructure, warehouse automation and manufacturing reshoring are driving a new wave of U.S. industrial demand as companies seek more space for data centers, advanced manufacturing and highly automated distribution facilities.

Industrial net absorption across major U.S. markets exceeded 260 million square feet during the four quarters through the second quarter of 2026, surpassing the pre-pandemic annual range of 225 million to 250 million square feet, according to a Sept. 2 analysis from Morgan Stanley Real Assets published by Eaton Vance.

Industrial demand also accelerated from a year earlier. Trailing 12-month demand in the second quarter grew at twice the pace recorded in the second quarter of 2025, while the national industrial vacancy rate declined 10 basis points from a year earlier to 6.5%.

The stronger demand comes as construction of new industrial properties remains constrained. Construction activity has fallen 60% from its pandemic-era peak, while new development starts have averaged about 50 million square feet per quarter during the past three years.

Morgan Stanley Real Assets identified three forces behind the shift: the buildout of the data center supply chain, increased use of artificial intelligence and automation in warehouses, and expansion of advanced U.S. manufacturing.

Data center investment is already reshaping industrial demand in several markets.

Companies supporting data center construction and operations are leasing industrial space for semiconductor operations, equipment development, power technology, server testing, construction services and hardware storage.

In Dallas, data center-related companies have accounted for 30% of gross industrial leasing since the fourth quarter of 2024 and 40% of leasing for facilities larger than 700,000 square feet, according to Stream Realty data cited in the report.

Data center-related bulk industrial leasing in Dallas exceeded 7 million square feet during the past 12 months and accounted for nearly all the increase in leasing activity compared with pre-pandemic levels. Similar activity is occurring in Virginia and Midwest markets including Ohio and Kansas City.

The trend could have broader implications for distributors because the data center supply chain extends well beyond servers and computing equipment. Construction and operation of those facilities require electrical and power equipment, cooling systems, automation, construction products and other industrial supplies.

Warehouse automation is creating another source of demand.

Companies deploying artificial intelligence and next-generation automation are increasingly seeking large, modern distribution facilities capable of supporting autonomous mobile robots, conveyor systems, automated storage and retrieval systems and automated packaging equipment.

Leasing of U.S. industrial facilities larger than 1 million square feet reached 41 million square feet during the first half of 2026, twice the pace of the first half of 2025. Thirty-five leases exceeding 1 million square feet were signed during the period, compared with 18 a year earlier.

Ecommerce companies accounted for 50% of that large-building leasing volume. According to the report, the supply of modern facilities is tight, with only 12 bulk properties under construction and available for lease nationally. Some companies are now preleasing facilities scheduled for completion in 2027 and 2028.

Manufacturing expansion is adding another layer of industrial demand.

Advanced manufacturing now accounts for 19% of active U.S. industrial tenant requirements, according to JLL data cited in the report. The square footage associated with active manufacturing requirements has increased at a compound annual growth rate of more than 40% since 2020, with Texas, Georgia, Arizona and Ohio leading leasing activity.

Reshoring, increased logistics requirements and higher defense spending are contributing to the increase. The age of the country’s manufacturing infrastructure is another factor. More than half of U.S. manufacturing properties are between 30 and 60 years old, increasing demand for modern facilities capable of supporting advanced production.

Defense manufacturing is also contributing to growth in some markets. Aerospace and defense leasing in greater Los Angeles during the first half of 2026 was 30% higher than for all of 2025 and more than 140% above full-year 2024 levels, according to CBRE data cited in the report.

Taken together, the trends point to a changing mix of industrial demand. Traditional warehousing and logistics remain major users of industrial space, but data centers, advanced manufacturing, defense and highly automated distribution operations are accounting for a growing share of activity.

For distributors, the opportunity extends beyond construction of the facilities. Once operating, data centers, factories and automated distribution centers become continuing customers for electrical products, power and cooling equipment, automation and controls, material handling systems, safety equipment, fasteners, tools and maintenance, repair and operating supplies.

Morgan Stanley Real Assets said the U.S. industrial market appears to be moving from a cyclical recovery toward another growth cycle, with demand accelerating while development remains constrained. The firm expects AI infrastructure, automation and manufacturing reshoring to become increasingly important sources of industrial demand.

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Wholesale distributors reported steady growth across much of the United States in late May and June as reshoring, data center construction and defense spending offset higher freight costs, tariffs and supply chain disruptions, according to the Federal Reserve’s July Beige Book.

The report, released Wednesday and based on information collected through July 6, said economic activity expanded at a slight to moderate pace in 11 of the Federal Reserve’s 12 districts. Manufacturing activity also increased in most districts, supported by stronger demand from industrial, defense and technology markets.

Among the strongest reports came from the New York district, where the Federal Reserve said wholesale and distribution companies reported solid growth despite higher transportation costs and continued uncertainty surrounding tariffs. A shipping company cited strong import volumes across a broad range of products even as ocean freight rates climbed.

Manufacturers in the district also reported stronger orders and shipments, although longer supplier lead times prompted some companies to increase delivery estimates for products not already in inventory.

The report pointed out tariffs as an increasingly important factor in sourcing decisions.

In the Cleveland district, metal producers said customers shifted purchases from imported products to domestic suppliers as inventories of imported goods declined and tariffs increased the cost of sourcing overseas.

The Boston district cited growing demand for precision manufacturing tied to defense and industrial automation markets, while the Chicago district reported stronger sales of primary metals to defense contractors and data center construction projects.

Freight markets also continued to adjust to shifting trade patterns.

The Richmond district reported moderate growth in cargo volumes at regional ports as importers increased shipments from Asia and adjusted supply chains in response to tariff uncertainty. Contacts also said stricter regulatory enforcement has shifted freight toward licensed trucking companies, tightening available capacity.

In the Atlanta district, freight brokers reported year-over-year shipment growth for the first time since 2021. Demand was strongest from data center construction, machinery, aerospace and defense customers, while higher trucking costs prompted some shippers to move more freight by rail.

Conditions were less consistent elsewhere.

The St. Louis district described transportation activity as mixed. Some logistics companies said customers accelerated shipments ahead of potential tariff increases, while others reported canceled orders after tariff announcements disrupted sourcing plans.

The Dallas district reported stronger transportation and warehousing activity as service-sector demand accelerated.

Across nearly every district, rising costs remained the biggest challenge.

The national summary said businesses continued to report higher costs for transportation, energy and raw materials. Several districts said selling prices failed to keep pace with higher input costs, reducing profit margins.

In the Kansas City district, businesses said inflationary pressures continued to compress margins, leading companies to selectively raise prices while investing in technology and other efficiency improvements to offset higher operating costs.

Overall, the Beige Book suggests distributors entered the second half of 2026 with healthy demand across many industrial markets but continued pressure on profitability. Growth tied to reshoring, defense spending and data center construction helped support sales, while higher transportation, energy and sourcing costs continued to challenge distributors’ ability to protect margins.

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The U.S. trade deficit widened sharply in May as imports increased and exports declined, reversing much of April’s improvement and reflecting renewed strength in goods imports.

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis reported Tuesday that the U.S. goods and services trade deficit increased to $77.6 billion in May, up 42.2% from a revised $54.6 billion in April. Exports fell 3.2% to $317.7 billion, while imports rose 3.3% to $395.3 billion.

The increase was driven by a wider goods deficit, which grew $23.6 billion to $106.5 billion. The U.S. services surplus increased $0.6 billion to $28.9 billion.

Goods exports fell $11.3 billion to $210.6 billion, led by declines in industrial supplies and materials, capital goods, and consumer goods. Exports of non-monetary gold dropped $6.2 billion, while exports of computers fell $2.1 billion and computer accessories declined $2.0 billion. Crude oil exports partially offset those losses, increasing $2.0 billion.

Services exports rose $0.8 billion to $107.1 billion, driven by gains in travel, transportation, financial services, and other business services.

Goods imports increased $12.3 billion to $317.0 billion, led by higher shipments of consumer goods, industrial supplies, automotive products, and capital equipment. Consumer goods imports rose $3.5 billion, including a $1.9 billion increase in pharmaceutical preparations. Imports of industrial supplies and materials increased $3.1 billion, while automotive vehicles, parts and engines rose $2.2 billion. Capital goods imports increased $1.1 billion, reflecting higher imports of computer accessories and semiconductors.

Despite the monthly increase, the U.S. trade balance remained significantly improved from a year earlier. Through the first five months of 2026, the goods and services deficit were 40.6% lower than during the same period in 2025. Year-to-date exports increased 11.7%, while imports declined 2.1%.

On a three-month moving average basis, the trade deficit increased to $62.9 billion, as import growth continued to outpace exports.

Among major trading partners, the largest U.S. goods trade deficits in May were with Vietnam ($20.6 billion), Mexico ($20.1 billion), Taiwan ($19.4 billion), and China ($14.5 billion).

The deficit with Mexico widened $5.3 billion to $20.1 billion as exports to Mexico declined $1.5 billion and imports increased $3.9 billion. Trade with Switzerland shifted from a $4.4 billion surplus in April to a $2.3 billion deficit in May after U.S. exports to Switzerland fell $6.9 billion.

Adjusted for inflation, the real goods deficit increased 18.7% to $100.0 billion. Real goods exports declined 6.6%, while real goods imports increased 1.9%, indicating the widening deficit reflected changes in trade volumes rather than prices.

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Specialty chemical distributor Palmer Holland has expanded into Mexico, establishing its first operations in Latin America as the company seeks to strengthen its presence across North America.

The Cleveland-based distributor has established a legal entity in Mexico and opened warehouse operations in Querétaro, creating a local platform to serve customers and suppliers throughout the country.

The move extends Palmer Holland’s footprint beyond the United States and Canada and positions the company to support manufacturers and industrial customers operating across all three countries covered by the United States-Mexico-Canada Agreement.

Company officials said the expansion includes a warehouse in Querétaro, locally based account managers and Spanish-speaking operational staff. The operation will support all industrial product categories currently represented by Palmer Holland, including coatings, adhesives, sealants, elastomers, lubricants, engineered materials, agriculture, and health and nutrition ingredients.

The company said the Mexican operation was built to provide local inventory management, logistics support and technical service while leveraging Palmer Holland’s broader North American supplier network.

The expansion comes as Mexico continues to attract manufacturing investment tied to nearshoring and supply chain diversification efforts. Industrial distributors, logistics providers, and manufacturers have increased investments in the country in recent years as customers seek to move production closer to North American end markets.

Tim Skufca, chief executive officer of Palmer Holland, said the company views Mexico as a natural extension of its North American growth strategy and expects the investment to improve service levels and supply chain continuity for customers operating in the region.

Palmer Holland said it has invested in the personnel, infrastructure and legal framework needed to support long-term operations in Mexico. The company also expects its presence to support local job creation and strengthen relationships with manufacturers and suppliers throughout the country.

Founded in 1925, Palmer Holland is an employee-owned distributor of specialty chemicals and ingredients. The company is headquartered in Cleveland and serves customers across the industrial, agriculture, health and nutrition, lubricants and engineered materials markets throughout the United States and Canada.

The expansion into Mexico marks the latest step in the company’s growth strategy and gives Palmer Holland a direct operating presence across the North American market.

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Imperial Dade Canada has completed its acquisition of Enterprise Paper Holdings Ltd., strengthening the distributor’s presence in Western Canada and adding operations across British Columbia and Alberta.

Terms of the transaction were not disclosed.

Enterprise Paper, founded in 1973, is a Canadian-owned distributor of paper, packaging and janitorial products serving customers throughout Western Canada. The company operates facilities in British Columbia and Alberta and has built a regional presence supplying businesses, institutions, and commercial customers.

The acquisition expands Imperial Dade Canada’s geographic coverage in Canada and adds Enterprise Paper’s established customer relationships, sales organization, and distribution capabilities to the company’s network.

Imperial Dade Canada said Enterprise Paper customers will continue to be served by existing teams while gaining access to a broader portfolio of products and expanded supply chain resources.

The deal is the latest in a series of acquisitions by Imperial Dade and reflects ongoing consolidation across the janitorial, sanitation, packaging, and facility maintenance distribution sectors. Distributors have increasingly turned to acquisitions to expand regional coverage, increase scale, and strengthen logistics networks as customers seek broader product offerings and more reliable supply chains.

Enterprise Paper has operated for more than five decades in Western Canada, building its business around paper products, packaging supplies, and janitorial solutions. The company has developed a reputation for customer service and local market expertise in British Columbia and Alberta.

Imperial Dade Canada distributes cleaning and facility care products, foodservice packaging, industrial supplies, and janitorial products throughout Canada. The company is part of Imperial Brady, a North American distributor serving customers across the facility maintenance, foodservice, packaging, and industrial markets.

The acquisition further extends Imperial Dade Canada’s reach in a region experiencing population growth, commercial development and increased demand for facility maintenance and packaging products.

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Salt Imports Corp. is expanding its pool salt sourcing and distribution operations as demand for saltwater swimming pools continues to increase across the United States.

The Phoenix-based distributor announced June 2 that it has increased product availability and expanded supply chain capacity to serve distributors, retailers, pool service companies, and commercial customers. The expansion comes as saltwater chlorination systems gain wider acceptance in both residential and commercial pool markets.

Saltwater systems use dissolved salt to generate chlorine within the pool, reducing the need for traditional chlorine products and lowering ongoing maintenance requirements. Industry estimates show saltwater systems account for a growing share of new in-ground pool installations as homeowners and commercial operators seek alternatives to conventional pool sanitation methods.

To support growing demand, Salt Imports has expanded sourcing operations in western Mexico, including production areas in Baja California Sur and Sonora. The company said the locations provide access to natural sea salt resources and transportation routes serving U.S. customers.

Founded in 2017, Salt Imports distributes food-grade, industrial and specialty salt products throughout North America. The company manages sourcing, transportation, customs compliance, and warehousing operations.

The expansion reflects broader growth in the pool industry, where builders and service providers continue to report strong interest in saltwater systems. As more pools adopt saltwater technology, demand for pool-grade salt is expected to rise through both new installations and ongoing maintenance requirements.

For distributors, the trend could create additional demand for consumable products tied to pool construction, maintenance, and water treatment. Reliable access to pool-grade salt may become increasingly important during peak swimming seasons as the installed base of saltwater pools continues to expand.

The pool salt initiative follows a separate expansion announced earlier this year by Salt Imports aimed at increasing the availability of food-grade sea salt products in the U.S. market.

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UPS is investing $50 million to expand logistics services for automotive and industrial manufacturers across North America, including the launch of new time-definite air freight service connecting Mexico with the United States and Canada.

The Atlanta-based logistics company said May 29 that the investment includes network enhancements, expanded cross-border capabilities and dedicated industry teams focused on automotive and industrial customers. The move comes as manufacturers face continued pressure from supply chain disruptions, changing trade policies and the need to move critical parts more quickly across North America.

Beginning in August, UPS will offer one-, two- and three-day heavy air freight service to and from Mexico through its North American Air Freight network. The service is designed for manufacturers moving high-value or time-sensitive shipments that support production operations.

Mexico has become an increasingly important manufacturing hub for automotive, industrial, and electrical equipment producers as companies continue to regionalize supply chains and expand nearshoring efforts. Many production networks require components to cross the U.S.-Mexico border multiple times before final assembly, making transportation reliability and customs efficiency increasingly important.

“Our automotive and industrial customers want an easy button for logistics,” Matt Guffey, UPS chief commercial, and strategy officer, said in a statement. “They need reliability, visibility and a partner that understands their supply chains end to end.”

UPS said the expanded air freight offering combines transportation, customs brokerage, and warehousing services within a single network. The company said the approach is intended to reduce border-related delays and provide greater shipment visibility throughout the transportation process.

The investment builds on broader efforts by UPS to strengthen services for manufacturers and industrial shippers. The company highlighted expanded less-than-truckload capabilities through UPS Ground with Freight Pricing, which serves shipments weighing more than 150 pounds, as well as broader next-day delivery coverage for U.S. businesses.

UPS also said it has increased automation across its network, with automated processes now operating in 67.5% of its facilities. The company continues to deploy radio frequency identification technology to improve shipment tracking and inventory visibility.

In addition, UPS has established a team of more than 300 specialists focused on serving automotive and industrial customers. The group is intended to provide industry expertise and support customers managing increasingly complex supply chains.

The investment reflects growing competition among logistics providers to capture manufacturing-related freight as production shifts closer to end markets and supply chains become more regionalized. For distributors and manufacturers, transportation providers are increasingly differentiating themselves through cross-border expertise, shipment visibility, and speed rather than price alone.

UPS reported revenue of $88.7 billion in 2025 and operates in more than 200 countries and territories.

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Mighty Distributing System of America has acquired PREMA Canada, expanding its automotive aftermarket distribution network into Canada and establishing its first direct operating presence in the country. Financial terms of the transaction were not disclosed.

The acquisition became effective June 2 and strengthens Mighty’s position in the North American automotive aftermarket, according to the company.

Headquartered in Peachtree Corners, Georgia, Mighty supports a network of franchised distributors that provide automotive parts, lubricants, chemicals, shop supplies and inventory management services. The company has operated for more than 60 years in the United States and international markets.

PREMA Canada, founded in 1954 and based in Ancaster, Ontario, distributes tire and wheel service supplies through a network of 23 independent distributors and 18 sales representatives serving customers across Canada.

“We have been working to expand into the Canadian market, and this acquisition is a natural next step in Mighty’s growth,” Mighty President and CEO Josh D’Agostino said in a statement.

PREMA Canada President Dave Lottridge said the combination will provide additional resources and support for distributors, suppliers and service providers operating throughout Canada.

Mighty said integration efforts will begin immediately, with additional operational updates expected in the coming weeks.

The acquisition gives Mighty immediate access to an established Canadian distribution platform, customer base and supplier network rather than requiring the company to build those capabilities organically. PREMA’s nationwide reach also provides Mighty with a foothold in a market that complements its existing U.S. operations.

The transaction comes as consolidation activity remains active across the automotive aftermarket distribution sector. Distributors continue to pursue acquisitions to expand geographic coverage, add product categories and improve service capabilities as competition intensifies and customers seek broader supplier partnerships.

For PREMA, the deal provides access to Mighty’s larger distribution network, product portfolio and operational resources. For Mighty, the acquisition extends its reach into a new market and positions the company to pursue additional growth opportunities across North America.

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Amazon.com Inc. on May 4 launched Amazon Supply Chain Services, opening its freight, fulfillment, and parcel delivery network to businesses of all sizes in a direct challenge to UPS Inc. and FedEx Corp., while also expanding a China-based fulfillment model that connects overseas inventory directly to its U.S. network.

The new service allows companies to move goods from raw materials to finished products using Amazon’s logistics infrastructure. That includes ocean, air, ground, and rail freight supported by more than 80,000 trailers, 24,000 intermodal containers and more than 100 aircraft.

At the same time, Amazon introduced a cross-border service called Global Warehousing and Distribution, which gives sellers a direct pipeline from a Shenzhen warehouse into its U.S. fulfillment network. Amazon said storage costs in China can be up to 45% lower than domestic warehousing and distribution rates.

Under that program, sellers ship bulk inventory to Amazon’s facility in Shenzhen. Amazon then manages customs clearance, international freight, and delivery into U.S. fulfillment centers through its Amazon Global Logistics network. The company said replenishment to U.S. facilities can be completed up to seven days faster than current alternatives.

Sellers can use automated replenishment tools powered by artificial intelligence or manage inventory manually while Amazon handles logistics execution.

Together, the two launches extend Amazon’s logistics capabilities beyond its marketplace and closer to the point of manufacturing. The company is combining origin warehousing, international freight, customs, and domestic fulfillment into a single service.

Early users of Amazon’s broader supply chain services include Procter & Gamble, 3M, Lands’ End and American Eagle Outfitters. Companies are using various parts of the network for freight movement, inventory positioning, and parcel delivery.

“Amazon is bringing the infrastructure, intelligence and scale of its supply chain services, proven over decades, to businesses everywhere,” said Peter Larsen, vice president of Amazon Supply Chain Services.

Amazon built its logistics network to support its own retail operations and marketplace sellers. It now handles billions of items annually and has expanded fulfillment services over more than two decades. Opening that network to external customers creates a new business line that does not depend solely on ecommerce transactions.

For wholesale distributors, the move changes Amazon’s role in the supply chain. The company is now operating as a third-party logistics provider while also extending its network upstream into manufacturing hubs.

The Shenzhen-based model has direct implications for distributors that import goods from China and hold inventory in the United States. Sellers can now store products closer to factories at lower cost and replenish U.S. demand through Amazon’s network on a faster cycle.

That reduces a traditional advantage for distributors, which has been domestic inventory positioning and rapid delivery. By combining lower-cost origin storage with integrated freight and fulfillment, Amazon is lowering the barriers for sellers to bypass the distribution channel.

The expansion also introduces new competition in parcel shipping. Distributors that rely on UPS or FedEx for outbound delivery now have another option, which could affect pricing and contract negotiations.

Industries such as automotive, industrial supplies, healthcare and manufacturing may see the most immediate impact, particularly in product categories heavily sourced from China.

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Amazon.com Inc. has launched a China-based bulk storage and cross-border replenishment service that gives sellers a direct pipeline from a Shenzhen warehouse into its U.S. fulfillment network, at storage costs it says are up to 45% lower than domestic Amazon warehousing and distribution rates.

The service, called Global Warehousing and Distribution, is the first offering under what Amazon describes as its “Next Generation of Global Selling” strategy. The model allows sellers to list products once, stage inventory at the country of origin and fulfill orders globally without managing cross-border logistics.

Under the program, sellers ship bulk inventory to Amazon’s Shenzhen distribution center. Amazon then manages customs clearance, international freight, and delivery into U.S. fulfillment centers through its Amazon Global Logistics network. When paired with that service, replenishment to U.S. facilities can be completed up to seven days faster than current alternatives, the company said.

Sellers can choose between an automated replenishment option that uses artificial intelligence to manage inventory levels or a manual approach, while Amazon manages the logistics in both cases.

The offering reflects a broader shift in how goods move from factory to customer. Amazon is combining origin warehousing, international freight, customs brokerage, and domestic fulfillment into a single managed service, reducing the cost and complexity of cross-border commerce for sellers manufacturing in China.

For wholesale distributors, the implications are direct. Companies that source from Chinese manufacturers and stock inventory in U.S. facilities now face competition from sellers able to hold the same goods in Shenzhen at lower cost and replenish U.S. demand through Amazon’s network on a faster cycle.

Those dynamic compresses a traditional advantage for distributors — domestic inventory positioning and rapid delivery — by lowering both the cost and operational barriers for sellers to bypass the channel.

Tariffs remain a complicated factor but do not eliminate the shift. Section 301 duties and potential additional trade measures raise the landed cost of Chinese goods regardless of where inventory is held. However, Amazon’s integrated logistics model, which bundles freight, customs, and fulfillment, can reduce per-unit costs compared with distributors managing those functions through multiple providers.

The automated replenishment capability adds further pressure. By managing inventory levels across a China-to-U.S. pipeline, Amazon enables sellers to maintain in-stock positions without the forecasting and purchasing infrastructure distributors have traditionally developed.

Amazon said Global Warehousing and Distribution is an initial step in a broader global selling framework. The company’s vision — list once, stage inventory at origin and sell globally — reduces the need for domestic distribution in product categories heavily sourced from China, including industrial consumables, safety products, tools, and fasteners.

The service does not displace wholesale distribution in the near term. But it extends Amazon’s logistics network closer to the manufacturing base, lowers the cost threshold for direct selling, and adds an automated inventory layer that simplifies operations.

For distributors competing on price, availability and supply chain efficiency, Amazon is increasing competitive pressure across all three — starting at the point of origin.

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