Beyond the Warehouse Boom: Why Roof Costs, Tax Resets, and Tenant Risk Are Killing Industrial Deals

Written by:

Steve Marcinuk

Date:

09 Jun 2026

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The narrative around industrial real estate has been largely optimistic for several years – e-commerce tailwinds, supply chain reshoring, and strong tenant demand have kept the asset class near the top of most investors’ target lists. But as deal volume gradually recovers from a prolonged slowdown, the ground-level reality is more nuanced. Buyers are more selective, deal killers are more common, and a growing divide between functional and obsolete assets is reshaping how capital moves through the market.

Brandon Abdelnour, Senior Vice President at Encore Real Estate Investment Services, works across the full spectrum of industrial and net lease transactions – from sub-million-dollar single-tenant deals to institutional portfolios in the $30–50 million range. His perspective offers a useful read on where the market actually stands heading into the second half of 2026.

Same Buyers, Fewer Sellers

The seller landscape has thinned. The small private owners who drove deal volume during the 2020–2022 run – operators who had sold their businesses but held onto the real estate – have largely exited. Their properties were absorbed by the buyers who acquired them during that wave, and they haven’t been replaced. “The buyer pool hasn’t changed much, but the seller pool has,” Abdelnour notes.

What remains is a seller landscape dominated by institutional players, family offices, and private equity-backed companies. The one-off owner with two or three buildings in secondary markets is increasingly rare. That consolidation has implications for deal sourcing, pricing expectations, and negotiation dynamics across the board.

Tax-Motivated Buyers Are Back

After roughly 12 to 18 months of near-dormancy, a key category of private buyer is returning to the market: investors using 1031 exchanges, a tax provision that lets them defer capital gains by rolling proceeds from a property sale into a new purchase – on a strict deadline. Abdelnour points to a recent closing as evidence: “It’s nice to see the emails coming back across my desk saying, ‘Hey, we got a 1031 guy, we gotta move quick.'”

That urgency is the point. Because these buyers face a hard timeline to deploy their capital or lose the tax benefit, they move faster and with more certainty than typical buyers. Their return signals renewed transaction activity among private investors and adds a sense of urgency to deal timelines that had been largely absent during the slowdown. Combined with continued activity from REITs, family offices, and private equity, the buyer side of the market is showing more depth than it has in recent memory, though capital remains disciplined about what it will actually pursue.

What Kills Deals Today

Physical and financial risks discovered during due diligence remain the most common reasons transactions fall apart. Abdelnour is direct about the pressure points: financing difficulties, roof condition, and environmental findings. A Phase I environmental assessment that triggers a Phase II – and a Phase II that comes back with problems – can derail deals that looked clean on paper.

Roof replacement costs have risen sharply, now running roughly $10 to $12 per square foot. On a 500,000-square-foot building, that’s a potential $5 million liability. Abdelnour recalls exactly that scenario on a New York deal his team was working on – the contract was signed, but inspection revealed the entire roof needed replacement. The deal survived only because the seller offered a concession. Many don’t.

Lease structure is another pressure point, though experienced brokers typically identify those issues before a contract is signed. The more dangerous problems are the ones that emerge mid-diligence.

Recurring Underwriting Mistakes

Buying properties with below-market rents or physical issues, so-called value-add industrial, has attracted significant investor interest, but a recurring pattern of buyers underestimating execution costs continues to surface. Two factors tend to get underweighted.

The first is tax reassessment. When a building sells at a significant premium to its previous purchase price, the property tax basis resets, and that increase can absorb a meaningful portion of the projected rent upside. As Abdelnour explains, a tenant paying $5 below market rent might seem like a clear value-add opportunity, but if taxes double at acquisition, half that upside disappears immediately.

The second is building functionality. Buyers sometimes underwrite to rents that only fully modern, functional buildings can command. Low clear heights and limited loading dock access are the most common functional deficiencies, and they narrow the tenant pool in ways that directly affect achievable rents and exit cap rates. “You’re not going to get top-of-market rents on a more vintage building that’s not as functional,” Abdelnour says.

What Sellers Are Getting Wrong

On the sell side, a consistent blind spot persists around building functionality. Sellers tend to anchor on the rent roll and lease term while underestimating how much physical characteristics affect buyer interest. Multi-tenant small-bay buildings with low clear heights attract a narrower pool of buyers than sellers often expect – and pricing those assets as if functionality doesn’t matter leads to extended marketing periods.

Abdelnour attributes part of this to overly optimistic listing advice. Whether brokers are telling sellers their buildings are worth more than the market supports, or sellers genuinely misunderstand current buyer priorities, the result is misaligned expectations that slow deals down or prevent them from closing.

The Assets That Get Passed On

Sophisticated buyers are screening out assets based on three consistent factors: poor location, above-market rents that aren’t sustainable post-tenancy, and functional obsolescence. The above-market rent issue is particularly relevant for large-format logistics assets where a major tenant has made capital improvements and is paying a premium as a result. If a tenant paying $15 per square foot leaves and the next one will only pay $8, the investment thesis collapses.

The market is pricing in tenancy risk more carefully than it did a few years ago, and buyers are less willing to underwrite optimistic backfill assumptions on assets where the current rent reflects a specific tenant’s needs rather than true market demand.

Where the Market Is Heading

Looking ahead, Abdelnour expects capital to remain active but increasingly concentrated in high-quality, functional assets. Secondary assets – older vintage, lower clear heights, limited dock access – will face more pressure on pricing and liquidity as that separation deepens.

Beyond traditional warehousing, several adjacent sectors are attracting growing allocations: logistics-focused facilities, data centers, AI infrastructure, and industrial outdoor storage. The last of these has drawn particular attention from investors looking for simpler, lower-capex exposure to the industrial theme.

Sale-leasebacks remain a steady part of deal flow as well, particularly as businesses look to unlock capital from real estate holdings without giving up occupancy. In a slower economic environment, that dynamic tends to accelerate rather than fade – companies facing debt obligations or expansion needs find selling and leasing back their facilities an increasingly attractive option.

The broader picture is one of a market that has moved past the froth of 2021–2022 without collapsing, and is now settling into a more deliberate phase – one where the quality of the asset, the structure of the lease, and the physical condition of the building matter more than they did when capital was chasing yield at almost any price.

About the Expert: Brandon Abdelnour the is Senior Vice President at Encore Real Estate Investment Services, working across industrial and net lease transactions ranging from sub-million-dollar single-tenant deals to institutional portfolios in the $30–50 million range.

This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.