The U.S. industrial real estate market is experiencing notable changes. Rising vacancies, evolving supply chains, and tax reforms are reshaping the landscape for property owners and developers. For investors, understanding these shifts is essential, not only to manage operational challenges but also to leverage opportunities that can improve cash flow and long-term returns.

Rising Vacancies and Market Dynamics

Industrial spaces, from warehouses to manufacturing facilities, have historically benefited from strong demand, particularly during the e-commerce boom. However, recent trends show an uptick in vacancies in certain regions as supply increases and demand stabilizes. This softening can affect rental rates, property valuations, and overall investment returns.

At the same time, tax policy changes, especially those affecting depreciation and deductions, are creating both challenges and opportunities. Forward-looking property owners and developers are re-evaluating how to optimize their investments to mitigate market risks.

The Role of Tax Incentives in Industrial Properties

Two key tax strategies stand out for industrial property owners navigating this shifting landscape: Cost Segregation and Section 179D Energy Efficiency Deductions. Both can accelerate depreciation and reduce taxable income, effectively improving cash flow and offsetting operational pressures from market softening.

Cost Segregation: Unlock Hidden Depreciation

Cost segregation is an engineering-based analysis that separates a building into individual components for accelerated depreciation. While traditional depreciation might spread costs over 39 years for commercial property, cost segregation allows certain assets, like specialized lighting, HVAC systems, or flooring, to be depreciated over 5, 7, or 15 years.

For industrial facilities, which often include substantial investments in specialized infrastructure, cost segregation can unlock significant tax savings in the early years of ownership. This accelerated depreciation provides additional capital that can be reinvested into property improvements, operations, or new acquisitions, helping owners maintain financial flexibility even as market conditions fluctuate.

Section 179D: Incentivizing Energy Efficiency

Section 179D offers a federal tax deduction for energy-efficient improvements to commercial buildings. Industrial property owners who invest in energy-efficient lighting, HVAC, or building envelope upgrades can claim deductions up to $5.81 per square foot (as of 2025).

With rising energy costs and sustainability becoming a core part of industrial operations, 179D deductions can reduce upfront costs for energy improvements while providing a long-term boost to property value and operational savings.

However, it must be noted that as per the passing of the One Big Beautiful Bill Act (OBBBA), the Section 179D Deduction has a set terminus date of June 30, 2026.

Strategic Considerations for CRE Owners and Developers

In today’s market, combining cost segregation with Section 179D planning can be particularly powerful:

• Mitigate market softness: Accelerated tax deductions help maintain cash flow during periods of rising vacancies or rental rate pressures.
• Maximize ROI on renovations or upgrades: When upgrading facilities for energy efficiency, Section 179D provides immediate tax relief, while cost segregation captures value from building components.
• Plan for future acquisitions: Tax savings from current properties can be reinvested into new industrial developments, creating a self-funding growth strategy.

For CPAs advising clients, understanding these deductions ensures that property owners are not leaving money on the table while navigating complex real estate investments.

Why Engineering-Based Studies Matter

Not all depreciation studies are created equal. CSSI specializes in engineering-based cost segregation studies, ensuring accuracy and audit defensibility. Our team evaluates each property in detail, identifying assets that qualify for accelerated depreciation while maximizing compliance with IRS guidelines.

Similarly, our 179D studies are designed to capture the full value of energy-efficient improvements, helping industrial property owners and developers realize tax benefits they may have overlooked.

Take Action: Turn Market Shifts into Opportunity

While industrial real estate faces new pressures, market shifts can also reveal opportunities. By leveraging cost segregation and Section 179D deductions, property owners can unlock hidden cash flow, enhance property value, and strategically position themselves for long-term growth.

CSSI helps owners, developers, and CPAs navigate these opportunities with precise, engineering-based studies that maximize tax savings and minimize risk.

Contact CSSI today to discover how your industrial property can benefit from accelerated depreciation and energy-efficient tax incentives.