Q1 2026 Industrial Vacancy and CAM Estimates: What Landlords Need to Know
Industrial vacancy climbed to approximately 7% in Q1 2026 — nearly double the historic lows of 3–4% that defined 2021–2023. For landlords who issued CAM estimate letters during the tight market, here is what needs to be reviewed before year-end reconciliation.
By Angel Campa, Founder, CapVeri · Updated April 2026
Quick Answer
Industrial CAM estimate letters issued in Q4 2025 for the 2026 estimate period may have assumed occupancy levels from 2023–2024 when vacancy was at historic lows. With rising vacancy, landlords should review whether gross-up thresholds are now triggered at their specific properties and update estimates accordingly. For properties where occupancy has dropped below the gross-up threshold since the estimate was issued, the current estimate may understate 2026 recovery entitlement — creating a larger-than-expected reconciliation settlement at year-end.
The Industrial Market Shift: From Historic Tightness to Rising Availability
The industrial sector spent much of 2021–2023 at vacancy rates below 4% nationally — a period in which CAM gross-up provisions were largely academic, since buildings were over-subscribed and gross-up thresholds were not being breached. Many landlords issued estimate letters in late 2024 and 2025 projecting occupancy levels consistent with that tight market.
The picture has changed. Supply that was started during the peak demand years has been delivering into a market where absorption has slowed. National industrial vacancy hit approximately 7% in Q1 2026, with markets like the Inland Empire — which was below 1% vacancy in 2022 — now experiencing meaningfully higher availability. Chicago, Dallas, and Phoenix are also showing increased availability as new supply has outpaced net absorption.
For individual industrial properties, the question is not the market average but the specific occupancy of your building. A building that was 100% occupied through 2024 and lost a tenant in Q1 2026 may now sit at 65% occupancy — well below the gross-up threshold in leases that were written assuming sustained tightness.
How Rising Vacancy Changes the CAM Estimate Math
CAM estimates are prospective — they represent what the landlord expects to recover in the current year, billed in equal monthly installments. For a triple-net industrial lease, those estimates are based on the tenant's pro-rata share of projected operating expenses.
When occupancy drops below the gross-up threshold, the math changes in two ways:
- Variable expenses must be grossed up in the estimate: Rather than projecting actual expenses at current occupancy, the estimate should reflect what variable expenses would be at the gross-up threshold. For an industrial building, the primary variable expense is typically janitorial/cleaning of occupied bays. At 65% occupancy vs. a 90% gross-up threshold, janitorial must be scaled up by a factor of roughly 1.38 in the grossed-up projection.
- The pro-rata denominator may have changed: If the vacated space is being taken out of the denominator (some leases define pro-rata as tenant SF / occupied SF rather than tenant SF / total building SF), each remaining tenant's share has increased. An estimate that used the old pro-rata share is underbilling.
Triple-Net vs. Modified Gross: Why the Distinction Matters Here
In a pure triple-net industrial lease, the tenant pays actual expenses at their pro-rata share — no gross-up provision is common, and the reconciliation reflects reality. In this structure, rising vacancy reduces the recoverable pool because actual variable expenses are genuinely lower when fewer bays are occupied. The landlord absorbs the unrecovered variable costs from vacant space.
In a modified gross industrial lease — more common in multi-tenant flex buildings — the landlord includes a fixed CAM charge in base rent. Rising vacancy may push actual expenses above the fixed charge, exposing the landlord to unrecovered cost increases. Some modified gross leases include expense stop provisions that cap the landlord's CAM absorption; others do not.
The practical takeaway: gross-up provisions are more likely in leases that were specifically negotiated to address occupancy risk — typically in multi-tenant industrial or flex buildings, and in leases written during softer markets. Review each lease individually rather than assuming all industrial leases follow the same structure.
Reviewing Your 2026 CAM Estimate Letters Now
If your building's occupancy has changed materially since you issued 2026 estimate letters, a mid-year review is worth running even if you cannot or do not reissue the letters. The review serves two purposes: (1) it documents the variance for the year-end reconciliation, and (2) it tells you how large the settlement adjustment will be so you are not surprised.
For each affected property, compare: (a) the occupancy assumed in the estimate letter, (b) the actual current occupancy, (c) the gross-up threshold in each tenant's lease, and (d) whether that threshold is now breached. If it is, recalculate projected recovery at the grossed-up expense level and note the variance from what is currently being billed.
What Can Go Wrong
Estimate letters that do not account for gross-up triggering mid-year
A property manager who issued estimates in November 2025 assuming 100% occupancy may not update the estimate when a tenant departs in February 2026 and occupancy drops below the gross-up threshold. The monthly billings continue at the lower actual-expense level throughout the year, and at year-end reconciliation the landlord issues a larger settlement than tenants expected — often triggering disputes and sometimes audit requests.
Underestimating actual expenses in a rising-cost environment
Industrial properties are seeing above-inflation increases in insurance premiums, dock door maintenance, and landscaping costs in 2025–2026. Estimate letters that anchored on 2023 or 2024 actuals without inflation adjustments may understate 2026 actual expenses by 8–15% in some markets. The combination of higher actual expenses and a larger gross-up adjustment (from lower occupancy) creates a compounded underrecovery that resolves into a large reconciliation bill.
Not updating the denominator when a tenant vacated partial space
In multi-tenant industrial buildings where a tenant surrenders a portion of their space (expanding another tenant's relative share), the denominator used in pro-rata calculations must be reviewed. If a lease defines the denominator dynamically (total occupied SF), each remaining tenant's share increases when the partial surrender occurs. Estimates that continue using the pre-surrender denominator underbill the remaining tenants for the rest of the year and create an awkward settlement conversation.
Frequently Asked Questions
Does rising industrial vacancy change what I can recover in CAM?
Not directly — the recoverable expense pool is determined by your leases, not by market vacancy. However, rising vacancy can push your building's occupancy below the gross-up threshold in some leases, which changes how expenses are presented on the reconciliation. For pure triple-net industrial leases, tenants pay their pro-rata share of actual expenses regardless of occupancy — gross-up provisions are less common but do exist, particularly in newer or multi-tenant flex leases.
My 2026 CAM estimate letter was issued in November 2025 when the market was tighter. Do I need to reissue it?
If occupancy at your property has dropped below your gross-up threshold since the estimate was issued, the estimate may understate what you are entitled to recover for 2026. Most leases do not require mid-year estimate revisions unless the variance exceeds a stated threshold (often 10–15%). However, you should document the variance now so the 2026 reconciliation settlement is accurate and defensible.
What is the difference between a triple-net and modified gross industrial lease for CAM purposes?
In a triple-net (NNN) industrial lease, tenants pay their proportionate share of actual operating expenses directly — the landlord passes through all costs. In a modified gross lease, the landlord includes a fixed CAM charge in base rent and absorbs variance from actual expenses. CAM estimate accuracy matters more in NNN leases because underpayment must be collected via reconciliation settlement.
A tenant vacated 40% of a flex industrial building in March. How does that affect the remaining tenants' CAM?
If the vacated space is not re-leased, the remaining tenants' pro-rata shares will increase if the lease uses a dynamic denominator (tenant RSF / total occupied RSF). If the denominator is fixed in the lease (a specific RSF figure), the remaining tenants' shares do not change automatically. Review the lease language for each tenant before issuing revised bills.
Related Resources
CAM Estimate Letter Q&A
How to draft, review, and defend CAM estimate letters
Industrial CAM Reconciliation
Complete guide to industrial property CAM reconciliation
Gross-Up Clause Explained
How gross-up provisions work and what to verify in the lease
CAM Gross-Up Calculator
Model gross-up at any occupancy level for free
Review Your 2026 Industrial CAM Estimates Before Year-End
CapVeri checks whether your 2026 estimates reflect current occupancy, correct gross-up thresholds, and accurate denominators — so reconciliation settlements do not come as a surprise to your tenants.
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