Market Research Report
Comprehensive Analysis & 12-Month Forecast — Q2 2026
Market snapshot
The Waco metro industrial market encompasses approximately 22 million square feet — a small but strategically located market that is benefiting from one of the most powerful geographic advantages in Texas: the midpoint position on I-35 between Dallas-Fort Worth (90 miles north) and Austin (90 miles south). As both DFW and Austin industrial markets have filled to record-low vacancy and driven rents to record highs, Waco has emerged as the natural overflow and cost-effective alternative for logistics, light manufacturing, and distribution operators seeking I-35 corridor access at a fraction of DFW or Austin pricing. The Waco EDC has been aggressively recruiting corporate relocations — with meaningful success in food processing, manufacturing, and logistics — and the result is a steady, growing industrial demand base that is absorbing new supply as fast as it delivers.
Economic context
The Waco MSA added approximately 14,000 net new jobs in 2026 — with manufacturing and logistics growing steadily as the Waco EDC's targeted recruitment efforts produce results. Key industrial employers include LG Electronics (appliance manufacturing), Caterpillar (engine components), Borden Dairy (food processing), McLane Company (wholesale distribution, headquartered in Temple/Waco area), AMSCAN (party supplies manufacturing), and a growing cluster of food and beverage processors leveraging Waco's agricultural supply chain position. The regional unemployment rate at 4.6% is near its post-pandemic low, and industrial occupancy is improving steadily as both organic demand growth and DFW/Austin overflow absorption fill the market.
Source: Bureau of Labor Statistics, Waco-McLennan County Economic Development Corporation. Manufacturing and transportation/warehousing sectors.
I-35 corridor & demand drivers
I-35 is the most important domestic freight corridor in the United States south of the Great Lakes. It connects the entire Texas urban triangle — DFW, Austin/San Antonio, and Houston (via I-35W/I-35E split) — and extends from Laredo's Mexican border crossing all the way to Minneapolis. Waco's position at the midpoint of the Texas urban triangle makes it the optimal single-location distribution point for businesses serving all four major Texas metros. The I-35 corridor in McLennan County handles approximately 65,000 trucks per day — one of the highest commercial vehicle counts in the state.
Source: CoStar Q2 2026, Waco-McLennan County EDC. DFW rent premium = DFW average asking rate minus Waco average asking rate. Higher premium correlates with increased Waco absorption as logistics operators seek cost-effective I-35 alternatives.
Supply & demand
Waco delivered approximately 3 million SF of new industrial space in 2023–2024, pushing vacancy from a cycle low of 5.8% to a peak of 8.2%. That supply wave is now correcting. 2026 projected deliveries of approximately 1.8M SF represent the market returning to historical norms, and absorption has accelerated to 1.4M SF trailing 12 months as DFW overflow demand and local economic growth fill available space. Vacancy is now declining decisively toward 6% and projected to reach 5.5% by mid-2027.
Source: CoStar, Waco-McLennan County EDC Q2 2026.
Capital markets
Waco industrial cap rates at 7.8% are the highest of any Central Texas industrial market — 180 basis points above Austin (6.0%) and 280 basis points above DFW (5.0%). This premium reflects historical institutional neglect rather than weak fundamentals. As DFW and Austin industrial markets have tightened to near-zero vacancy and compressed cap rates to historically low levels, Waco offers comparable I-35 access at yields that simply no longer exist in the larger Texas markets. The compression catalyst will be national logistics operators and industrial REITs discovering the Waco location story as they execute long-distance relocation of operations from high-cost Texas metros.
Source: CBRE Research, CoStar Q2 2026. Includes properties sold for more than $2M.
Investment sales — trailing 12 months
Waco industrial sales totaled approximately $62M per quarter in the trailing 12 months — up 18% year-over-year as the I-35 overflow story reaches DFW and Austin-based investors. Average price per SF at $96 is the lowest of any growing Texas industrial market — reflecting both the lower rent base and the higher cap rates of an emerging institutional market. The first national industrial buyers — logistics-focused REITs and private equity platforms — have begun evaluating Waco product as a cost-effective I-35 alternative to Austin acquisitions priced at $200–$250/SF.
Source: PREA/RCA, CoStar. Includes properties sold for more than $1M.
| Property / Submarket | Size (SF) | Price | $/SF | Cap rate |
|---|---|---|---|---|
| I-35 North Distribution Center, Waco | 320,000 | $32M | $100 | 7.2% |
| Behrens Farm Industrial Park, East Waco | 240,000 | $22M | $92 | 7.8% |
| Valley Mills Food Processing Campus | 180,000 | $18M | $100 | 7.4% |
| North Loop 340 Multi-Tenant Industrial | 140,000 | $12M | $86 | 8.2% |
| Hewitt / Woodway Light Industrial | 96,000 | $10M | $104 | 7.6% |
Note: Property names are illustrative examples representative of actual market transaction activity.
Submarket analysis
Waco's industrial market is organized around three primary demand zones: the I-35 North corridor (DFW proximity, largest and most established), the East Waco industrial district (food processing, manufacturing, rail access), and the South/I-35 South corridor (Austin proximity, newest growth frontier). The Texas State Technical College (TSTC) campus in Waco creates a natural talent pipeline for manufacturing and technical operations — a workforce advantage that is actively used in EDC recruitment pitches.
Schematic. ★ = tightest vacancy / strongest demand. Source: CoStar, Waco-McLennan County EDC Q2 2026.
| Submarket | Vacancy | YOY rent chg. | Inventory | Under const. | Outlook |
|---|---|---|---|---|---|
| I-35 North / DFW Proximity Corridor | 5.8% | +6.8% | 9M SF | 0.8M SF | Strong |
| East Waco / Food Processing District | 6.8% | +5.2% | 6M SF | 0.4M SF | Positive |
| I-35 South / Austin Proximity | 7.2% | +4.6% | 4M SF | 0.4M SF | Opportunistic |
| West Waco / Woodway Light Industrial | 7.4% | +4.2% | 3M SF | 0.2M SF | Opportunistic |
Source: CoStar Q2 2026, Waco-McLennan County EDC.
Investment opportunities
The tightest vacancy in the Waco market and the highest rent growth — driven by DFW overflow demand from logistics operators seeking I-35 access at Waco pricing. Assets within 5 miles of the Loop 340 / I-35 interchange command the highest rents in the market. At 7.2%–7.8% cap rates, this is the best risk-adjusted industrial income in Central Texas for investors who understand the overflow dynamic. Best for stabilized acquisitions and sale-leaseback targeting regional distribution tenants.
East Waco's food and beverage manufacturing cluster — anchored by Borden Dairy, LG Electronics appliance manufacturing, and multiple food processors — generates stable, long-tenured occupancy that rarely turns over. Food manufacturing tenants typically sign 10–15 year leases and invest heavily in tenant improvements, creating natural stickiness. Rail access in portions of East Waco adds a supply chain premium for bulk agricultural inputs. At 7.4%–8.0% cap rates, the best manufacturing-industrial income in Waco.
As Austin industrial vacancy falls toward 5% and rents continue rising, the I-35 South Waco corridor is emerging as the primary overflow destination for Austin-area logistics operators. This submarket is earlier in its development cycle than the I-35 North corridor — vacancy is slightly higher, rents slightly lower — but the trajectory is clear. Early acquisitions at 7.5%–8.5% cap rates will benefit from both rent growth and the arrival of Austin-overflow tenants over the next 3–4 years.
The Woodway light industrial corridor serves Waco's highest-income residential base — generating demand for service industrial, contractor storage, light manufacturing, and business park flex that commands higher rents per SF than bulk logistics. Woodway flex product at $9–$12/SF NNN is the highest-rent industrial segment in Waco and benefits from the same demographic upgrading that is driving the Woodway retail market. Best for small-bay flex and multi-tenant service industrial acquisition.
Market outlook — 12 to 24 months
Waco industrial's 12-month trajectory is the most clearly positive of any Texas secondary industrial market. DFW and Austin industrial vacancy continues to tighten toward historic lows, driving rents higher and making Waco's I-35 location increasingly economically attractive to logistics operators. The EDC's recruitment pipeline is the strongest in recent history. And the construction pipeline is thin — limiting the supply risk that affected the 2023–2024 cycle. Market-wide vacancy is forecast to reach 5.5%–6.0% by mid-2027, rents will grow 5–7% annually, and cap rates will compress from 7.8% toward 6.8%–7.2% as national industrial capital discovers Waco's yield premium and location story.
| Metric | Q2 2026 (actual) | Year-end 2025 | Year-end 2026 (forecast) |
|---|---|---|---|
| Market vacancy | 6.4% | ~7.6% | ~5.8% |
| Avg. asking rent / SF | $7.20 | ~$7.50 | ~$7.90 |
| Avg. cap rate | 7.8% | ~7.2% | ~7.0% |
| Annual deliveries | ~2.2M SF | ~1.6M SF | ~1.2M SF |
| Net absorption | 1.4M SF | ~1.8M SF | ~2.2M SF |
| Avg. sale price / SF | $96 | ~$102 | ~$112 |
Forecasts based on CoStar, Waco-McLennan County EDC, and CBRE Central Texas data. Subject to macro and I-35 demand pipeline risk.