High-Quality Warehouse Sublets Hit the Market as Occupiers Rightsize

Industrial sublease activity is hardly sinking. In fact, Savills reported last week that it has ballooned over 50% since Q1 2022 – the largest 12-month increase since 2008.

“As occupiers start to right-size following two years of intense expansion, expect high-quality, recently leased space to come back to the market,” Savills reported.

Although still a small portion of total availability, demand is re-emerging as it did during the Great Recession and the onset of the pandemic.

Savills Research studied available sublet spaces greater than 100,000 square feet across 20 major industrial markets in the U.S. and Canada and found e-commerce and consumer goods industry tenants comprised more than 50% of the square footage being given back by occupiers.

More than half of the available sublet space is Class A with an average year built of 2004 and the average remaining lease term on the sublet availabilities is 4 years, 5 months.

Sublease availability is a convention of total availability. Dallas-Fort Worth (DFW) leads the pack in both direct and sublet availability and has a construction pipeline totaling over 80.0 msf.

But as a percentage, sublets make up just over 3.9% of total DFW availability. In Los Angeles, Inland Empire, and Orange County, on the other hand, they make up 15.9%, 11.2%, and 23.1%, respectively.

“Occupiers may largely be taking a wait-and-see approach, and those who overextended may continue to bring space to the sublet market until the global economy finds firm ground,” according to Savills.

“If there is a continued crunch on corporate earnings, expect the recent climb to persist. With that in mind, total availability in the most preeminent industrial markets does remain sparse for now.

“While sublet availability has grown quickly, the market has yet to see substantial jumps in vacancy or a sustained plateau in rental rates.”

Newmark’s Q1 Data Show Volume at 12-Year High

Lisa DeNight, managing director, National Industrial Research, Newmark, tells GlobeSt.com that sublease space is being added to the market at a rapid clip.

“The rate at which subleases went up in Q4 2022 provoked the highest quarterly increase on record, 20%,” she said.

“Rising interest rates, an inflationary environment, and declining consumer demand are driving some firms to control costs via supply chain optimization and consolidation, which includes putting excess or underutilized space up for sublease.”

Newmark’s preliminary numbers for Q1 2023 indicate national sublease volume has reached a 12-year high while remaining a small portion of total available space.

“It’s worth noting that some tenants putting space on the market may not be too eager to vacate and sublet, hedging for if and when consumer demand picks up again,” DeNight said.

“Rising sublease space, especially in the Class A warehouse sector, may be welcome in a tight market as brakes hit on new development projects due to the financing environment. National vacancy remains near record lows.”

Newmark’s preliminary Q1 2023 data shows that while overall leasing continues to soften, sublease leasing was up 44% year over year.