Industrial real estate has long been viewed as one of commercial property’s safest havens, but subtle cracks are beginning to show. Behind the steady demand for warehouse space, a slower, less visible kind of distress is emerging—what Troutman Pepper Locke partner Mark Silverman calls a “stealth” shift that standard market metrics may not yet fully capture.
“What’s interesting to me is that industrial loan defaults have slightly ticked up this year from previous years,” Silverman tells GlobeSt.com, citing MSCI data showing a 5.1% year-over-year increase in October.
“I see it, too,” he says. “You see the overbuild of industrial with the anticipation of groups for last-mile distribution with the name of your brand. On a lot of these new industrials, there are massive signs for rentals. They don’t seem to be removing those signs, and there are no trucks in the lots. They’re not immediately into loan defaults.” But that’s a startling development, he adds, “especially for an asset class that was particularly solid.”
The vulnerability is heightened by leasing dynamics. Many warehouses are occupied by single tenants, leaving a property entirely vacant in the event of a sudden exit. “If that company backs out,” Silverman says, “you have nothing.”
The pattern isn’t unique to industrial—it has parallels in multifamily and other property types—but industrial’s prior strength made the changes less apparent.
The picture is further complicated by the public nature of expansion announcements compared to the relative quiet around facility exits. “Companies will make a splashy announcement about expansions but are often quieter when they pull back from using other facilities,” Silverman notes.
A key difference for warehousing is tenant flexibility. Many large retailers now have alternative sites that can double as storage or logistics hubs. Some are reconfiguring their networks of stores, warehouses and distribution points to streamline delivery operations.
“I think lenders need to be very focused on industrial assets on their books,” Silverman advises, stressing that owners should ensure borrowers maintain adequate cash reserves, monitor tenant credit quality and prepare contingency plans to backfill vacant space.
Increasingly, landlords are filling short-term income gaps by subleasing. Warehouse sublets have become a stopgap strategy, giving temporary users—from e-commerce startups testing markets to seasonal operators and even FEMA—flexible access to logistics space. Farmers storing crops, garden centers stocking up for spring or disaster-response teams storing supplies all reflect this shift toward adaptive use.
“The book is still being written on this,” Silverman says.
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