The industrial market's recovery is increasingly being driven by its largest facilities, while mid-size warehouses grapple with rising vacancy and abundant supply, according to a new report from Savills and CompStak.
Buildings containing 750,000 square feet or more emerged as the strongest-performing segment during the first quarter, with vacancy declining 100 basis points year over year to 7.3%. Facilities between 500,000 and 750,000 square feet also posted improvement, with vacancy tightening roughly 90 basis points to 10.1%.
The trend reversed in the mid-size segment. Warehouses between 200,000 and 500,000 square feet recorded vacancy of 10.9%, reflecting what the report describes as an ongoing supply overhang.
The divergence is also showing up in leasing activity. Mega facilities accounted for 30.6% of all big-box leasing during the past six months, up from 21.5% in the previous six-month period. Logistics firms represented more than half of recent leasing volume, while retail, consumer goods, food and beverage and e-commerce tenants collectively accounted for more than a quarter of activity over the past year.
According to the report, ongoing supply chain uncertainty and inventory management challenges are prompting many occupiers to reconsider large centralized distribution networks.
"Large regional distribution centers were the standard model for big-box retailers before e-commerce pushed many toward smaller, proximity-based facilities," the report said. "The pendulum is swinging back."
At the same time, developers face growing obstacles in delivering new mega facilities. Such projects require extensive acreage, suitable topography and local government support, factors that have become increasingly difficult to secure in major logistics markets.
The supply imbalance is becoming more pronounced. In 2023, developers delivered roughly three mid-size warehouses for every mega facility. By 2025, that ratio had widened to eight-to-one. Across the top 10 industrial markets, the number of available mega facilities has fallen 14% over the past two years, while mid-size availabilities have increased 15%.
Although starting rents are lower in larger buildings, landlords appear to be extracting greater long-term value from those deals. Mega facilities averaged starting rents of $8.45 per square foot, compared with $9.62 per square foot in the mid-size segment. However, effective rents averaged $9.63 per square foot in mega facilities, producing an 8.2% spread between starting and effective rents, far wider than the 1.3% spread recorded in the mid-size category. Mega leases also averaged 96.6 months in duration, compared with 76.5 months for mid-size facilities.
The report suggests landlords could see additional upside as existing leases roll over. More than half of expiring mega-warehouse square footage was leased before 2020, prior to the sharp run-up in industrial rents. As a result, market rents currently stand 42.9% above in-place rents for expiring mega facilities, compared with 32.6% for large warehouses and 26.9% for mid-size properties.
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