Sublease Wave: Navigating Through Economic Uncertainties in the U.S. Industrial Market

US industrial sublease availability has seen a twofold increase compared to the previous year, standing at 137 million sq. ft. However, it still accounts for less than 1% of the total industrial inventory across the nation. Correspondingly, sublease transaction volume has risen to a significant 20.2 million sq. ft. from January to the end of May, an uptick from 12.4 million sq. ft. during the same period in the previous year.

The surge in sublease availability, which has experienced a 30% rise between April 1 and June 9 alone, is attributed to several factors. These include overestimations of inventory requirements, economic instability, closures of retail stores, and record-breaking rents.

Rents have surged nearly 67% over the past three years, making subleasing a tempting option for many tenants. Quite often, they can generate enough revenue by subleasing a part of their premises to cover the rent for the entire facility.

Almost three-quarters of available sublease blocks of 300,000 sq. ft. or more, which account for 38% of the total sublease space, are located in Class A buildings, with 37% of these either recently completed within the past two years or still under construction. The trend of sublease availability in this size range is relatively new, with 54% of it hitting the market in just the past 90 days or less.

General retailers lead the way, accounting for over 26% of available sublease blocks of 300,000 sq. ft. or more. They're followed by general wholesalers at nearly 24% and e-commerce-only tenants at around 18%. The Inland Empire tops all markets for available sublease blocks of 300,000 sq. ft. or more, with a total of 6.9 million sq. ft.

Experts anticipates that available sublease space will continue to grow due to economic uncertainties and reduced inventory levels. The demand for such spaces is also projected to rise, courtesy of the potential for shorter lease terms and below-market rental rates. Consequently, available sublease space is expected to remain under 1% of the total US industrial inventory, posing no threat to the market's impressive 13-year streak of positive net absorption.