More industrial space was available for sublease in 3Q 2024 than ever before. Yet available space is being steadily absorbed and signs are positive for the almost 200 million square feet still on the market, according to a new report from Savills.
In total, 198.7 million square feet was available for sublease in 3Q 2024 – more than 225% higher than the level recorded in the same company’s April 2023 study. However, there was also good news.
By November 2024, 80% of the sublets of more than 100,000 square feet analyzed in the previous study – averaging 11 months on the market -- had been leased or taken off the market. Savills said they had performed “remarkably well” during a two-year period when national vacancy rose 360 basis points and 1.2 million square feet was delivered. “By November 2023, only half of the original square footage remained available, dropping further to 20.1% 12 months later,” the report noted.
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Some of the space take-up was by new tenants that signed subleases. However, 20% involved tenants leasing directly from landlords. In some cases, this was because the original lease was about to expire. In other cases, it was the preferred solution, especially for tenants seeking an improvement allowance. In addition, almost 17% of the space was withdrawn from the market, typically because the sublessor reevaluated and decided to retain the space, the report stated.
The report also found that the tenant mix had changed since its first study was published. In early 2023, e-commerce and consumer goods occupied more than half the space available. Now, the sector is dominated by third-party logistics (3PL) providers that account for 37.5% of the subleases, followed by the food and beverage sector (13.3%), and manufacturing firms evenly divided between sublessors and sublessees.
The logistics firms have benefited as retailers, consumer goods companies and e-commerce firms increasingly outsource warehouse and distribution operations, the report noted. This offers lessees the benefit of more flexibility in case of supply chain disruptions as well as the opportunity to enter shorter leases. “Among the 20 surveyed markets, sublease spaces of 100,000 square feet or larger are currently advertised at rates 17.1% lower than direct listings, presenting a strong arbitrage proposition,” the report commented.
It cited the example of Wayfair, which subleased 1.2 million square feet to Integra Mission Critical, as well as a sublease by HanesBrands to Babylist. Other large sublets were scored by 3PLs like DHL, Kuehne+Nagel, ID Logistics, Logistics Plus and Verst Logistics.
The report called these trends “a positive indicator” for the sublease space still on the market, especially when coupled with a 56% decline from 2022 in new construction. It predicted that vacancy rates would decline by late 2025. “Landlords should prioritize competitive strategies, as sublets often feature lower pricing and appeal to cost-conscious industries driving demand,” the report commented.
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