After hitting an all-time low early last year, industrial sublease availability is now on a steep ascent. Although still a small portion of total availability, the sublease market has swelled over 50% since Q1 2022 – the largest 12-month increase since 2008. The recent spike in sublease space is largely attributable to the macroeconomic headwinds that emerged in 2022 and signals of continued precarious conditions for 2023. As occupiers start to rightsize following two years of intense expansion, expect high-quality, recently leased space to come back to market. 

Historic Sublease Availability: U.S. Industrial Market

Available sublet space grows amid difficult economic times, and it topped at just over 130 million square feet (msf) during the Global Financial Crisis. Sublet space ticked up again at the onset of COVID-19 in early 2020 as deal making stalled, albeit for a brief moment. After historically low totals of sublet space throughout 2021 and early 2022, total available space grew from 55.8 msf in Q2 2022 to 97.6 msf as of March 2023. 

Large Block Sublease Availability Study: Top U.S and Canada Markets

Savills Research conducted in-depth analysis of available sublet spaces greater than 100,000 square feet across 20 major industrial markets in the U.S. and Canada and uncovered the following key findings: 

• Tenants in the e-commerce and consumer goods industries make up over 50% of the square footage being given back by occupiers. 

• Over 50% of the available sublet space is Class A with an average year built of 2004. 

• The average remaining lease term on the sublet availabilities is 4 years and 5 months. 

Two prominent examples of these trends are Wayfair and Hanesbrands, which both committed to 1.2 msf distribution & fulfillment centers in Houston and Columbus, Ohio, respectively, this past summer. Following lower-than-expected Q4 earnings, the two companies have brought those spaces to the sublet market just months after signing. Both serve as examples of companies that expanded their footprint on projections that have not come to fruition. In their most recent earnings calls, both cited the preservation of cash as a top priority.

Direct vs. Sublet Availability: Top U.S and Canada Markets

Sublease availability is a convention of total availability. Dallas-Fort Worth leads the pack in both direct and sublet availability while also boasting 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. Tenants opting to give back space is market-specific, with larger percentages of sublet availability coming online in markets that have observed tighter vacancy over the last few years. Securing modern industrial space, with substantial length of term in some of the tightest markets, is becoming more manageable as this trend percolates.  

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. 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.  

Source: Savills Research 

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