Sublease availability hits record levels but lease-ups show market resilience

Industrial sublease availability reached an all-time high of 198.7 million square feet (msf) in the U.S. as of Q3 2024, marking a 225% increase compared to two years ago. However, this metric shows signs of stabilizing, with subleases being steadily absorbed as the market remains active. In April 2023, Savills Research published a report analyzing available sublease spaces exceeding 100,000 square feet (sf) that entered the market between Q1 2022 and Q1 2023 across 20 major markets in the U.S. and Canada. This follow-up study revisits those spaces—the first wave of recent sublets—to assess leaseup performance and patterns in tenancy changes, revealing the following key findings:

• By November 2024, 79.9% of the analyzed sublets had been leased or withdrawn from the market, with an average time on the market of 11 months.
• Logistics firms accounted for 37.5% of the lease-up activity, reflecting a growing trend of outsourcing supply chain operations.
• In the surveyed markets, current sublease availabilities of 100,000 sf or larger are being marketed at rates averaging 17.1% lower than direct listings.

Most large sublets absorbed quickly, with some retained or withdrawn

These 124 large-block sublets on the market in Q1 2023 performed remarkably well under adverse market conditions, during a two-year period in which national vacancy increased by 360 basis points amid 1.2 billion sf of new deliveries. By November 2023, only half of the original square footage remained available, dropping further to 20.1% 12 months later. In most cases, this reduction resulted from new tenants leasing the space, generally on a sublet basis. However, 20.0% of the leased spaces involved direct deals with landlords. Some of these direct deals were driven by the expiration of the original lease, while others reflected a preference by the the parties involved, including securing a tenant improvement allowance. Additionally, 16.9% of the space was withdrawn from the market absent any leasing event, typically because the sublessor reevaluated and decided to retain the space.

One major finding from the analysis was the key differences between the tenant industries shedding space and those absorbing it. The sublessor industry mix was dominated by e-commerce and consumer goods companies, which accounted for over 50% of the total square footage on the market for sublease in early 2023. Nearly two years later, most of that space has been leased by a different mix of occupiers. Third-party logistics (3PL) providers were the dominant sector, accounting for 37.5% of the leasing activity. The food and beverage sector, which contributed minimally to sublease availability, made up a notable 13.3% of the leased space. Manufacturing firms represented a similar share on both the sublessor and sublessee sides.

Sublease activity reveals sectoral shifts in demand

Logistics firms have been active as retailers, consumer goods companies and e-commerce firms increasingly outsource warehouse and distribution operations. This strategy offers flexibility amid supply chain disruptions from labor issues, extreme weather and geopolitical challenges. 3PL providers are taking advantage of the down market and are often adaptable to shorter lease terms. Among the 20 surveyed markets, sublease spaces of 100,000 sf or larger are currently advertised at rates 17.1% lower than direct listings, presenting a strong value arbitrage proposition.

The top examples highlighted further illustrate these trends. Wayfair listed the largest sublet (1.2 msf) on the market in Q1 2023, which leased in a little over a year to Integra Mission Critical, a manufacturer of data center infrastructure. Another notable sublet by HanesBrands in Columbus was leased within three quarters to Babylist, an online seller of baby products. Prominent 3PLs such as DHL, Kuehne+Nagel, ID Logistics, Logistics Plus and Verst Logistics also secured large sublets.

While sublease availability remains elevated, the successful lease-up of the first wave of sublets over the past two years is a positive indicator for the nearly 200.0 msf still on the market. This trend, coupled with a reduced construction pipeline—down 56% from its 2022 peak—supports the Savills Research forecast for vacancy rates to decline by late 2025. With adequate lease-up periods, tenants should feel confident in listing space on the sublease market, while landlords should prioritize competitive strategies, as sublets often feature lower pricing and appeal to cost-conscious industries driving demand.