Industrial's Golden Child Has 130% More Sublease Space On The Market Than A Year Ago

Industrial sublease availability in Dallas-Fort Worth increased dramatically over the past 12 months, signaling a normalization of demand following an unprecedented flurry of activity.

There was 5.2M SF of industrial sublease space on the market as of the fourth quarter of 2022, up 131% from one year prior, according to a report from Cushman & Wakefield. More than half of that space is made up of leases larger than 100K SF, per the data.

David Eseke, a director with Cushman & Wakefield’s DFW industrial tenant representation group, said tenants went on a leasing frenzy at the height of the pandemic, especially those in the consumer goods business.

Now, those same groups are realizing they may have bit off more than they can chew and are aiming to cut costs.

“What we’re seeing for some groups and some industries, is that they’ve got more inventory than they need … for the demand that they have,” he said. “There’s a little bit of rightsizing going on.”

Among the largest subleases available is 458K SF returned to the market by Kenco Group, a third-party logistics company; 404K SF from LifeScience Logistics; 322K SF from Hollander Sleep Products; and 186K SF from Amazon, per Cushman & Wakefield’s data.

A recession has yet to impact demand for industrial, Eseke said, with sectors like food, manufacturing, aerospace and automotive still absorbing space at a rapid pace. But the tailwind provided by consumer goods is weakening as families tighten their belts.

“There’s a little bit more consumer discipline,” he said. 

For some groups, an influx of sublease space may present an opportunity. 

Amazon and other large-scale users of warehouse space have drastically scaled back on leasing and development, giving less capitalized users a chance to re-enter the market at much cheaper rates, Eseke said. 

“Corporate America tends to be conservative when the headwinds start blowing,” he said. “Sublease is a pretty easy lever to pull and probably won’t cost you a ton of money.” 

Some landlords may also opt to let tenants terminate their lease so they can sign a new tenant at a higher rate, Eseke said.

“An ownership group could really push rents on a new tenant, and I think there will be some of that on infill properties,” he said.