Fewer Mega Industrial Leases Getting Signed

Article originally posted on Globe St. on January 29, 2024

There were fewer mega industrial leases of 1 million square feet or more signed in 2023 than in 2022. Economic uncertainty and less need for additional product inventory are to blame, based on a report from CBRE.

Among the top 100 industrial leases signed in 2023, only 43 were for at least 1 million square feet. This was a decrease from the 63 leases signed the previous year.

The top 100 industrial leases in 2023 totaled 98.6 million square feet. This number is down by 8% from the 106.9 million in 2022. In addition, the average lease size among the top 100 fell from 1.07 million square feet to 986,744. Yet, 30 of the top 100 were renewals, which was six more than in the previous year.

The top 100 industrial leases in 2023 were composed of a more varied mix of tenants than in 2022. While traditional retailers/wholesalers fell from 53 to 30, third-party logistics operators increased from 11 to 29. At the same time, the food and beverage, auto, building materials, manufacturing, and medical sectors all had a larger share of the top 100 compared to 2022.

Pennsylvania, specifically the I78/81 corridor, took the lead with 17 of the top leases, totaling 16.3 million square feet. Dallas-Ft. Worth followed with 11 leases, totaling 12.6 million square feet in industrial space. Memphis was reported the top emerging market with nine of the top 100 leases, up from four in 2022, recording 7.4 million square feet for 2023. Inland Empire also reported nine leases, with 9.9 million square feet.

In addition, in Chicago, there were eight leases signed totaling 8.4 million square feet; Columbus reported six leases totaling 5.4 million square feet; and Indianapolis recorded five leases at 5.0 million square feet. Finally, Savannah had three industrial leases signed with 4.2 million square feet of space during the year.

While there were fewer mega industrial leases signed in 2023, that is expected to change in 2024. As the economy and rental rates stabilize, demand for mega distribution centers is expected to increase. Also, there will be more opportunities for expansion due to the increase in construction that occurred last year. This is particularly true in the markets with the highest rates of anticipated development, such as Dallas-Ft. Worth, Atlanta, Phoenix, Indianapolis, and Columbus.