CBRE: significant drop in lease signings for large industrial sites in the first half of 2023

Research recently issued by Dallas-based industrial real estate firm CBRE took a close look at the top 100 industrial lease transactions over the first half of 2023.

Perhaps the biggest finding in the research was that there was a 36% annual decline in 1 million square-foot-plus leasing activity, which drove the 18% decrease in total industrial space leased, in the first half of the year, at 373 million square-feet. What’s more, CBRE said that the number of 1 million square-feet deals dropped from 36, in the first half of 2022, to 23, for the same period in 2023, “amid economic uncertainty and waning occupier urgency to hold additional inventory,” observed CBRE.

CBRE also found that the average size of the top 100 industrial lease transactions, for the first half, came in at 789,471 square-feet, down nearly 15% compared to the 926,683 square-foot average, seen in the first half of 2022. Another related data point showed that there were 36 renewals among the top 100 industrial lease transactions, for the first half of 2023, whereas there were 15 for this period a year ago.

When looking at occupier types for the top 100 industrial lease transactions over the first half of 2023, CBRE reported that general retailers/wholesalers led the way, at 34, with 3PLs closely behind, at 33. And it added that automobile, tires & parts dealers, which have seen gains from electric vehicle manufacturing, represented nine of the top 100 deals, with e-commerce representing seven, down from 14 a year ago at this time. Rounding out the top 100 transactions were food & beverage (6), building materials & construction (6), manufacturing (3), and medical (2).

When asked what drove the 36% annual decline in 1 million square-feet-plus lease signings, as well as the 18% in total industrial space leased over the first half of 2023, James Breeze, CBRE Vice President and Global Head of Industrial & Logistics Research, told Logistics Management (LM and Modern are both part of Peerless Media's Supply Chain group) that there is a normalization of demand occurring in U.S. industrial real estate, as more companies become comfortable with domestic inventory levels and some companies renew space or hold off on expansion due to economic uncertainty.

“The record levels of activity we saw in 2021 and 2022 were not sustainable and were a reaction to the inventory shortages that occurred after the onset of the pandemic,” said Breeze. “Major companies rushed to lease space to insure domestic inventories, especially in million sq. ft. facilities. Now, as companies are now becoming more comfortable with those inventories, demand has fallen. Demand for million sq. ft. facilities and for the market as a whole is still above pre-pandemic levels, however, pointing to the overall health of industrial real estate.”

As for the main factors for the decline in average size of transactions, Breeze noted that the decline in million sq. ft. deals resulted in a lower average.

“2022 was a record year for million sq. ft. facility demand, that level is normalizing, resulting in a lower overall average,” he said.

When asked if 3PLs could see an uptick in leasing activity over the second half of the year and into 2024, Breeze said CBRE expects 3PLs to be one of the most active occupier types over the next few quarters and for its level of leasing to increase.

“During a time of both economic and supply chain uncertainty, outsourcing distribution is gaining in popularity and we don’t see anything reversing that trend,” he said.

As for whether the uptick in lease renewals—rather than signing new leases—is more than a trend, Breeze said that companies are renewing at a greater clip due to economic uncertainty, low vacancy rates in markets that are targets for expansion, and as a way to appease existing labor.

“Many companies are finding that existing labor pools do not want to move locations, so if the current building is fulfilling their requirements, they are staying in that location rather than risk their labor base in a time of low unemployment,” he said. “I see this trend continuing at least through the end of this year and possibly into 2024.”