CBRE report highlights a decrease in ‘megawarehouse’ leases from 2022 to 2023

Coming off of two strong years, in 2021 and 2022, including a record year for the latter, recent research issued by Dallas-based industrial real estate firm CBRE noted that demand for industrial and logistics warehousing space took a step back in 2023.

As for what drove the decline, from 2022 to 2023, CBRE cited economic uncertainty and changing inventory management practices, which it said weighed on demand for these “big-box warehouse facilities.”

CBRE reported that the largest 100 industrial lease transactions in 2023 included 43 deals for 1 million square-feet (MSF) or more, which the firm describes as “megawarehouses.” This fell short of 2022’s record-high 63 deals and 2021’s strong 57 deals tally.  The average size of the top 100 leases came in at 986,744 square-feet, down from 2023’s record 1.07 MSF and the previous record set in 2021, at 1.05 MSF.

In terms of total square-feet leased, CBRE found that the top 100 industrial leases in 2023, at 98.6 MSF, were off 8% compared to 2022’s 106.9 MSF. And it added that 30 of the top 100 leases were renewals, topping 2022 by six.

Retailers and wholesalers paced all sector verticals inking the top 100 industrial leases, at 30, down from 53 in 2022, edging out third-party logistics (3PL), which came in at 29, topping 2022’s 18. Rounding out the top five were Food & Beverage, E-commerce, and Automobiles Tires & Parts, at 13, 10, and 8, respectively.

As for the markets seeing the most activity, the Pennsylvania I-78/81 Corridor led the way with 17 of the top 100 leases, for 16.3 MSF, and Dallas Fort-Worth was next with 11, at 1.6 MSF. Memphis and the Inland Empire each came in with nine, at 7.4 MSF and 9.9 MSF, respectively.

James Breeze, CBRE Vice President, Global Head of Industrial & Logistics Research, explained that the decline in mega industrial leases, from 2022 to 2023, was expected. 

“2022 was a record year for mega industrial leases as retailers increased their footprint to account for higher domestic inventories,” he said. “We did not expect this to be a permanent trend as companies would eventually become more comfortable with domestic inventories. There were also signs of economic uncertainty in late 2022 which pointed to less activity in 2023.”

Looking at 2024, Breeze said CBRE expects there to be increased mega industrial activity in 2024, although not at the rate of 2022, noting that consumer spending remains strong and uncertainty in the supply chain remains prevalent. And with a record amount of construction in 2023, Breeze said there will be more options for occupiers at more economic rents, with all of this leading to more activity in 2024.

With 3PLs marking the second-highest number of leases by a sector in 2023, Breeze said that 3PLs are expected to continue to represent a decent percentage of these types of leases going forward.

“More companies utilized 3PLs after the onset of the pandemic due to uncertainties in supply chain and inventory levels,” he said. “We expect this to continue. We also expect companies to utilize 3PLs more for e-commerce distribution which will require 3PLs to utilize larger facilities.”

When asked how much of a concern is the ongoing inventory destocking serving as a deterrent for slower, or reduced growth, going forward, Breeze observed that CBRE expected the rush for occupiers to lease space to hold more domestic inventories to not be permanent.

“Eventually companies would get to a point where they were more comfortable with the levels of inventory they had, which would lower new lease volume from the record levels of 2021 and 2022,” he said. “However, we do not expect occupiers to go back to pre-pandemic inventory levels either. Events around the world including what is going on in the Red Sea and the continued drought in the Panama Canal point to the uncertainty of the global supply chain and the need to hold more domestic inventories, especially as e-commerce continues its growth over the next decade.”