CBRE research shows gains in ‘megawarehouse’ leasing activity over first half of 2024

A new research report recently issued by Dallas-based industrial real estate firm CBRE highlighted growth in leasing activity for megawarehouses that are 1 million square-feet (MSF) or larger over the first half of 2024.

The firm explained that the pairing of lower lease rates and higher vacancies helped to drive the increase.

Over the first half of 2024, CBRE observed that the number of leases signed by industrial occupiers, at 31, rose 35% annually, compared to the 21 leases signed over the first half of 2023. And it added that new supply in the 1 MSF-plus category was a key cog in the 2.2% annual decrease in first-year taking rents, whereas leases for warehouses of all sizes headed up 7.7%, for the same period.

What’s more, CBRE’s research showed that the average size of leases in its analysis of the largest 100 industrial & logistics leases over the first half of 2024 came in at 814,00 SF, topping the 791,000 SF for the same period in 2023. CBRE said that 41 of the top 100 leases were renewals, up from 35 a year ago.

In terms of occupiers, CBRE said traditional retailers and wholesalers led the pack, inking 30 of the top 100 leases (down from 34 last year), with third-party logistics (3PL) services providers closely behind, at 29 (down from 33 last year). E-commerce operators and food and beverage operators were next, at 14 and 13, respectively.

And, from a geographical perspective, CBRE noted that Southern California’s Inland Empire led the way, with 15 megawarehouse leases in the top 100, with a total of 13.5 MSF, followed by Memphis and Fort Worth each with nine leases, at 6.1 MSF and 8.0 MSF, respectively. Rounding out the top five were the Pennsylvania I-78/I-81 Corridor, at eight leases and 6.9 MSF, and Central Valley, Calif., at seven leases and 6.1 MSF.   

“The largest 100 industrial leases got even larger in the first half,” said John Morris, CBRE President of Americas Industrial & Logistics. “The uptick in leases of 1 million-sq.-ft. warehouses, in particular, indicates that the market is starting to absorb excess supply.”  

James Breeze, CBRE’s Global Head of Industrial & Logistics Research, told LM that CBRE did expect some increases in 2024, coinciding with an increase in supply which gave tenants more options.

“The number of leases did outperform our estimates, however,” he said. “Tenants realize that the additional supply of this product will be short-lived due to a significant decline in construction starts in 2024. This is the year to take advantage of new supply. The door will close in 2025.”  

When asked about what factors led to industrial occupiers seeing a 35% annual gain in signed megawareghouse leases, Breeze pointed to additional supply, more landlord concessions (including some small rent decreases), higher free rent (the amount of base rent and tenant reimbursements that are abated according to the applicable lease agreement), and more tenant improvement allowances.

“Another factor is the knowledge that the supply on the market will diminish next year,” he said. “If there is a time to make a flight to quality for mega industrial buildings, 2024 could be that year.”