Is the industrial party over?

This uptick in new development is occurring at a time of heightened economic uncertainty and slowing industrial demand nationally. For example, Amazon--which had nationally accounted for nearly 130 MSF of industrial net absorption from 2020 through midyear 2022--has largely paused activity. Meanwhile, industrial sublease availability nationally has gone up nationally by 50%. Fear of a looming recession, consumer spending coming back to earth, inflation and rising interest rates have all combined to drive some firms to put the brakes on expansion and to control costs via supply chain optimization and consolidation.

The sublease trend has played out in Sacramento as elsewhere; of the 10.5 MSF of space available today, 923,000 SF of it (8.8%) is sublease. This amount has tripled over the past year. But it is important to note that it still accounts for just 0.6% of the entire market’s inventory. It is also worth noting that it is likely that many tenants putting this space on the market might not be too eager to vacate and sublet, hedging their bets if economic signals suddenly improve and the Federal Reserve manages to engineer a soft landing for the economy.