Homebuilding Suppliers Flood Miami With Industrial Space For Sublease

Companies that sell doors, windows and other building materials are flooding Miami’s industrial market with sublease space as home construction slows.

The amount of industrial space listed for sublease in the region jumped nearly 22% from September to December, reaching 3.4M SF, according to Newmark’s fourth-quarter industrial report. The spike is unprecedented: Between 2012 and 2019, average quarterly sublease availability remained below 1M SF.

“Much of the new sublease inventory is coming from companies tied to the housing industry, including furniture, appliance and building-material suppliers,” Newmark Executive Managing Director Stephen Levine said. “Homebuilding has slowed down a little bit, and therefore the construction materials component that goes along with it has slowed down a little bit as well.”

One of the largest fourth-quarter sublease offerings came from CGI Windows and Doors Inc., which listed more than 325K SF, according to Newmark. CGI’s parent company, Miter Brands, closed its Medley facility and plans to shutter its Hialeah warehouse in the first quarter, U.S. Glass reported. CGI did not respond to a request for comment.

“Sublease listings have appeared with increasing frequency over the past six months,” said Lauren Pace, senior vice president at Colliers. “Tenants are being wise and trying to determine if they need to consolidate or if they need to expand. They’re attempting to sublease some of their space and offering rates that are lower than the rest of the market.”

The rise in sublease activity coincides with a broader slowdown in residential construction. Housing starts fell to a five-year low in October, according to the U.S. Census Bureau, dropping to 1.2 million — nearly 5% lower than September and almost 8% below the prior year. Miami’s industrial market mirrors national trends.

“Twelve percent of the record 1.5B SF of available industrial space nationwide is currently listed for sublease, an all-time high,” CoStar National Director of U.S. Industrial Analytics Juan Arias said. “The majority of that space is tied to housing-related companies. The influx of sublease space has provided some relief for tenants after years of steep rent growth.”

Industrial rents in Miami have nearly doubled since 2020, reaching a record $16.36 per SF in the third quarter, according to Newmark. Rents declined 1.2% in the fourth quarter, even as leasing activity climbed to 4.3M SF — the highest level in more than two years.

“It’s great to give tenants more options beyond Class-A space that’s kind of pricey,” Pace said.

Roadway construction firms make up a significant portion of current sublease demand, Pace added, driven by major infrastructure work planned across Miami-Dade County. The Transportation Planning Organization has 31 bridge improvement projects and 116 pavement improvement projects scheduled through 2029.

Sublease terms are often shorter than traditional leases, making them well-suited for construction companies with contracts lasting 18 months to two years. Still, filling sublease space can be challenging.

“These subleases are more particular than direct leases,” Pace said. “They have different timelines, and sometimes it’s harder to make a deal work.”

Market conditions are not expected to shift in landlords’ favor this year. Vacancy rose to 6.8% in the fourth quarter after a second straight quarter of negative absorption, according to Colliers. Another 2.7M SF of industrial space was under construction at year-end, with just 11.8% preleased, Newmark reported. Even so, Levine said the new supply should eventually be absorbed.

“With our historical absorption levels, it’s not really that awful,” Levine said. “A lot of space in South Florida will become functionally obsolete, and tenants will need to move into facilities better suited for their operations.”

Source: Bisnow