Underwriting tradeoffs spelled out
Underwriting reminders: many industrial tenants expire inside five years, which forces a tradeoff — incumbents may renew below market while new tenants deliver higher rents but bring turnover costs like TI and commissions. That dynamic should be baked into valuation and renewal vs. turnover decisioning. (x.com)
Forty of the top 100 U.S. industrial leases in 2024 were renewals, up 10 from 2023, with Dallas–Ft. Worth, the Inland Empire and the PA I‑78/81 corridor accounting for nearly 40% of those top deals. (CBRE: ) CBRE research flags a concentrated rollover: more than 1.6 billion square feet of industrial space is due for renewal between 2025 and 2027, creating a substantial short‑term exposure of cash flow and vacancy risk. (CBRE PDF: ) Trepp’s CMBS universe shows industrial exposures concentrated in 2025 specifically—about 100 million sq. ft. (roughly 11% of CMBS industrial inventory) comes up for renewal that year, the largest share across property types. (Trepp: ) Typical industrial tenant‑improvement (TI) build‑out budgets currently range broadly but industry estimators put average industrial TI costs around $15–$40 per sq. ft., with TI allowances commonly negotiated on a $10–$45 per sq. ft. basis depending on credit and scope. (Titus Contracting: ) Landlord leasing costs should include commissions typically pegged at about 4–6% of total lease value in California leasing transactions, which materially increases the headline cost of a turnover versus a renewal. (Metrobi: ) Large-format inventory re‑marketing can be lengthy: buildings 100,000+ sq. ft. averaged more than 13 months time‑on‑market in mid‑2025, and big‑box vacancy was near 9.8% nationally for the large‑format cohort—both figures magnify lost‑rent and carrying cost assumptions for turnover scenarios. (Site Selection Group / CoStar: ) (Cushman & Wakefield: ) Localizing the math for Southern California: Inland Empire asking rents have corrected to roughly $1.05–$1.09 per sq. ft. per month and total availability was about 13.2% in Q2 2025, underscoring that a renewal priced below current market still avoids re‑marketing exposure in a softening local rent environment. (Colliers / Bisnow: ) (Avison Young: )
