Industrial Tenant Defaults Rising: Small-Space "Midnight Moves" and Growing Sublease Supply

On the Industrial Advisors podcast, Bill Condon and Matt McGregor discuss a recent rise in tenant defaults over the past six months, especially in smaller industrial spaces, drawing parallels to the post-2008 era when small tenants drove vacancy spikes (flex vacancy rising to 22% from 4%). They attribute today's defaults to COVID-era leasing decisions, tenants taking more space at higher rents amid inflated sales, and supply-chain constraints - followed by economic softening and supply-chain correction. They cite recent examples of a 16,000-square-foot "midnight move," a 20,000-square-foot business failure, late-rent letters, and even a 110,000-square-foot issue. Sublease inventory has grown from about 400,000 square feet in late 2022 to over 7 million, increasing default risk. They advise landlords to monitor rent closely, communicate early, and consider payment plans, while tenants should be transparent and engage landlords before arrears accumulate.

0:00 Introduction to Tenant Defaults

0:42 Historical Trends and the 2008 Comparison

1:25 Why COVID-Era Leases are Failing Now

2:15 Recent Examples of Midnight Moves and Defaults

3:10 The Massive Surge in Sublease Inventory

4:00 Advice for Landlords and Tenants