Subleasing, when an occupier (head tenant) leases out a portion of their industrial or commercial space to a subtenant, can suffer from being seen purely as a cost-cutting measure during periods of low demand or economic downturns.
But the practice is often a strategic and clever solution for a range of businesses – particularly transport and logistics providers.
TMX Director of Property Jack Moroney says agility is a big part of the appeal.
Transport and logistics companies are continually addressing their property requirements, because they are increasingly signing short or medium-term contracts for corporate clients, and they do not necessarily have the time to secure and purpose-build a new custom warehouse.
“Signing onto a sublease offers them a fast, sustainable, and cost-effective option that enables them to deliver a viable solution for their clients.”
“Meanwhile, head tenants can counter higher rents by generating their own additional income stream through subleasing, which is low risk, because the agreements are not typically long-term. They vary between 12 months to five years,” Mr Moroney said.
The typical subleased space is also relatively small, with most transactions less than 5,000 sqm.
Invenco is one Australian transport and logistics company utilising subleasing. Its CEO and founder, Dave Scott, has benefitted from subleasing both as head tenant and subtenant.
"We have experienced the considerable advantages associated with subleasing warehouse space. We have used this approach from both sides, as the head tenant and in other cases as the subtenant, to deliver the strategic flexibility we need," Mr. Scott said.
Mr. Scott sees subleasing as a multifaceted tactic in an overall business strategy.
Subleasing enables us to swiftly expand, or reposition our network of warehouse locations, which aligns perfectly with the scaling needs of our business strategy and the market.
It is not just a leasing strategy for us – but a key business tool that fosters operational agility, enhances our adaptability, and ultimately, keeps us ahead in the fast-paced logistics industry.
Subleasing is often the precursor to vacancy, due to demand drop. While subleasing had been steadily climbing over the past 12-18 months in the Australian market, industrial vacancy is expected to rise.
According to Max Reynolds, Director of Supply Chain at TMX, companies sublease for a range of reasons.
“Subleasing can be a byproduct of strategic, long-term planning,” Mr. Reynolds said.
Warehouses don't expand naturally. Companies must plan for growth, but many factors influence how industrial space is used. For example, when discretionary spend is down, retailers face pressure to reduce and control costs.
Mr. Reynolds said the growth in subleasing also reveals a shift in operating models.
The bullwhip effect from the pandemic remains active, complicating demand forecasting. But now businesses want to take control of their own supply chain. By optimising their inventory and minimising their lease liability, retailers and suppliers can impact their operating cost base.
