Industrial Leasing Is Hunting Elephants, Not Squirrels

One of the framings that stuck with me from the industrial development material is this:

When you lease apartments, you're hunting squirrels and rabbits. You need to fill a lot of small units, and any single tenant signing or leaving doesn't move the building's economics very much. There's a wide margin for error.

When you lease industrial, you're hunting elephants. You don't need to fill many tenants — you might only need one or two — but the ones you do sign have to be big, real, and committed. Miss the elephant, and the building doesn't work.

That single difference reshapes almost everything about how industrial leasing operates: the marketing is targeted instead of broad, the broker selection is high-stakes instead of routine, and the pipeline runs in reverse — the developer often signs the tenant before pouring foundation, not after delivering the building. Industrial real estate is one of the very few product types where speculative construction is genuinely the exception, not the default.

That inversion is what I want to walk through here. It explains why an industrial building you drive past has often already been spoken for before construction crews showed up — and why a developer who tries to "build it and they will come" usually ends up bleeding cash for a long time.

Why one tenant changes everything

The mental model worth starting with is the unit economics of one signed tenant in an industrial building.

A 100,000 square foot warehouse leasing for $1.00 per square foot per month produces $1.2 million of annual rent — from one tenant. Two tenants at 50,000 each, same outcome. But the building still has to be paid for, financed, and operated regardless of whether you have one tenant, three tenants, or zero.

In an apartment building, losing a tenant costs you 0.5% of rent. In a single-tenant industrial building, losing the tenant costs you 100%. The developer who builds without a tenant in hand has signed up for that exposure for as long as the building sits empty — which, for industrial, can be a long time, because the next prospective tenant has to be one of the small handful in the market who actually needs that much space, in that exact submarket, with that exact spec.

That math is what drives the entire leasing approach.

How you actually find the elephant

You don't find an elephant by running an ad. You find one by knowing where elephants drink water and showing up there.

Industrial leasing marketing looks much more like B2B enterprise sales than like consumer real estate marketing.

Notice what's not on that list: broad consumer advertising. There's no equivalent of running Facebook ads for a 200,000 square foot warehouse. The pool of companies that need that much space is small, those companies all have professional real estate departments, and the people in those departments don't see your Instagram ad — they see deal flow from the brokers they already trust.

That's why industrial leasing leans heavily on trade shows and direct prospecting. If you're trying to lease distribution space, the right room to be in is whatever conference the supply chain executives go to. If you're trying to lease specialty manufacturing space, you're looking at industry-specific shows where the relevant decision-makers already gather.

The other piece is intelligence. Industrial brokers spend a lot of time listening for which companies are looking to expand, relocate, or open a new facility in a region. When Amazon, Apple, or Google starts doing diligence on a new metro, the rumor is usually circulating among brokers months before any lease gets signed. The developer who hears the rumor first and gets a meeting on the calendar first has a real advantage — and that's the kind of advantage that comes from relationships, not from advertising spend.

Why industrial isn't a speculative product

To see what's unusual about industrial, it helps to compare it to the other product types in the development world.

The asymmetry is striking. Apartments, office, retail, and hotel all share something: their demand is many small users, no single one of which can sink the project. Industrial doesn't share that property.

A developer building an empty 200,000 square foot industrial building is making a bet that within a finite window — maybe twelve months — they will find a single tenant willing to commit to that much space, in that location, at the rent the pro forma requires. If they don't, the building sits empty, the construction loan keeps accruing interest, and the developer is funding the carry out of equity until something changes.

The math doesn't have to be off by much for that to be ruinous. A six-month lease-up delay on a building this size can erase a year of projected returns. A twelve-month delay can wipe the deal.

That's the structural reason industrial leasing inverts the timeline. It's almost always cheaper to spend more time hunting for a tenant before construction than to absorb the carry cost of an empty building after it.

The pre-leasing pipeline: RFP, LOI, work letter, lease

What pre-leasing actually looks like is a four-step pipeline that runs in parallel with the developer's design and financing work.

Step 1: Initial pitch and prospect identification

The developer or their broker reaches out to a prospect — usually one identified through trade shows, broker intelligence, or direct outreach to a corporate real estate team. The pitch is the location, the spec, the timing, and the price.

If the prospect is interested, things get serious quickly. If not, you move on to the next prospect on the list.

Step 2: Request for Proposal (RFP)

A serious tenant doesn't just say "yes, we'll take it." They issue an RFP — a written document specifying what they need: square footage, dock count, clear height, power, parking, location requirements, target occupancy date, lease term, and any special build-out requirements.

The RFP is the document that tells the developer exactly what they need to design and price. It is also the document that tells the developer this is a real prospect — anyone willing to write up an RFP has done the internal work to define their requirements, which is most of the work that separates serious tenants from window-shoppers.

Step 3: Letter of Intent (LOI)

If the developer can meet the RFP, the tenant typically issues a Letter of Intent. The LOI isn't a binding lease — it's a signed agreement to negotiate in good faith toward one, with key economic terms (rent, term, escalations, TI allowance, free rent) outlined.

The LOI matters because it's the first signal a developer can take to a lender or equity partner that says "this deal has a tenant." Construction lenders are more willing to fund a project with an LOI from a credible tenant than one without.

Step 4: Work letter and lease

The work letter is the engineering document — the detailed specification of what the developer will build and what the tenant will install. Office buildout, dock door count, paint color, electrical capacity, IT pathways, floor flatness, sealant type. Everything that needs to be agreed in writing before construction starts.

Once the work letter is signed, the lease itself is largely a financial and legal document. By that point most of the technical decisions have already been made.

Brokers vs. in-house — the leasing structure question

The other structural decision developers face is whether to use in-house leasing agents or outside brokers.

Big developers with a steady pipeline of industrial product tend to build in-house leasing teams. The deal flow justifies the salaried staff, and an in-house team accumulates market intelligence over time that an outside broker would have to be paid to acquire on every deal.

Smaller developers or developers doing one project at a time tend to use outside brokers. The economics are different — you pay a commission per deal, but you don't carry the overhead of full-time leasing staff between projects. Outside brokers also bring their existing network, which can shorten the prospecting phase considerably.

The selection criteria for an outside broker matter a lot more than they might for, say, a residential broker:

• Recent relevant experience. Has this person actually leased industrial in this submarket recently? Industrial brokers who specialize in office or retail are not the same people.
• Bench strength. If your primary broker leaves the firm mid-deal, can someone else step in, or are you starting over?
• Understanding of the developer's objectives. Is this broker willing to hold out for the right tenant at the right rent, or are they going to push you toward whoever they can sign quickly to clear their commission?

The commission schedule is its own negotiation. Industrial commissions are often structured as a percentage of total lease value, which can be material on a 10-year lease at $1.00 PSF/month for 100,000 square feet ($12 million of total lease value, $360,000 of commission at 3%). That's enough money that the developer needs to be careful about how it's structured and when it gets paid.

What the leasing structure tells you about the asset

The thing that surprised me most about working through this is how much you can learn about an industrial property just by knowing how it leased.

A building that pre-leased with a major tenant signals that the developer had relationships, the location had real demand, and the spec matched what large users actually need. A building that's been finished for nine months and is still mostly empty signals something else — usually that the speculative bet didn't pay off, or that the spec doesn't match what tenants in the area are actually looking for.

For investors and analysts looking at industrial properties, the leasing history is often more diagnostic than the building itself. The building tells you what was built. The lease history tells you whether the market actually wanted it.

The part that reframed how I see industrial leasing

The framing I keep coming back to is that industrial leasing is fundamentally a different kind of sales motion from any other real estate type.

Apartment leasing is consumer marketing — broad reach, polished branding, a finished product, walk-in tours, online applications. Office leasing sits in the middle — broker-driven, but still mostly a finished product being shown to multiple prospective tenants. Industrial leasing is closest to enterprise B2B sales — a small target list, a long pipeline, RFPs and LOIs and work letters, and a deal that often closes before the product even exists.

That's why the people who are good at industrial leasing aren't necessarily the people who are good at residential or office. The skill set is more like enterprise sales than like consumer marketing — you're managing a small pipeline of large prospects, doing real diligence on each one, and customizing the offering to what each prospect actually needs.

It's also why the developers who consistently lease their industrial product have one thing in common: they treat leasing as the start of the development process, not the end. The site, the design, the pro forma — all of it gets shaped by the conversation with prospective tenants long before the building is real.

A few things I'm taking away

• Industrial leasing is the inversion of consumer real estate leasing — the tenant pool is small, each tenant is large, and the financial impact of any single signing is enormous
• "Hunting elephants, not squirrels" captures the difference: apartments need many small wins, industrial needs one or two big ones
• Pre-leasing is normal in industrial because the carry cost of an empty large building is too punishing to absorb on speculation, especially in a market where each prospective tenant takes months to source
• The pipeline runs in reverse compared to other product types: tenant identified, RFP issued, LOI signed, work letter agreed, then construction starts in earnest
• The work letter is where the building actually gets designed in detail — the lease is largely a financial document by the time it's signed
• Outside broker selection matters more in industrial than in most product types because the network and the bench strength directly affect whether you find the right tenant in time
• The leasing history of an industrial building is often more diagnostic of market demand than the building itself — pre-leased anchor deals signal one thing, long vacancies signal another
• Industrial leasing is closer to enterprise B2B sales than to consumer real estate marketing — the skill set, the pipeline structure, and the cycle length all reflect that

The reframe that's stuck with me most is the last one. When I used to drive past an industrial park, I assumed the buildings had been built first and tenants found later, the way an apartment complex gets built and then leased. The reality is closer to the opposite — most of those buildings already had a name on them before the foundation was poured. The leasing wasn't the last step. It was the step that made every other step possible.

This post is part of my ongoing series on real estate development — Real Estate Development. Earlier industrial posts cover the five subtypes of industrial real estate, the break-even rent calculation, and why industrial buildings are designed the way they are.