First Industrial Realty Trust (NYSE:FR) reported higher second-quarter funds from operations and raised the midpoint of its 2026 outlook, citing stronger leasing demand, improved tenant decision-making and several notable leasing wins across its industrial portfolio.
President and Chief Executive Officer Peter Baccile said the company “delivered another excellent quarter,” building on momentum from the first quarter. He said management’s confidence in leasing demand has strengthened compared with earlier in the year and “most certainly last year,” with more touring activity and better decision-making, including for larger spaces.
FFO rises as company lifts guidance midpoint
Chief Financial Officer Scott Musil said Nareit funds from operations were $0.82 per fully diluted share in the second quarter, compared with $0.76 per share a year earlier. Cash same-store net operating income growth, excluding termination fees, was 6.7%.
Musil said the same-store NOI results were primarily driven by higher rental rates on new and renewal leasing, contractual rent increases and lower free rent, partially offset by lower average occupancy.
The company raised its 2026 Nareit FFO guidance midpoint by $0.02 per share and narrowed its range to $3.08 to $3.16 per share. That figure includes $0.04 per share of advisory costs related to a contested proxy campaign incurred in the first quarter. Excluding those costs, First Industrial’s 2026 FFO guidance range is $3.12 to $3.20 per share, also up $0.02 at the midpoint.
Other guidance assumptions include average quarter-end in-service occupancy of 94% to 95% and cash same-store NOI growth before termination fees of 5.25% to 6.25%, an increase of 25 basis points at the midpoint. Musil said the company expects in-service occupancy to dip to around 93.5% at the end of the third quarter before ending the year at around 95.5%, assuming development leasing and other core portfolio leasing.
Leasing activity improves across portfolio and developments
Baccile said First Industrial ended the quarter with in-service occupancy of 94.9%, up 60 basis points from the first quarter, primarily due to the 708,000-square-foot lease in Pennsylvania. The company has addressed 80% of its 2026 rollovers by square footage, and cash rental rate increases for signed new and renewal leases were 39%.
The company raised and tightened its 2026 cash rental rate guidance for commencements to 35% to 40%.
During the second quarter, approximately 2.6 million square feet of leases commenced, including 1.1 million square feet of new leases, 1 million square feet of renewals and 500,000 square feet tied to developments and acquisitions with lease-up.
Musil also provided a tenant credit update related to Debenhams, formerly Boohoo, saying a full-building sublease was signed for First Industrial’s 1.1 million-square-foot Pennsylvania property. The subtenant is a third-party logistics provider that was already a First Industrial tenant.
Development leasing totaled 643,000 square feet signed in the quarter, including additional activity since the prior call. Baccile highlighted three deals:
- A 31,000-square-foot expansion with an existing tenant at First Pompano Logistics Center in South Florida, fully leasing the building.
- A full-building lease for a just-completed 176,000-square-foot building at First Park 121 in Dallas to a wire and cable supplier serving the data center industry.
- A full-building lease for a recently completed 226,000-square-foot building at First Park New Castle in the Philadelphia market.
Following the New Castle lease, the company announced the start of a second building in that park. The planned 613,000-square-foot facility can accommodate up to four tenants, with an estimated investment of $77 million and an estimated cash yield above 8%.
Acquisitions, dispositions and market backdrop
Baccile said broader industrial market fundamentals are improving. Citing CBRE data, he said national vacancy improved by 20 basis points to 6.5% at the end of the second quarter. Net absorption was 85 million square feet, nearly double the first quarter and above new deliveries of 48 million square feet. The national construction pipeline increased modestly to 252 million square feet and was 38% pre-leased.
On the investment front, First Industrial acquired a recently completed 161,000-square-foot development in the Great Southwest submarket of Dallas for $26 million. The building is 50% leased, with a targeted cash yield of about 6%.
The company also acquired a 58-acre infill development site in Baltimore’s BW Corridor for $39 million. The site is designed to accommodate three buildings totaling 629,000 square feet after entitlement and infrastructure work. During the Q&A session, Executive Vice President Peter Schultz said the site is zoned industrial and that the company views the entitlement process as “a matter of when, not if.” He said the site should be ready for construction around the end of 2028 or early 2029, with expected initial yields in the mid-7% range.
On dispositions, First Industrial completed a $131 million land sale in Phoenix at $30 per land square foot, which Baccile said was “just shy of three times industrial land values in that market.” The company also sold four buildings in Detroit totaling 310,000 square feet for $29 million, leaving one 16,000-square-foot building in that market.
Executives point to stronger demand for large spaces
During the question-and-answer portion of the call, analysts asked about improving demand and the availability of large industrial spaces. Baccile said activity for spaces between 700,000 and 1.2 million square feet was up 127%, while activity for spaces larger than 1.2 million square feet was up 117%.
“You definitely have a scarcity value at the bigger spaces now,” Baccile said. He added that activity had also improved across other size ranges, though smaller spaces still had more alternatives available.
Chief Investment Officer Jojo Yap said the dynamic is visible across Western markets as well as Chicago and Dallas, where tenants have fewer choices for the largest spaces and must make decisions more quickly. Schultz added that First Industrial had multiple prospects for both the Boohoo-related space and the 708,000-square-foot Pennsylvania lease.
Executives also discussed Southern California, where Yap said second-quarter statistics suggest the market is “off the bottom” and in the early stages of recovery. He said gross absorption and net absorption exceeded deliveries, starts and projects under construction remained at historic lows, and rents were flat.
Development strategy remains market-specific
Several analysts asked whether improving leasing conditions would prompt more development starts. Baccile said the company views its roughly $410 million of potential speculative development capital as a cap, not a target, and remains focused on profitability and market-by-market demand.
“We don’t sit here and say, ‘Do we need to use that $400 million?’” Baccile said. “We sit here and say, ‘Where is the demand? Where is it not being met, where are we well-positioned to deliver a property that’s going to be competitive in that marketplace for the long term?’”
He said development starts may be evaluated in Pennsylvania, Florida and a smaller project in the Chicago area, while Yap pointed to ongoing projects at First Arlington Commerce Center in Texas and First Park Miami totaling $70 million.
Musil said First Industrial has about $75 million of development funding requirements for the second half of the year, with about half expected to be covered by excess cash flow after capital expenditures and dividends. The remainder can be funded with the company’s line of credit, which he said has a very low balance.
Baccile closed the call by saying First Industrial remains optimistic about activity levels across development and portfolio availabilities, while maintaining its focus on long-term cash flow and shareholder value.
About First Industrial Realty Trust (NYSE:FR)
First Industrial Realty Trust, Inc (NYSE: FR) is a publicly traded real estate investment trust focused on the ownership, operation and development of industrial real estate assets. The company specializes in light industrial, warehouse and distribution facilities that serve a broad range of end markets, including manufacturing, transportation and e-commerce. Through both acquisitions and ground-up developments, First Industrial seeks to assemble a diversified portfolio of strategically located properties that support its tenants’ supply-chain needs.
Core services provided by First Industrial include property leasing, asset management, redevelopment of obsolescent buildings and build-to-suit development for creditworthy users.
