Spec Development Returns to Warehouse

Warehouse 2

Across the country, we are seeing speculative warehouse development increase as large chunks of available space are being leased up and taken off the market. While new construction and deliveries are only slightly higher than they have been over the past 18 months, the ratio of speculative development as a percentage of new development is back at the levels it was before the Great Recession. This means that developers and their investors are becoming more and more confident that there will be tenants itching to take this space once it delivers. The markets leading the nation in spec warehouse development are Chicago, Dallas – Ft Worth, Houston, LeHigh Valley, and Atlanta. These markets have generally seen strong absorption, a growing shortage of top-tier industrial space, and rent growth since coming out of the recession.

To give you an idea of just how much of the current development is speculative, it is estimated that 62% of the 59 million square feet on construction across the country is being developed with no specific tenant in mind. 40 of the US’s Top 48 markets are building warehouses on a spec basis, most of which involves construction of facilities between 100,000 and 500,000 SF. These smaller warehouses are a result of developers trying to protect themselves from the over-construction that plagued this market leading into the Recession. Companies that require more than 500,000 SF are typically being forced to turn to built-to-suit options. Despite concerns over interest rates and over-saturating the market, rising occupancy rates and tenant demands have developers and their investors feeling optimistic about what’s to come for this market.

 

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