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As industrial market booms, developers get choosier about spec sites

Dan Rafter April 1, 2017
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The industrial market in the Midwest and across the country is booming. And with increased demand comes a rise in spec building in this market segment.

But what are developers looking for today when it comes to spec construction? Hugh Williams, principal in the Rosemont, Illinois, office of Avison Young, said that site selection has always been key for developers looking for the right sites for their warehouses, distribution centers and manufacturing facilities.

But developers today are even pickier about where they want to build their spec industrial developments, Williams said. They’re looking for sites that require little prep work before they can start building.

Gone are the days when developers would eagerly snatch up 300-acre plots of unimproved land for their industrial projects. Developers today want sites that are close to population centers. They also want sites that are shovel-ready, Williams said.

“Get me a site near a good market where I can put up a building right away. That’s what developers want today,” Williams said. “Don’t put me on a site in which I have to put together a five- or 10-year plan for its development.”No one can predict just how much more industrial spec building that the Midwest will see. Certain markets — such as Indianapolis and Louisville, for example — are in the middle of spec booms. And industrial remains such a steady performer, it’s easy to see this trend continuing.

Marcus & Millichap, in its summer 2016 industrial forecast, said that the United States will have seen the addition of 150 million square feet of new industrial construction in 2016. Despite that, vacancy rates in this sector should fall. Marcus & Millichap predicts that by the end of this year, the U.S. industrial vacancy rate will stand at a low 5.9 percent, down 50 basis points from the end of the previous year.

At the same time, asking rents should rise. Marcus & Millichap said that industrial property owners will raise their average rents by 6.2 percent.

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