As if further proof is needed to demonstrate the strength of the market and the confidence shared in continued demand, another sign might lie in the number of construction starts in Q3.
Forty-eight projects totaling 17.2 million square feet were started during Q3, exceeding the previous record of 13.1 million square feet recorded during Q2 2020 by 32%. Furthermore? Nearly 17 million square feet (or 96%) is being built speculatively with no tenants lined up to occupy the building, based on Colliers’ Q3 2022 Construction Review. Never has spec development represented such a high percentage of construction starts during a single period.
And these projects are no small feats. Eleven of the Q3 starts were 500,000 square feet or more, with three projects greater than one million square feet, bringing the total space under construction to 37.5 million square feet among 94 projects. Colliers noted that this is only the second time this total has exceeded 30 million square feet—25% greater than the previous record of 30.1 million square feet recorded during Q2 2021.
This activity is welcome news for the sector, considering the space crisis faced earlier this year. But though activity in spec product increased by 24% during Q3, it still fell short of the amount of new spec space delivered during the same period—the second in a row that new leasing activity fell below completions—causing another uptick to the vacancy rate in recently-completed spec product.
The 6.5 million square feet of new spec space completed during Q3 consisted of 20 projects, according to the report, therefore not only breaking the record for spec projects started during a period, but also the greatest amount of spec space delivered during a period. While a decent percentage of projects were leased upon completion, more space was introduced, pushing the vacancy rate in spec projects delivered since 2013 up 150 basis points to 8.8%.
Supply/demand within the sector’s sphere has proven to be an ongoing battle and somewhat of a double-edged sword. Is a “sweet spot” achievable in any market?
Colliers has predicted the vacancy rate to continue to rise over the next year, even with the continued demand for new construction. Some spec buildings will continue to lease quickly, and even pre-lease, but the average time it takes to lease completed projects will continue to increase due to so much space under construction at one time.
