The imbalance between supply and demand in the national industrial sector is driving interest in new-construction facilities, which are in short supply, according to Newmark’s Industrial Insights Report.
A survey of major industrial markets found that speculative construction deliveries fell significantly in 2021 because of COVID-19 labor disruptions, but demand did not fall, decreasing the length of time between warehouse delivery and stabilization.
In fact, demand for modern warehouse space to improve supply chain efficiency and meet ever-changing consumption habits has never been higher, especially from third-party logistics, consumer goods and e-commerce companies, which represented the bulk of new-construction leasing.
Design specs for these warehouses are consistent across the country, and developers have recognized occupier needs, allowing tenants to lease space and move in immediately, contributing to quicker lease times and increased competition between tenants.
The report found that the speculative lease-up period in Chicago has decreased by roughly two months each year since 2017 for industrial deliveries, down to an average of 1.2 months until full stabilization in 2021.
Additionally, leasing at larger Chicago properties has proven increasingly competitive since 2015. Ninety-two percent of speculative properties of about 500,000 square feet have stabilized, compared to 90 percent of all delivered industrial properties above 100,000 square feet. The average time until such properties are stabilized is 5.2 months, half a month shorter than the average time it takes Chicago speculative industrial building above 100,000 square feet to reach the same milestone.
Lofty construction costs did little to affect the construction pipeline, rising to half-a-billion square feet underway in the fourth quarter of 2021—the most on record. Speculative warehouses account for about 77 percent of that volume, in line with the five-year average share.
But as disruptions subside and speculative deliveries increase, Newmark says experts anticipate the average lease-up period to gradually increase over the next couple of years as tenants are presented with more options. Tenants with move-in requirements this year will face a continuing environment of scarcity and competition in most markets, as supply chain and labor challenges continually impact delivery timelines.