Industrial Developers Shouldn't Delay Construction As Demand Rages

Industrial developers would be wise to plan ahead—and carefully—as materials constraints continue to plague the building process and elongate delivery timelines. But one thing they shouldn’t do/? Delay construction.

“Do not delay construction,” Cushman & Wakefield’s researchers say in a new analysis.  “Demand will drive rents, which will mitigate construction and capital costs. Inflation is always a risk with labor and materials.”

The Cushman team advises developers to secure long lead items well ahead of time.  That includes roofing, panels, structures, and piping. And once site plans are approved, developers should use design-build firms or experienced design pros to order steel based on their building’s layout: “scrap steel does not typically work for new construction and will waste time and resources,” they note.

Soil investigation to determine the weight bearing capacity and settlement rate of soil, as well as the position of the water table, is also recommended early on in the process, as it allows developers to better estimate costs and assess risks.  Cushman also recommends maximizing impermeable surface/building on speculative development plans. 

“Building size can always be reduced to improve circulation and parking,” the analysis says. In addition, developers should “evaluate prefabrication and/or modular construction to expedite the off-site construction, reduce waste and improve field labor productivity.”

Cushman’s forecast for industrial absorption in the US from 2022 to 2023 is 814 msf, and supply is expected to again surpass demand slightly by the end of next year. And while deliveries should reach 880 msf between this year and next, vacancy will still remain low, at 4.2%.  

Cushman & Wakefield researchers predict construction bottlenecks may put completions this year and next at “minimal risk” of delays. If a quarter of new supply shows delays by three or six months, the decrease in new supply through 2023 would amount to 3.1% or 6.3%, respectively. Vacancy would post a more constrained projected uptick, ranging from -6 to -32 basis points by the fourth quarter of 2023.

“If that were to occur, vacancy would likely stay around 4.0%,” the report notes. “Either way, vacancy will hover at uncomfortably low levels.” 

Supply has continued to trail demand for the industrial sector this year, with the National Association of Realtors recently reporting data through March 4 showing that the vacancy rate fell to 4.1% from 6.8% at the close of Q4 2021. Specialized space, manufacturing and all other properties that are neither logistics nor flex space (such as telecom and data housing centers) saw availability rates decline to a low of 4.5%. Logistic space and flex space fell to 7.3% and 8.4%, respectively.

Cushman’s analysts say the industrial construction pipeline will continue to grow “even as new buildings come online as quickly as they can be built.”

“We anticipate demand to remain strong for the foreseeable future and new construction to remain above pre-pandemic norms for the years to come,” they conclude.