3 Reasons Why Speculative Industrial Construction is Booming

(
Feb 17, 2022
)

It’s been over two years since the start of the COVID-19 pandemic, and while there are still a lot of uncertainties about what the near-future holds, one thing remains certain: the increasing demand for warehouse space.

Consumer’s consumption habits have changed dramatically, which has forced businesses to head back to the drawing board to reconsider their distribution strategies. For most, this has meant quickly finding new (and local) warehouse space to improve supply chain efficiency to meet shopper’s needs and demands—and that’s where speculative industrial construction comes in.

Speculative construction buildings are single-tenant spaces that are developed and built without a prelease in place. Developers evaluate the market demand and anticipate they’ll find a tenant before the building is finished.

Our industrial sector team sees three factors that are causing the spike in speculative industrial projects across the country:

1. The rise in e-commerce. Consumers are skipping the storefronts and heading online to shop, which has forced retailers to shift to digital. As more services become available online, like grocery delivery, e-commerce will continue to surge—and so will demand for warehouse space.

2. Businesses are onshoring. As companies continue to suffer from supply chain disruption in their global distribution networks, businesses are beginning to bring production back to the U.S.​​​​​​

​​​​​​​3. Changes in industry distribution strategies. Due to the increase in e-commerce and the current supply chain challenges, businesses must be able to store, access and deliver inventory at short notice as just-in-time delivery is no longer dependable. As more retailers offer same-day deliveries, companies are turning towards ‘Last Mile’ distribution centers, which are the final leg of delivery, to quickly ship goods to nearby populated areas.

With e-commerce and one- and two-day shipping becoming the norm for consumers, we don’t see speculative industrial construction projects slowing down any time soon.

Just in the Greater Phoenix area alone, we have five speculative industrial projects (totaling ~$500 million) slated to break ground in 2022. Read more about them here.*

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