It’s now more expensive than ever to source, build and rent warehouse space — but that hasn’t tempered demand.
The market has reached a point where industrial landlords are sometimes delaying signing prelease deals on speculative warehouses to ensure they’re getting the best, most up-to-date rental rate for the space possible. Other developers are putting more aggressive rent escalation clauses in new leases.
Steve Kros, Southeast regional partner at Houston-based Transwestern Development Co. LLC’s logistics group, said the hard cost to build an industrial shell — not including site work — has increased 50% in the past 18 months. What used to cost $38 per square foot to build in early 2021 now costs $45 to $50 per square foot.
“That is a cost that we are passing on to the tenant in the form of higher rent,” Kros said. “Unprecedented rental rate growth in all of our markets is so, far, keeping the machine going.”
Most tenants are willing to absorb the higher costs, he said. For a typical logistics center, the biggest cost those companies have to bear is transportation, followed by labor. Real estate is generally only about 10% of those tenants’ total costs, Kros added.
*Article courtesy of Philadelphia Business Journal
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