What’s Driving the Increase in Speculative U.S. Industrial Development

According to NAIOP’s Industrial Space Demand Forecast, 401.4 million square feet (37.3 million sq m) of industrial absorption is anticipated in 2022 followed by another 334.1 million square feet (310.4 million sq m) in 2023. Most of this growth is driven by retailers and manufacturers expanding their storage capabilities to safeguard against future supply-chain shortages.

But while the outlook for industrial real estate is positive, demand far outpaces the amount of available supply. The myriad issues contributing to this trend can be examined on their own. Speculative development was once considered a high-risk investment, but now more and more developers are turning to it as consumer demands for speed and choice continue to put downward pressure on the supply chain and landlords race to acquire industrial assets.

Speculative development projects are popping up all over North America. The most common factors contributing to this massive shift in approach are e-commerce’s explosion, a move towards onshoring, and changes in industry distribution strategies. The pandemic accelerated the shift in online consumption habits by 10 years or more, further accelerating the demand for supply and distribution networks.

For example, pivots to online grocery fulfillment through platforms like Instacart ignited an expansion and need for automation in the grocery industry. In addition, businesses have become sensitive to the supply chain’s ongoing disruption of their distribution networks and more have started onshoring with the goal of bringing production back to the U.S. and ensuring product is delivered to customers.

As a result of the shifts in consumer habits, just in time delivery no longer meets the needs of today’s shopper. Stocked warehouses which used to be seen as a supply chain management error are now viewed as built-in supply chain resiliency and last-mile distribution centers are in high demand to complete the final leg of delivery and satisfy same-day or one- to two-day shipping norms.

But a fundamental piece to the massive puzzle of creating industrial solutions, whether it is speculative or build-to-suit, is land availability, and right now the supply is limited—especially so in proximity to urban areas where near term delivery demand has skyrocketed.

Ryan Companies’ Northwest regional team is working on a project in Seattle to bring a class A multi-story industrial building to the SoDo neighborhood. SoDo has long been an industrial hub due to its proximity to various ports belonging to the Port of Seattle as well as its proximity to the urban center. SoDo’s industrial supply is outdated, and in many cases obsolete. In evaluating of all these factors, we saw an opportunity to introduce potential users to an innovative, multi-story warehouse design gaining momentum in other international markets with dense urban populations where land is also scarce.

Our project, 65 S. Horton, will be four stories tall and deliver 126,646 square feet (11,766 sq m). The ground floor will feature a loading dock, 10 dedicated and covered dock positions, 85 parking spots, and shipping and receiving space. Floor one will feature a 14-foot (4.27 sq m) clear height with a dedicated loading dock and shipping/receiving bay exclusive to each suite in the building. Floors two through four will have 18-foot (5.49 sq m) clear heights with a 175-pound (79.38 kg) floor loading. Two freight elevators will enable tenants to move product from trucks to the upper floors, along with one passenger elevator to move employees. The warehouse design allows for each occupant to have one full inbound truck of materials and one full outbound truck of finished goods each day.

Besides introducing a new approach in truck loading and shipping and receiving, 65 S. Horton will contribute economic benefits to the area. Located one mile south of downtown Seattle and adjacent to several Port of Seattle terminals, users will be positioned in an advantageous area to service the needs of customers in Seattle and on the Eastside as well as distribution centers south of Seattle in Kent. The completion of 65 S. Horton elevates the standard of new development in the neighborhood, which it is due for. We’re able to accomplish this with the support of our joint venture partners GTIS, who signed on to the project through GTIS Qualified Opportunity Zone Fund.

The demand for industrial property isn’t letting up and the dwindling supply of available land nationwide adds considerably more pressure. Last-mile servicing already focuses on bringing product closer to the customer so new development in infill locations, where possible, seems like the natural progression. Creative approaches to speculative development, like 65 S. Horton, that maximize space in underutilized areas have the potential to alleviate the challenges industrial developers, users and landlords are facing today and position industrial real estate for the industry’s next iteration.