May 24, 2018

Rising construction costs have not constrained new warehouse development due to strong demand and limited supply of modern logistics facilities. The land cost component of the development process has risen the fastest and can represent more than half of a project’s total construction costs, which range from $45 to $170 per sq. ft. The pro forma market rent significantly exceeds the breakeven rent required for a developer to break ground, often on a speculative basis. This spread between pro forma and breakeven rents currently ranges from approximately 20% to more than 40%, making warehouse development profitable in 10 leading industrial markets selected for this analysis.