According to a new report from CBRE, projected rents are more than adequate in many markets to justify additional development of warehouses and distribution centers. Chicago is positioned as a top market for this activity.
CBRE analyzed the gap between pro forma rents in various markets – the rental rates that developers can reasonably expect to obtain on newly built warehouses – and breakeven rents, which are the rents they’d need to cover overall development costs. In the 10 major markets that CBRE examined, the former exceeded the latter by 20 to 40 percent.
CBRE’s analysis also found the largest rent spreads in Chicago (43 percent), Atlanta (38 percent), Phoenix (35 percent), Pennsylvania’s I-78/I-81 corridor (30 percent) and Los Angeles (27 percent).
According to the report, Chicago currently has 9.3 million square feet of product under construction.
“Chicago continues to see a huge demand for distribution space, particularly along proven logistics corridors,” said Whit Heitman, senior vice president with CBRE. “With the number of tenants active in the market, demand is still not being met by the current construction pipeline.”