Why newly developed buildings are sitting vacant while older and cheaper buildings curry favor with today’s tenants. Despite clear efficiencies and short-term discounts, there’s no appetite…
Generally, industrial product is led by the newest and most modern buildings in the marketplace. In addition to being free of deferred maintenance and built with industry ideals in mind, these structures often leverage efficiencies not found in older properties—more effective loading strategies, strategically placed core components, more product volume due to height efficiencies, enhanced product breadth due to fire/life system enhancements and environmental systems designed to reduce utility costs while promoting a more sustainable image.
While occasionally occupied by local operators, newly developed buildings are largely designed to attract multi-regional or multinational corporations. These users recognize the long-term operational benefits and are typically willing to pay a premium for that efficiency. Developers know this—but also acknowledge the high risk in speculative construction. Multiple developers have noted that speculative warehouse development carries razor-thin margins, where one misstep can jeopardize the entire pro forma.
But even a sound strategy can fall to macro conditions. In rare cases, the industrial market undergoes what we call a market inversion: a reversal where tenants prioritize affordability over efficiency. The goal becomes to survive, not to optimize. This is precisely what we’re seeing in 2025.
Brand-new Class A buildings, typically prized for their long-term value, are sitting idle. As of this writing, 13 newly developed buildings in the region remain unleased, each marketed for over 300 days. Some have been on the market for more than 800 days irrespective of their completion dates.
Owners are beginning to blink. Several have introduced aggressive short-term lease discounts, hoping to generate occupancy momentum and meet underwriting benchmarks down the road. But even with killer deals, absorption remains low. For many tenants, it’s too risky to take the short-term win if doing so means misjudging the timing of a rate reset when lease terms normalize back to ownership’s targets. Others see short-term deals as too brief to justify the effort of occupancy—especially if they can’t capitalize on long-term market leverage or strategic growth during the term. Getting a great rate to gain a market advantage feels like a pyrrhic victory if you are licensing out storage space because there isn’t enough business to fill it.
So far this year, fewer than five of these newly constructed buildings have transacted. That tells us what we need to know: there’s simply no appetite for new regional or national companies to enter the market, and those already present are not expanding.
Until broader economic indicators recover and tenant growth resumes, older, lower-cost industrial buildings may continue to outperform their Class A counterparts—regardless of how modern or efficient the design. In this upside-down cycle, affordability wins.
