Industrial Has Room to Run with Rents and Lending Support

Leslie Smith says industrial owners in Texas are seeking cash for capital improvements.

HOUSTON—Projected rents are more than adequate in many markets to justify additional development of warehouses and distribution centers, according to a new report from CBRE. The firm 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 break-even rents, i.e., those needed to cover overall development costs. In the 10 major markets that CBRE examined, the former exceeded the latter by 20 to 40%.

“This huge gap implies that if demand slows and the market cools a bit, there’s still a lot of cushion there,” said David Egan, CBRE global head of industrial and logistics research. “This means that the development market is quite healthy, underwriting remains conservative, projects under development should perform quite well and the incentive is there for continued development.”