Warehouses may not immediately bring office buildings to mind, but according to a recent CBRE report, both property types are facing a similar crossroads: the need for renovation in the wake of a strong flight to quality. In recent years, tenants in both sectors have focused on upgrading to modern, efficient facilities. For office users, this trend has largely been driven by the desire to lure employees back to the workplace. Warehouses, however, face a different set of pressures. Today’s distribution operations demand advanced features—automation capabilities, higher ceilings, robust telecommunications infrastructure and ample truck bays, among others.
Since 2020, developers have added approximately two billion square feet of bulk warehouse space—each building starting at 100,000 square feet or more, CBRE notes. As a result, older warehouses, particularly those built more than 25 years ago with clear heights under 30 feet, have fallen out of favor. The numbers are striking: more than three billion square feet of these aging facilities now face doubled vacancy rates, reaching 8% since 2023 and have experienced 133 million square feet of negative net absorption.
Owners of these properties are left with a difficult choice; they can either sell to users with less demanding requirements or invest in significant upgrades. Unlike office buildings, which can sometimes be converted to residential or retail uses, warehouses lack such flexibility. Yet, there may be untapped potential in rehabilitating these older spaces.
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Renovation needs fall into two main categories. Some improvements are relatively straightforward, such as refreshing the façade with new paint or architectural elements to give the building a contemporary look and attract new tenants. Other changes are far more complex and costly. Most warehouses built before 2000 have clear heights below the 30-foot minimum now expected by modern tenants. Raising the roof—literally—requires contractors to use hydraulic post-shores or telescoping columns, a capital-intensive process that can make a building competitive again.
Fire safety is another area where upgrades can make a difference. Early suppression fast response (ESFR) sprinklers, for example, provide more effective fire suppression than older in-rack systems, addressing tenant concerns about risk management. Energy efficiency is also a growing priority. Windows can account for up to 40% of a building’s total energy consumption, so heavily insulated windows and shading can help reduce heating and cooling costs. Lighting, which CBRE says represents more than 10% of utility expenses, can be upgraded from fluorescent tubes to LED fixtures for significant savings.
Solar panels offer another opportunity for cost reduction, though less than 2% of industrial properties currently have them installed. Older buildings that add solar can stand out even among new construction. Modern HVAC systems equipped with digital sensors and integrated building management can further cut power consumption.
Despite the promise of these renovations to extend the useful life of older warehouses, challenges remain. Labor shortages and increased tariffs continue to drive up costs. But with 325 million square feet of older bulk warehouse leases set to expire over the next three years, many property owners may find that upgrading is not just an opportunity—it’s a necessity.
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