With speculative construction slowing across the U.S. industrial sector, the build-to-suit (BTS) share of the development pipeline is on the rise. Markets with substantial BTS pipelines, including Indianapolis, Kansas City, Columbus, Chicago and Dallas/Ft. Worth is expected to post lower vacancy rates by the end of the year, according to a Cushman & Wakefield report.
Across the country, the share of BTS space under development increased from 28.6% to 34.5% year-over-year during the first quarter. Speculative completions continued to deliver at a brisk rate but accounted for 71% of all deliveries, down from 87.4% a year earlier, driven by elevated vacancy rates, cautious demand and ongoing uncertainty, said the report.
The shift is helping stabilize some industrial markets. For example, while vacancy increased by up to 210 basis points across other U.S. regions, the Midwest posted a modest 30 bps increase in vacancy as BTS grew to 79% of the pipeline in the first quarter from 67% during Q1 2024.
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Speculative supply still dominates in much of the Northeast, South and West, although developers are becoming increasingly selective and current conditions suggest the recent pullback will persist, according to the report. Notably, the BTS share has climbed significantly year-over-year in Northern New Jersey, Dallas/Ft. Worth, Baltimore and Columbus.
“Looking ahead, a shrinking speculative pipeline and greater BTS balance should help keep vacancy rate increases modest, even amid near-term economic headwinds,” said the report. “The U.S. industrial vacancy rate is projected to rise into the mid-to-high 7% range in 2025 and 2026, before gradually improving.”
Some inland markets are likely to outperform, including Indianapolis, Columbus, Chicago and Kansas City, which are expected to see net absorption rise in 2025, supported by more resilient demand even amid trade policy shifts and broader economic fluctuations.
Meanwhile, markets with large volumes of speculative supply in the pipeline could face vacancy pressure. Cushman & Wakefield pointed to Philadelphia and Las Vegas, where vacancy is expected to climb by 110 bps and 170 bps, respectively, from 2024 to 2025.
“For occupiers, this surge in available Class A space presents a window of opportunity to secure space in a more tenant-favorable environment – though that window may close quickly as the development pipeline tapers and market fundamentals improve,” the CRE firm wrote.
The top 10 markets for under-construction BTS industrial space during the first quarter were Indianapolis, Minneapolis, Kansas City, Columbus, Baltimore, Chicago, Louisville, Denver, Northern New Jersey and Dallas/Ft. Worth. The markets with the highest speculative pipeline as a percentage of inventory were Philadelphia, Savannah, Austin, El Paso, Nashville, Las Vegas, Jacksonville, Raleigh/Durham, Miami and the Hampton Roads region.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
