Industrial Insights V1 2023 FINAL LR - Flipbook - Page 8
SIZE MATTERS
PRICING FACTOR #1: SIZE OF SPACE
What goes into the lease rate of an industrial property? When we look at what effects pricing,
there are several factors that come into play. Chief among them is RENTABLE SQUARE FOOTAGE.
Generally speaking, the larger the footprint, the smaller the lease rate. A common sense
explanation for this pricing phenomenon is “economies of scale”: bigger buildings achieved
higher cost savings during the construction process, and owners can translate that savings into a
more competitive lease rate. But that’s hardly an all-encompassing view. There are many intricacies
in pricing out each size range, and something we’ve attached to this process is looking at supply
and demand.
Smaller flex space is the most in-demand product type in the Southeast, by far. But supply isn’t
keeping pace. Only 2% of all under construction projects in the Charleston feature buildings
that are less than 50,000 SF. Smaller operators might be willing to pay a higher lease rate for the
flexibility these smaller buildings provide.
In an environment where industrial commercial real estate is constantly evolving to suit the needs
of an array of tenants, it’s worth looking at how lease rate breaks down. To the right is a profile of
different building sizes, and what you can expect in each scenario.
“
EVEN THOUGH SMALLER FLEX
PRODUCT IS MORE EXPENSIVE,
DEMAND HAS NEVER BEEN HIGHER.
8