KEY DESIGN & CONSTRUCTION TRENDS IN INDUSTRIAL & COMMERCIAL DEVELOPMENT
In today’s industrial and commercial landscape, evolving end-user needs, advancing technologies, aging assets, and lasting consumer trends are reshaping how facilities are designed and constructed. Speculative warehouse development, once characterized by large, single-tenant facilities, is now trending towards smaller footprints and multi-tenant structures. Design flexibility is now at the forefront of warehouse development as industries requiring specialty space, such as manufacturing and cold storage, remain resilient. The market also continues to see renovation and repurposing of both industrial and commercial assets driven by aging existing product and rising vacancy rates. As these trends continue and the market evolves, utilizing an efficient and cost-effective delivery method like design-build and partnering with an experienced contractor like ARCO will be critical for success.
Speculative warehouse development is trending toward smaller footprints and multi-tenant facilities.
While the volume of speculative development nationally has reduced significantly, it is still occurring in key markets, especially among players opting for cash investments rather than relying on traditional debt and equity financing. New speculative developments are trending toward smaller footprints, and larger facilities are being built to accommodate multiple tenants, as leasing of large blocks of space has seen the greatest slowdown – a trend likely to continue.
Additionally, some markets nationally are seeing “storage condo” developments, characterized by total square footage ranging from 50,000 to 100,000 square feet, divided into smaller suites of approximately 3,000 to 5,000 square feet. These types of facilities cater to a wide range of tenants and small businesses within industries that don’t require typical retail, office, or industrial space, such as early-stage robotics companies, electrical contractors, HVAC repair, plumbing, commissary kitchens, craft brewers, etc.
Specifically designed for small-scale users, these multi-tenant developments are similar in nature to retail centers and are typically designed to be move-in ready. For example, each suite often has its own office space, restrooms, and amenity space such as a break room. Additionally, these facilities are designed for either drive-in trucking or dock height, unlike typical warehouses which are generally designed for both.
Pictured: 119,000 SF flexible, speculative industrial facility for Calare Properties in Acton, Massachusetts
Industries requiring specialty space such as manufacturing and cold storage are driving demand for industrial space & new construction.
Driven by a resurgence in onshoring and a focus on supply chain resilience, the manufacturing industry is driving demand for industrial space nationally. The resurgence has been particularly evident in advanced manufacturing, life science, robotics, and GMP users. Aging assets, combined with government incentives and advancements in manufacturing technologies needed for production of products such as batteries, electric vehicles, solar panels, and semiconductors, are also increasing the need for new manufacturing space.
Additionally, year-over-year online grocery sales growth combined with aging existing assets have also put pressure on the cold supply chain. As a result, new developments from third-party logistics providers, as well as developers entering the speculative cold storage space, are increasing nationwide. The market is also seeing numerous build-to-suit, expansion, and retrofit projects for major players in the foodservice industry as they expand their operations nationally.
Advancing technologies and changing consumer trends within the pharmaceutical industry are also creating a need for cold storage space. For example, injectable products like Ozempic have different storage requirements than traditional pharmaceuticals. As demand for these types of products rises, the need for new temperature-controlled facilities will follow.
Pictured: Rendering of a 312,500 SF cold storage facility under construction in Lockhart, Texas, for RealCold, an affiliate of the New York-based, multi-strategy real estate private equity manager Related Fund Management (RFM)
Design flexibility is especially important to accommodate unique needs of tenants & end-users within growing industries.
The needs of tenants within growing industries requiring specialty space are highly unique, especially among advanced manufacturing, life science, robotics, and GMP users, making flexibility in a facility’s design crucially important. Design flexibility allows for the accommodation of a wide range of users without the need to adjust the facility’s fixed infrastructure, saving valuable schedule time on retrofit. While it is impossible to create a one-size-fits-all facility, there are key design elements that can be implemented to maximize flexibility and decrease time on tenant buildout. Advanced MEP designs to support tenant operations are especially important. In addition to a robust electrical service, flexibility for increased water, sanitary, and gas services should be incorporated. Many well-informed structural upgrades can also increase a facility’s flexibility, such as increased roof loads, mechanical penthouses, and increased footing and column sizes to easily incorporate mezzanines for hanging equipment. To achieve the balance of maximizing flexibility without unnecessary spending, it is crucial to partner with an experienced design and construction partner.
Pictured: 150,109 SF cGMP manufacturing facility for Scannell Properties and Watson-Marlow Fluid Technology Solutions in Devens, Massachusetts
Aging industrial product is prompting facility upgrades or new developments to accommodate advancing technologies and end-user operations.
With the average age of industrial product nationwide being over 40 years old, warehouses are aging at a rapid rate as technologies advance and end-user needs evolve, especially among specialty users. Manufacturers, distributors, and logistics providers often require high ceilings, a significant number of dock doors, and ample trailer parking to accommodate operations and technologies like automation or robotics. However, older warehouses typically have lower clear heights, few dock doors, and limited parking. While users often choose to build a ground-up facility or renovate a new warehouse, for some, upgrading an existing, older facility makes sense. Modifications such as raising the roof or removing a second-floor mezzanine to increase clear height, adding more dock positions that meet current industry standards, and expanding parking lots to accommodate the growing requirements for cars and trucks are crucial upgrades. These improvements significantly enhance the functionality and adaptability of a warehouse facility to meet modern end-user needs and operational demands.
Pictured: 55,000 SF distribution facility tenant improvement for Eastern Real Estate in Wilmington, Massachusetts
Commercial assets are being repurposed in response to lasting consumer trends sparked by the pandemic.
Markets nationwide are seeing the repurposing of commercial assets, especially office buildings, as lasting pandemic trends like working from home have led to increased vacancy rates. While offices are being converted to life science, mixed-use, and in rare cases industrial, most office conversion projects are office-to-multifamily. However, there are many considerations beyond the simple rise in multifamily demand and decrease in office demand that determine the feasibility and cost-effectiveness of these types of projects. The cost of conversion varies considerably depending on factors such as the original layout, existing conditions, and the exact scope of work. Zoning guidelines, floor plate and building core layout, structure type, façade, and MEP infrastructure and venting all must be considered as well. Converted offices tend to be smaller, older, and more vacant than the average office building with floor plates that make for an easier conversion. Factors such as government incentives aimed at historic restoration, which is popular in markets like Boston, New York, and Chicago, also play a role.
Additionally, increasing retail vacancy rates caused by the rise of online shopping during the pandemic have led to conversions of abandoned retail facilities into industrial warehouses. Abandoned retail properties are enticing to developers and owners looking for warehouse space for numerous reasons, the most prominent being location. These sites are usually located within population centers and near key transportation infrastructure, making them logistically ideal. Many retail structures, especially stand-alone facilities like shopping malls, boast features that seem compatible with industrial use, including multiple dock doors, ample parking, and significant clear height. However, major changes will have to be made to most of these structures to fully equip them for use as a warehouse. Designing an industrial facility within the confines of the existing property will require creative solutions, innovative construction techniques, and an expert understanding of potential complications in the structure and site.
Pictured: Conversion of a former Dave & Buster’s to a 156,000 SF distribution facility for a confidential Fortune 500 ecommerce company
Design-build delivery is especially beneficial in today’s market and is critical for addressing the needs of specialty end-users.
Design-build delivery is beneficial from both a cost and schedule standpoint, as the integrated approach and work in the proposal phase consistently result in the most functional, cost-effective solution and tremendous time savings. Unlike traditional delivery methods that treat the phases of design, bidding, and construction sequentially, the design-build process combines the benefits of design ownership, financial risk, management of capital expense, and expediting schedule all under a single point of responsibility. Preliminary design is completed during the proposal process, and owners benefit from the speed at which design-build delivery moves. Once a project is awarded, the design-builder can move immediately through the buyout process to lock in material pricing and delivery dates while still completing design.
In normal circumstances, design-build offers a substantial advantage over the traditional design-bid-build delivery process. In today’s market, the benefit is not only advantageous but critical to navigating ongoing uncertainties and challenges. Additionally, as the industrial and commercial markets continue to evolve in response to advancing technology and end-user needs, partnering with a qualified design-build contractor like ARCO with experience in complex project types like those in food and beverage, pharmaceuticals, and life science will be essential for success. This is crucial in helping clients navigate strategic design decisions and ongoing market challenges.
Pictured: 350,439 SF beverage distribution facility completed for Frank B. Fuhrer Wholesale Company in Pittsburgh, Pennsylvania
