In the April edition of the Flex Focus newsletter, I will examine a trend in industrial construction, which we see as a significant factor in our investment thesis.
The Flex Real Estate team has worked hard since the beginning of the year on a new acquisition in Ohio, which will close within the next few days. This will be our largest acquisition since inception, and a great addition to our industrial and flex properties portfolio. We hope to share our thoughts on this investment soon.
Andrew
New Industrial Construction
At Flex Real Estate, we consume as much data as possible to make informed investment decisions. One of the sources from which we gather information about the state of industrial real estate is quarterly research reports from brokerage firms such as Colliers, CBRE, and JLL. Their reports show supply, average rental rates, and vacancy rates separated by product type and markets/submarkets, providing a great snapshot of the current state of the market. One clear trend is a decrease in new industrial building construction starts.
The Q1 2025 Midwest Logistics Trade Report from Colliers showed that industrial construction starts above 150K square feet were relatively non-existent across the Midwest, with only four projects totaling 2.5M square feet being kicked off across nine MSAs.
Why the Slowdown
The root of this construction slowdown is that planning is extremely difficult with shifting financial headwinds. There are high interest rates and interest rate variability with massive swings in treasuries over the past month. Construction costs have increased significantly since COVID, and will be impacted by the tariff policy. A theme of 2024 was not making capital or construction decisions because of the upcoming election, an understandable hesitation when you think about how companies make decisions. Now that the election has been decided, a similar problem persists: the current administration has drastically changed course multiple times in 2025, having a real effect on the financial landscape. A company makes decisions on capital expenditures through analysis, securing approvals, and creating a business plan. These conditions are what business leaders are measuring to make decisions, and when construction takes 12-18 months they are hesitant to move forward in the midst of instability.
Industrial construction starts peaked in the third quarter of 2022, highlighting an unprecedented few years of construction in the early 2020s. Following this peak, starts have continuously fallen, reaching 10-year lows in Q4 2024.
Below, we examine what is happening in Cincinnati and Columbus, two markets in which we actively work to acquire buildings.
Columbus
Columbus has seen a pullback in speculative development. Around 20% of space under construction remains available, down drastically from 40% a year ago. Speculative bulk construction in the market is expected to remain limited until early 2026, with Q4 2024 speculative construction activity reaching its lowest point since 2012. This indicates both caution among developers and a focus on stabilizing recently delivered assets before initiating new projects. Buildings larger than 250K square feet see an availability rate of 11% while buildings under 100K square feet see availability under 4%.
Cincinnati
Cincinnati has also seen an industrial construction slowdown. Around 1.6M square feet is underway, which is the lowest level since 2013. Following 560K square feet of deliveries in Q4 2024, no new industrial product was delivered in Q1 2025. Similar to Columbus, developers are pausing speculative starts to wait for further absorption of recent completions. Buildings larger than 250K square feet see an availability rate of 12.6%, while buildings under 100K square feet see availability under 3%.
What Does This Mean for the Next Few Years?
Less new supply, an absorption of the existing supply from the boom, rising rents as vacancy rates decline and space becomes more difficult to find, and eventually, a restart of the development engine after rents hit a point attractive enough to build new space.
Who Benefits?
Existing warehouse owners will benefit from these increasing rents, which will drive higher valuations, even if the current cap rates stay in place. The existing owner also has the protection of the reality that the development engine takes time to restart.
At Flex Real Estate, our objective is to buy warehouses and flex spaces with below-market rents or attractive vacancies. By acquiring these buildings at a good basis, Flex Real Estate, along with its partners, will also benefit from the decrease in new development.
Reply to this email and let me know if there are any specific topics you would like to hear about next. Thank you for reading, and stay tuned for the May Focus!
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