Many of today’s tenants consider older large warehouses—the 100,000-square-foot and above projects built in 2000 and prior—obsolete. Additionally, those tenants’ flight to quality following the pandemic has left these facilities vacant.
But a CBRE report said that the older bulk warehouses might have a second chance with the right retrofits and renovations.
First, how much space are we talking about?
The CBRE experts report that older warehouse inventory totals 3 billion square feet nationwide, with a vacancy rate of 8%. Furthermore, this category has a negative net absorption of 133 million square feet.
Now, on to the modernization of such facilities. The CBRE article suggests that the following structural improvements can modernize the older warehouses and potentially attract prospective tenants.
Outer appearance. Paint the asset’s façade and add new elements. Additionally, updated landscaping can enhance curb appeal.
Clear heights. One capital-intensive but effective solution is to raise the existing structure’s roof with hydraulic post-shores or telescoping columns to a 30-foot clear height, which is the current demand.
Fire sprinklers. Early suppression fast response (ESFR) sprinklers are effective in suppressing fires, more so than their in-rack sprinkler system predecessors. Installing an ESFR system can help reduce tenant worries about fire.
Electrical upgrades. Adding new panels and wiring to the building can help boost the energy loads needed by tenants.
HVAC. Cooling accounts for 14% of total energy consumption in commercial buildings; an additional 18% is used for ventilation. Install digital sensors to collect information about temperature, humidity and occupancy patterns. The systems automatically adjust the climate controls to reduce energy consumption.
Windows. Windows contribute to as much as 40% of total energy consumption. Consider installing highly insulated replacement windows with shading, which can help reduce tenants’ overall utility loads.
Solar panels. Installing solar panels can help older asset owners differentiate their properties from newer ones—less than 2% of industrial buildings have these panels. Tenants in more than half of the 181 Energy Star-certified industrial buildings find that more than half of their total power consumption is met by the solar panel installations.
The CBRE analysts acknowledge that higher construction costs, tariffs and labor shortages are some of the headwinds faced when it comes to new construction. Meanwhile, 325 square feet of older bulk warehouse inventory will experience lease expirations over the next three years.
As such, “there will be a growing need to deploy capital for modernizing these facilities,” the report said.
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