Whether it’s a new office building, industrial warehouse, retail shopping center, or high-rise residential apartment building, investors and lenders increasingly demand to see a substantial portion pre-leased before they are willing to put up construction money. Purely speculative construction projects are rare in today’s real estate market.
People are reluctant to invest in buildings that do not have good strong prospects for leasing. The old days when developers and investors would go in and spec a building really are rare. Now developers and investors expect to have a tenant going in and taking away some of the risk. The trend away from speculative building without pre-leasing is having a profound impact.
Build-To-Suit Projects
The decline (and in some sections of the U.S., the demise) of speculative building is being replaced by an increase (and in some sections of the U.S., a surge) in build-to-suit projects. That’s because build-to-suit is a process in which the owner (or main tenant) is going to get exactly what he needs in the most expeditious manner. One design/build firm said “Built-to-suit has become more popular because of its cost-effectiveness and in giving exactly what the client needs and wants”.