**Industrial Real Estate Faces Constraints Amid Growing Demand and Land Scarcity**
Despite a rise in vacancies and a slowdown in absorption, demand for industrial space continues to grow, particularly in the logistics, manufacturing, and e-commerce sectors. To accommodate these changes, developers and investors are leaning toward larger facilities. However, one major roadblock stands in the way: a lack of available land.
A recent report from JLL titled *How Land Scarcity Impacts Industrial Real Estate Decisions*, authored by Sharon Wortmann, Managing Director at JLL, sheds light on the challenges industrial developers face due to land scarcity.
“Land scarcity is influencing leasing decisions for industrial and logistics companies because of the very real financial and operating impacts that result from it,” Wortmann wrote.
### Key Factors Behind the Land Shortage
Wortmann outlined several critical issues contributing to the limited availability of suitable land for industrial development:
**Aging Inventory**
Much of the existing industrial real estate stock is outdated. Meanwhile, the market is calling for modern facilities with larger footprints. “Mega-box buildings display the strongest pre-leasing rates in both newly delivered assets and current buildings under construction,” Wortmann noted.
**Zoning Restrictions**
Regulatory hurdles are also playing a significant role. In California, for example, legislation such as SB 330 hampers the ability to rezone residential land for industrial purposes. Additionally, the newly passed AB 98 imposes restrictions on where new industrial developments can be located and includes requirements for landscaping and screening.
These challenges don’t just impact the supply of industrial properties—they also affect financial returns. Wortmann explained, “Land pricing and rental rates are directly correlated, as are construction costs. In some markets, rents are currently down, construction pricing is up, and return on cost is increased, which places upward pressure on yields and downward pressure on land prices.”
### Potential Solutions for Developers and Investors
To overcome land constraints, Wortmann recommends a shift in strategy, particularly in markets where space is limited. Several approaches include:
– Converting underutilized retail, office, or manufacturing properties into logistics hubs
– Exploring multistory warehouse developments and vertical building strategies—though typically more expensive to build, they offer efficient land use and may justify higher rents
– Using data-driven analysis and adopting a long-term perspective on lease renewals, land acquisitions, or build-to-suit projects
Wortmann also emphasized the importance of drawing on expert support. Real estate advisors, architects, land-use attorneys, and land consultants can offer valuable insights to navigate the complexities of constrained markets.
As land challenges continue to shape the future of industrial real estate, strategic planning and innovative thinking will be critical to meeting demand and maximizing value.
