Replacement Costs as a Catalyst for Value Growth

Industrial real estate is entering a new phase where rents have softened, but the cost to build has continued to climb, leaving market rents roughly 20% below replacement-cost levels. This gap has already choked off new development, with construction starts down sharply, and is setting the stage for tightening supply as demand gradually recovers. Scarce infill land and more complex, power-intensive facilities are pushing replacement costs higher and raising the hurdle for future projects.

For advisors and investors, this creates a window in which existing assets can see rent and value growth before new supply becomes economically viable again. Outcomes will be most compelling in high-demand markets and modern buildings that align with eCommerce, automation, and AI-driven logistics needs.