Build-to-suit developments – a growing trend of custom-builds to meet specific tenant requirements

As the commercial real estate market evolves and emerges from the global pandemic, a new trend is arising. There is a growing demand for build-to-suit developments, as more businesses seek to create unique spaces that address their specific needs.

What are build-to-suit developments?

This type of developments involve custom-building a property to meet the specific requirements of a single tenant.

What are the advantages of build-to-suit developments?

Build-to-suit developments can bring a number of benefits to tenants. First is the ability to design a space that perfectly fits their needs – this is everything from layout to construction materials used. An example would be a company that focuses on sustainability, they could ensure that the construction material can withstand the test of time and be sourced sustainably. By having a space that is completely built to specifications, tenants can ensure that their workplace strategy aligns with their values and can achieve maximum efficiency from the space, which can ultimately lead to increased profitability and happier employees.

These types of developments also provide the tenant with a greater control of costs. As the space is designed specifically for them, the tenant can choose the materials and features that are most important to them, and cut out anything that is unnecessary.

There are also advantages to developers. By building a property specifically for a tenant, they can ensure that the space will be leased once it’s completed. The tenant is also more likely to occupy the building long-term. This can reduce vacancy rates, and therefore, the profitability of the development.

What are the drawbacks to build-to-suit developments?

While build-to-suit developments bring a number of benefits, tenants and developers alike should consider some potential drawbacks. The cost of such developments can be significantly higher than that of a traditional commercial property. For developers, it might prove to be more difficult to secure financing and may limit the number of potential tenants who are able to afford the space.

For tenants a drawback could be the long-term commitment required. The space may be suited to the tenant’s current needs, but it may not be able to adapt to future changes in the occupier’s business, such as accelerated growth or necessary staff cuts. For developers this can be risky, as it can be difficult to find a new tenant if the original occupier decides to move out. This in turn makes it less attractive to potential investors who are looking for flexibility in their investments.

Build-to-suit: a growing trend

Despite a few drawbacks and with the right planning and execution build-to-suit developments can be a win-win for both the developer and the occupier. By working closely together the two pirates can ensure long-term cost savings and a property that meets the tenants specific needs. As such they’ll continue to be an attractive option for both tenants and developers.

The growing trend towards build-to-suit is a reflection of the increasingly competitive commercial real estate market. Developers are seeking to reduce the risk of vacancy and attract high-quality tenants, by custom building properties they can tailor their buildings to the tenants needs and make them a more attractive option.