Warehouse and Distribution Center Feasibility Study

The 2026 warehouse market divides at about 100,000 square feet, and a study that reports a national or metro vacancy rate without the size band behind it tells the lender nothing useful.

Below the line, shallow-bay and small-bay space is the tightest segment in the country. Cushman and Wakefield puts vacancy in that segment at 4.8 percent in the second quarter of 2026, the lowest of any size band and well under the 6.9 percent national figure. The stock is old: CBRE's March 2026 brief on shallow-bay space reports that nearly half of inventory in major markets was built before 1980, more than 80 percent before 2000 and only 5 percent since 2010. The buildings are 14 to 28 feet clear, with limited dock positions and shallow truck courts, and the tenants are service businesses, trades, last-mile operators and regional distributors that take 5,000 to 50,000 square feet. Demand in this segment is not the binding constraint on a new building; cost is, because small buildings cost more per square foot than large ones and the rent premium for small space, while real, rarely closes the gap.

Above the line, bulk distribution is working off a supply overhang. Cushman and Wakefield puts vacancy in buildings over 500,000 square feet at 8.1 percent in the second quarter of 2026, and JLL counts Class A buildings of a million square feet or more at 5.8 percent.

The study reports the segment the subject belongs to, with the vacancy, asking rent, absorption and pipeline for that size band in that submarket, from the most recent published quarter, with the publishing broker named.

The market area is drawn from drive times, highway access and the submarket boundaries the local brokerage community uses, not from a radius. Within it the study measures inventory, vacancy and availability by size band, net absorption over eight to twelve quarters, the tenants that signed leases in the last two years and the sizes they took, asking and effective rent with concessions, and the lease terms, escalations and tenant improvement allowances in the comparable set. For a build-to-suit the demand section is the tenant: its credit, its lease, its business and the probability it renews. For an owner-user building it is the operating company, and the study follows the structure on the SBA warehouse page.

National leasing recovered in 2026. JLL reports second-quarter leasing volume of 175.7 million square feet, up 49.4 percent from a year earlier, and net absorption of 99.1 million square feet. CBRE reports that supply chain uncertainty is leading tenants to hold more space and to take advantage of landlord concessions, that third-party logistics operators remained the largest source of leasing in the first half of the year while their share fell, and that manufacturers accounted for more than 12 percent of leasing. The study reports the share of local leasing by tenant type, because a submarket that depends on one 3PL for its absorption is a different credit from one with a hundred small tenants.

The supply section inventories every competitive building under construction, permitted or publicly announced, with size, clear height, delivery date and leasing status, and adds the sublease space on the market. It then separates stock by vintage, because tenants in this cycle have moved to new buildings and left old ones. A 1990s building with 24-foot clear, a 110-foot truck court and one dock per 15,000 square feet competes for a shrinking pool of tenants, and its rent and lease-up assumptions have to say so.

The functional checklist the study applies to the subject and to each competitor covers clear height, column spacing, dock doors per square foot, drive-in doors, truck court depth, trailer parking, car parking, ESFR sprinklers, floor flatness and load, electrical service, office share and highway and rail access. Where the subject falls short of modern standards the study prices the gap: in rent, in lease-up, or in the cost of a retrofit.

For a new building the central ratio is development yield: stabilized net operating income over all-in cost, where all-in cost is hard cost plus soft cost, site work and land. The required rent follows. The study sets the yield target at a spread over the exit cap rate the capital market pays for stabilized industrial product, about 150 basis points for a merchant developer in MMCG's arithmetic, and computes the net rent the building must earn after an 11 percent allowance for vacancy, credit loss and non-recoverable expense. The gap between that rent and the submarket's asking rent is the first number in the determination.

In 2026 that gap is wide in most markets. The levers that close it are land cost and coverage, building specification, the construction method, phasing, and the rent premium a build-to-suit tenant will pay for a building designed around its operation. For a small-bay building the arithmetic is harder, not easier: hard cost per square foot is higher, office finish is higher, and the tenant base is less able to pay a premium, which is why most new small-bay space in this cycle has been built by owner-users or inside larger parks.

Published construction costs for 2026 vary with building type, region and method. Contractor and design-build quotes published this year put a pre-engineered metal shell at $45 to $75 per square foot of hard cost, a conventional small-bay shell at $60 to $110, and flex space with office finish at $60 to $100, before site work, soft cost and land; Rider Levett Bucknall's second-quarter index reports escalation settling near 1 percent per quarter. The study prices the subject from local bids, permit valuations and recent local projects rather than from these ranges, and labels any vendor figure it uses.

A build-to-suit study is a credit study of the tenant and a residual-value study of the building. The lender's exposure during the lease is the tenant; its exposure after it is the building's appeal to the next tenant, which depends on specification and location, not on the first tenant's business. The study underwrites both.

A speculative study is a lease-up study. It projects absorption month by month from the submarket's history and the subject's position in it, sets the rent and concessions from the comparable set, builds the cost table and the development yield, and reports the debt service coverage ratio (DSCR) and debt yield at stabilization. Banks finance speculative industrial projects within the OCC's supervisory loan-to-value limit of 80 percent for construction, and in practice at lower leverage, with recourse, completion guarantees and often a pre-leasing condition; the study is written to show the lender when the loan can be taken out. In a rural area, USDA Business and Industry can guarantee a building constructed for lease to industrial businesses under 7 CFR 5001.105(b)(12), with a feasibility study required above $1 million for a new business; the USDA feasibility study page covers the program.

An owner-user study is a study of the operating company, with the building tested for fit and the submarket used to price any third-party space and to check the cost of building against the cost of buying. SBA 504 and 7(a) finance this kind of project and nothing else in the warehouse market, and the rules, the equity tiers and a worked capital stack are on the SBA warehouse feasibility study page.

The SBA eligibility and underwriting tests applied in MMCG's studies are those of SBA SOP 50 10 8.1.

Lenders and borrowers often ask for a sample outline, so the structure of an MMCG warehouse and distribution center study is set out below. The study runs between the sections in the order shown, with exhibits numbered through.

An MMCG warehouse and distribution center feasibility study is delivered in 9 to 16 business days from engagement and receipt of the project file, with rush delivery from 5 business days. Fees begin at $4,900 for a single-site owner-user warehouse study; speculative, build-to-suit and multi-building projects are quoted on scope. Payment is 50 percent at engagement and 50 percent at delivery. MMCG accepts no referral fees, contingent fees or financing arrangements, and revisions required by the lender, CDC or Agency are made at no additional cost under MMCG's contractual acceptance commitment.

Industrial Case Study 1 tests the purchase of a leased multi-tenant warehouse in Fort Wayne, Indiana against the Fort Wayne for-sale and for-lease inventory, and Industrial Case Study 5 tests a regional carrier's purchase of a 4.82-acre truck terminal with an 11,500 square foot cross-dock in Macon, Georgia against the regional yard and terminal inventory.