REAL ESTATE NEWS

Data centers have been a hot topic of conversation over the past year. While AI is fueling investment for them — investors shouldn't overlook the importance of the demand it's driving for industrial.

Executives at major industrial managers joined a panel discussion at SIOR's Fall 2026 Event about industrial demand, development opportunities, which markets are most attractive and how to navigate a time of uncertainty. The panel included Sheila Sutton, senior vice president and head of development management for the East region for Prologis, Jeff Lanaghan, senior vice president and partner of Becknell Industrial and Ian McDonald, Northeast partner of Panattoni.

Data Center and Industrial

For industrial, a big opportunity lies within the growth of data centers. Sure, data centers may be a separate alternative CRE sector — but companies need space to store equipment.

Sutton said that she's been seeing 5-10 year leases on industrial buildings to house long-lead materials.

"It's really been exciting to see that turn and how they're utilizing that space," she said.

"Automation, too, within buildings is advancing so much more than historically. Buildings now are acting in some way where they can truly support the end product of the data manufacturing facilities."

To add to Sutton's point, Lanaghan said industrial buildings are becoming more about infrastructure rather than just advanced manufacturing or industrial use in general.

"They're becoming more infrastructure as opposed to just the building where they're distributing out of," he explained. So they're looking for the automation, they're looking for the power, they're looking for the clear height."

A flight to quality has played a role in this shift.

Where Industrial Developments Boom and Cause Headaches

To pursue new industrial developments, both Sutton and McDonald agreed that New Jersey and Pennsylvania could take a long time to secure permits. McDonald refers to the process as "painful."

"I've done projects all over. You can get an NPDES permit in Pennsylvania; it's probably an 18-month process from beginning to end on the raw ground," he explained.

"In Ohio, I got it in less than 24 hours."

Leasing for industrial has been particularly strong in Atlanta and northern Virginia. She also expects activity to pick up in Louisiana.

Overall, tailwinds for industrial are coming from reshoring and advanced manufacturing demand. "These things are impacting leasing volume across the country," Sutton said.

What To Do In Time Of Uncertainty

Aside from long waiting times in certain markets, the other obstacle for industrial is high costs. Lanaghan said that while it feels like capital has been sitting on the sidelines for years, with investors waiting to deploy — there is no guarantee they will use it.

So what should firms focus on? For Lanaghan, it's transparency.

"You have to be very disciplined in what you're presenting, how you're putting [deals] together," he explained.

"We have to be transparent with the brokers, with your capital partners, with everybody on what your expectations are, what you can achieve and what you can't achieve. I've always found, if you are open and honest with everybody involved, you're usually going to work out a good outcome."

Sutton puts her focus on a couple of key areas. One is doing what she calls a "sensitivity analysis for underwriting," which is evaluating how the market is reacting, understanding their needs and working through concerns.

Sutton also recommends using diligence in each market and evaluating certainty. This applies to the fundamentals, including vacancy.

"It's really being diligent on your certainty timing; have the building ready for leasing, what you really think that leasing timing looks like, and being able to really validate your certainty and what you're expecting there," she said.

Sutton also says risk mitigation is a huge part of the process.

McDonald recognizes the challenges, which include rates now running well above the recent 6.5 to 7 percent range and growing costs to build since 2018. He calls this all a "challenge" for industrial to navigate.

For industrial, short-term headwinds will remain in an elevated cost environment. But data centers will continue to offer more opportunities to house space in the sector in the future.

Source: GlobeSt/ALM