For the first time since the beginning of the COVID pandemic, market fundamentals reflect that the expansion phase of the most recent development cycle is coming to an end. Capital market constraints, costs of construction, and uncertainty of future tenant demand are all factors in the development slowdown. Many of the nation’s leading banks have ceased construction loans for new projects and many equity players are on the sideline until there is clarity on exit cap rates and lease rental rates. Most general contractors are still running at full capacity, but many predict pipelines will diminish in the second half of 2023. Along with improved supply chains, developers should be able to reign in construction costs later this year. Lastly, some tenant demand appears to be slowing in pockets either geographically or in specific size increments, such as 150,000 – 400,000 SF.

However, not all is negative. Other drivers could lead to a quick return to additional development starts in late 2023 or 2024. The Georgia Economic Development teams have enjoyed 12 months of record announcements that will likely lead to increased demand by suppliers. Hyundai (Bryan County), Freyer Battery, SK, Rivian Automotive, and QCells are transformational projects for the surrounding communities. There has been a noticeable return of owner occupants looking to purchase buildings, which could help to offset any softening of the leasing market. If these trends keep vacancies low, then look for development to return in the 2nd half of the year.