Funding warehouse construction is tough, so you’ll need a detailed building plan to follow.
How much does it cost to build a warehouse?
A surge in online consumer spending, a growing logistics industry, and a lack of storage space are fueling a warehousing boom across the United States, making answering this question more important than ever.
This perfect storm has led to many commercial real estate (CRE) investors looking to capitalize on this opportunity by building and leasing their own industrial warehouses.
If you’re one of them, you may have had this valuable CRE investment strategy blocked thanks to:
Yet to miss out on such a venture would be a pity, seeing as the ongoing rise in e-commerce, set to more than double across the world by 2030, will keep demand for warehouse space sky-high.
In the US, warehouses are falling well short of the 1 billion square feet of space needed by 2025.
Source: Forkify
For an investor, the best way to capitalize on this demand is to arm yourself knowledge you need to successfully finance the building of a warehouse.
This includes knowing the answer to questions like:
Read on to find out more.
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Warehouse building is not easy. It requires jumping several hurdles before you even get to financing. Here's why:
In short, building a warehouse is a complex, multi-staged project that requires you to fully understand the project ahead of you, including cost.
Warehouse construction costs vary greatly depending on the size of the warehouse, its facilities, and where you’d like to build it.
Here’s a rundown of the type of warehouse factors we might come across.
Size is everything when it comes to warehouses. Asking yourself “How much does it cost to build an Amazon warehouse?” is different from building a run-of-the-mill warehouse for small businesses.
The warehouse construction cost per square foot is the easiest way of looking at it.
A small warehouse, for example, is typically classed between 5,000 and 15,000 square feet. This is ideal for businesses with limited storage needs or those just starting out.
A medium-sized warehouse, between 15,000-100,000 sq. ft, is comfortable for most normal established businesses.
A large warehouse meanwhile is anything over 100,000 sq.ft., and suits businesses with high-volume operations, or those requiring specialized storage services like automation and fulfillment systems.
Warehouse facilities are usually labeled as either ‘low-end’ or ‘high-end’ and correlate roughly with their size: small warehouses tend to be low-end, for example.
Low-end storage spaces may offer basic pick & pack but might lack capabilities for sub-assembly, vendor-managed inventory, or cross-docking.
High-end warehouses, however, offer advanced fulfillment services like automated picking and real-time inventory tracking, alongside broader service options.
Location plays a big part in warehouse costs in the US.
Portland is the most expensive city and Phoenix the cheapest, with costs ranging from $80 to $200 per square foot for low-end warehouses in the two locations, and $145 to $285 for high-end warehouses
Source: Statista
Bearing all of the above in mind, let’s figure out how much the average small and large warehouse costs in the United States today.
Note 1: let’s take the median location cost per sq ft and calculate it for both low-end and high-end locations. Judging from our figures this is $140 for low-end and $215 for high-end.
Note 2: We can also use the average size of a US warehouse (15,000 sq. ft) as a rule of thumb for the small warehouse calculations.
Low-end = 15,000 x $140 = $2.1 million
High-end = 15,000 x $215 = $3.23 million
Low-end = 100,000 x $140 = $14 million
High-end = 100,000 x $215 = $21.5 million
Here is a table summarizing the cost estimates for building warehouses in the US:
Yet, while working out the average cost of building a warehouse might seem straightforward, the true picture is more nuanced.
To help us get a better idea, let’s break down the costs involved in building such a property.
Typically speaking, four key categories make up the total cost of your warehouse project.
How much does it cost to build a metal warehouse? How much does it cost to build a concrete warehouse? Both of these questions will come into consideration when looking at the hard costs of your warehouse.
Think of hard costs as the building blocks of your warehouse. These are the tangible elements you can see and touch, like:
Soft costs are all the behind-the-scenes expenses that ensure your warehouse project runs smoothly. These include:
The story doesn't end after construction. Long-term costs encompass the ongoing expenses of owning and operating your warehouse.
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Financing your warehouse project usually involves a construction loan. Here's where the interest rate and associated fees come into play, impacting the total cost you pay to the bank.
By understanding these four categories – hard costs, soft costs, long-term costs, and financing costs – you can create a more accurate cost estimate for your specific warehouse project.
As you can see, funding a warehouse build is a costly project that runs into the millions. To do it successfully, you’ll need to set out a detailed and sensible costing plan, including the funding process you’ll need to follow to secure the warehouse facility finance you need.
Turning your vision of a successful warehouse into reality is very difficult without a detailed warehouse funding process.
Every construction project needs to follow certain financing steps on its route to completion.
This first stage involves meticulously outlining your warehouse project.
Factors like size, location, desired features, and estimated construction costs come in here, as discussed in the previous section. The average warehouse rent per month in that area also influences the money you can borrow.
A detailed final cost breakdown will be essential when approaching lenders.
Several financing options exist for warehouse projects. Here are a few key choices:
For each option, research and compare terms offered by different commercial real estate lenders. Factors like interest rates, loan-to-value ratios (LTV), and repayment schedules should come into play.
Once you've selected a lender, they’ll ask you to apply for the finance you need. Many will ask you to provide the project plan, cost estimates, financial statements, and market research data demonstrating the potential profitability of your warehouse.
Some lenders, however, use the latest digital assessment methods that make a lot of this unnecessary. With the help of AI-powered tools, they can assess your business’s potential in just seconds, without the need of reams of paperwork.
Upon loan approval, you'll finalize the paperwork and receive the funding. With financing secured, you can commence construction according to your plan.
Remember: The warehouse funding process can involve negotiations and due diligence from both you and the lender. Patience, a well-defined project plan, and a strong financial understanding will be your assets in securing the best possible financing terms.
Building a warehouse is a complex project with numerous financial considerations, so finding a simple way to secure funding can give you a competitive edge in today's fast-paced market.
Duckfund's Sign Now, Pay Later model is designed to give you that.
We know that putting down a soft deposit is a hurdle that ties up capital and slows you down, which is why we aim to provide the money within 48 hours so you can secure the property before the competition.
Our model also frees up your capital for other critical expenses. Don't wait for lengthy bank approvals. With Duckfund, you can focus on renovations, due diligence, or even exploring other deals, all while your warehouse project gets underway.
Our secure LLC safeguards your funds, and our AI-powered approval process goes beyond traditional metrics, making funding more accessible.
With low fees and high approval rates, you can even work on multiple CRE projects without dipping into your own funds.
Fast, simple, and secure – use Duckfund to power your next warehouse project.
Don’t let slow finance stop you from expanding your property portfolio. Take just two minutes to fill out our simple form and find out where Duckfund can take you.
