How custom and speculative industrial buildings differ in risk, timing, cost and lease commitment, and how to decide which one fits your operation in Kern County.
A build to suit industrial project is designed and built for one identified user who commits before construction, usually through a long lease or a purchase agreement. A speculative (spec) building is built to market-standard specs with no tenant signed, so the developer carries the leasing risk. Build-to-suit gets you a building shaped around your operation, but it takes longer and needs a longer commitment.
Key takeaways
- In a build-to-suit, the user commits first and the developer builds around its requirements. In spec development, the developer builds first and finds tenants later.
- Build-to-suit rent is usually set by multiplying total project cost by a target yield on cost, so every custom feature shows up in your rent.
- Build-to-suit leases tend to run longer than the three- to 10-year terms common for existing warehouses, often 10 to 15 years or more.
- Entitlement, air district review and power can drive a Kern County build-to-suit schedule as much as construction does.
- If an existing or under-construction spec building meets most of your needs, it is usually faster and keeps you more flexible.
What is a build to suit industrial project?
A build-to-suit (BTS) is a building designed and constructed for one identified user. The user signs a lease or purchase agreement before construction starts, and the developer delivers a facility built to agreed plans and specifications. That commitment lets the developer finance a building that might not suit the broader market.
Build-to-suits come in a few forms:
- Leased build-to-suit. The developer owns the land and building, and the user signs a long-term net lease. This is the most common structure for large distribution and manufacturing users.
- Owner-user build-to-suit. The developer builds and sells the finished building to the user, or the user buys land and hires a design-build team. SBA 504 financing can be an option for qualifying owner-occupants.
- Pre-leased spec. A tenant signs on a spec building during construction and adjusts office, power or other improvements before completion. It is a middle path with some customization and less lead time.
What is spec industrial development?
Spec development means building without a signed tenant. The developer picks a site, builds to the specs most users want, and leases the building during or after construction. Spec buildings are designed to appeal to many users, so they usually have standard clear heights, column spacing, dock ratios and minimal office. Our guide to industrial building specs covers those features.
The developer carries the lease-up risk, which is why spec construction tracks market conditions. National brokerage reports describe the shift. A Q2 2026 U.S. industrial report showed build-to-suit activity up 15% year over year, and improving leasing helped drive an 11% quarter-over-quarter rise in speculative construction. A second national brokerage’s report put Q2 2026 completions at 47.9 million SF, the lowest quarterly total since 2016, even as construction starts hit a three-year high.
Build to suit industrial vs. spec at a glance
| Factor | Build-to-suit | Spec (existing or under construction) |
|---|---|---|
| Who commits first | The user, before construction | The developer, before a tenant is signed |
| Customization | Designed around your operation | Market-standard shell; tenant improvements only |
| Time to occupancy | Longest: site, design, entitlements, permits and construction | Shortest if the building is complete or nearly so |
| Typical lease term | Often 10 to 15 years or more | Commonly 3 to 10 years, with 5 most common |
| How rent is set | Total project cost times a target yield on cost | Market rent for comparable space |
| Lease-up risk | Mostly removed by the user’s commitment | Carried by the developer |
| Exit flexibility for the user | Lower; specialized buildings can be hard to sublease | Higher; standard buildings re-lease more easily |
| Best fit | Specialized power, floors, cold storage, yard, size or location needs | Users whose needs match market-standard specs |
When does a build-to-suit make sense?
A build-to-suit is worth the time and commitment when no existing or planned building can do the job without major compromise. Common triggers include:
- Specialized infrastructure. Heavy power, freezer and cooler space, process water, heavy floor loads or extra clear height.
- Site needs. Large secured yards, extra trailer parking, rail access, or a specific location near growers, customers or a highway interchange.
- Size. Very large or unusually shaped requirements that existing inventory does not offer.
- A long horizon. You expect to operate in the same place for 10 years or more and can commit to it.
- Ownership goals. You want to own the facility eventually and prefer a building designed for you from the start.
What does that look like in Kern County?
Ag processors and cold storage operators around Delano, Shafter and Wasco often need refrigeration, power and yard space that general warehouses lack. Large distribution users along I-5 and SR-99 sometimes need sizes the existing stock cannot offer. A national brokerage’s Q2 2026 Bakersfield industrial report notes that the market’s largest recent delivery was a 711,000 SF distribution center in Arvin that was pre-leased before completion.
When is a spec or existing building the better choice?
If a building on the market meets 80% or 90% of your needs, it usually wins on speed and flexibility. You avoid entitlement and construction risk, sign a shorter lease and keep the option to move as your business changes. Tenant improvements can cover office, lighting, power upgrades and racking.
Kern County has inventory to choose from right now. Brokerage data show a 10.1% availability rate across 67.4 million SF in Q2 2026. Nine projects totaling 1.1 million SF were completed in the first half of 2026, and 510,000 SF was still under construction. A tenant who can use standard space has real alternatives to building.
How is build-to-suit rent calculated?
Most build-to-suit rents start from cost, not from market comps. The developer totals the project cost: land, site work, building shell, tenant-specific improvements and soft costs such as design, permits, impact fees, financing, legal and the developer fee. It then multiplies that total by a target annual return, called the yield on cost or return on cost. The product is the starting net rent. Our guide to how industrial rent is quoted explains the net rent basis.
The yield on cost has to exceed the cap rate at which the finished, leased building could sell. Otherwise the developer earns nothing for taking construction risk. For context, regional brokerage data show an average Bakersfield industrial cap rate of 7.23% in Q2 2026.
Construction costs matter too. A national brokerage’s 2026 industrial construction cost guide puts national averages at $78 per SF for large projects, $87 for medium and $144 for small. These are national figures, not Kern County costs.
Two consequences follow for users. First, every custom feature raises the rent for the whole term. Second, cost overruns and delays matter, so the lease should say whether rent is fixed up front or adjusts to final costs, and who bears overruns.
What are the steps in a Kern County build-to-suit?
- Define requirements. Spell out size, clear height, power, docks, yard, office, special systems and timing. Your broker and engineer turn this into a specification.
- Select a site and test it. Check zoning, utilities, access and whether your use is allowed by right. See our guide to industrial zoning in Bakersfield and Kern County. Ministerial approvals avoid environmental review under the California Environmental Quality Act (CEQA); discretionary ones do not.
- Sign an LOI and term sheet. Cover the rent formula, cost assumptions, delivery date, specs and who pays for pursuit costs if the deal dies.
- Entitle and permit. The Kern County Planning and Natural Resources Department says a conditional use permit takes about four months when a Negative Declaration is required. It advises allowing 10 to 12 months when an Environmental Impact Report is needed. The San Joaquin Valley Air Pollution Control District’s Indirect Source Review (Rule 9510) applies to discretionary projects with at least 25,000 SF of light industrial or 100,000 SF of heavy industrial space. See buying industrial land: entitlements and CEQA.
- Secure power and utilities. Electrical service upgrades can take longer than construction, so start early. Our guide to power for industrial users explains the basics.
- Build, inspect and deliver. Rent typically starts at substantial completion, after a punch list and certificate of occupancy.
What should a tenant negotiate in a build-to-suit lease?
- Rent mechanics. Ask for a fixed rent, or a cost-based rent with a cap and an audit right on final costs.
- Delivery date and remedies. Seek rent credits for late delivery and a termination right if delivery slips past an outside date.
- Specifications as an exhibit. Attach the plans and performance specs, and define how change orders are priced.
- Construction warranties. Cover the roof, slab, paving and building systems, with a clear repair process.
- Growth and exit rights. Look for expansion land or a right of first offer, purchase options, and reasonable assignment and sublease rights.
- Term length and Prop 13. In California, a lease of 35 years or more, counting options, is a change in ownership for property tax purposes, according to law firm Cox, Castle & Nicholson. Many landlords therefore keep total terms under 35 years. See our guide to Prop 13 reassessment. A real estate attorney and CPA can review the structure.
What does a 150,000 SF build-to-suit near Shafter cost?
A food distributor wants a 150,000 SF building with extra power and a larger office, and a developer prices it on cost. Every input below is an illustrative assumption. Actual land, construction and fee costs come from current bids.
At about $0.80 per SF per month, the build-to-suit rent compares with the Q2 2026 Bakersfield average asking rent of $0.71 per SF per month NNN across all industrial space. The premium buys a custom building. Sensitivity matters: each extra $1 million of custom features at a 7.75% yield adds about $77,500 a year, or roughly $0.04 per SF per month, for the entire term.
| Cost item | Assumption | Amount |
|---|---|---|
| Land | 8 acres (348,480 SF) at $4.00 per land SF | $1,393,920 |
| Shell and site work | 150,000 SF at $85 per SF | $12,750,000 |
| Tenant-specific improvements | Extra power and office at $12 per SF | $1,800,000 |
| Soft costs | 18% of hard costs ($14,550,000) | $2,619,000 |
| Total project cost | About $123.75 per building SF | $18,562,920 |
| Target yield on cost | 7.75% | $1,438,626 per year |
| Starting net rent | $1,438,626 / 150,000 SF | About $9.59 per SF per year, or $0.80 per month NNN |
Frequently asked questions
What is the difference between build-to-suit and spec industrial?
A build-to-suit is designed for one user who commits before construction, usually through a long lease or a purchase. A spec building goes up to market-standard specifications before any tenant signs, so the developer carries the leasing risk. Build-to-suit buys customization. Spec buys speed, shorter commitments and easier re-leasing.
How long does a build-to-suit take in Kern County?
It depends mostly on entitlements, power and construction. A use allowed by right needs only ministerial permits. Otherwise Kern County’s guide estimates about four months for a conditional use permit with a Negative Declaration and 10 to 12 months with an EIR, all before construction starts. A milestone schedule with remedies for missed dates belongs in the lease.
How long is a typical build-to-suit lease?
Longer than a standard warehouse lease. Link Logistics, an industrial owner, notes that industrial leases typically run three to 10 years, with five most common. Businesses making significant investments often commit to 10 to 15 years or more. Terms of 35 years or more, including options, trigger property tax reassessment in California.
Can I buy a build-to-suit instead of leasing it?
Yes. Some developers build and sell the finished building, and some users buy land and hire a design-build team directly. Owner-occupants may qualify for SBA 504 financing on new construction. Owning gives you control and equity but also construction risk, so compare total cost and flexibility against a lease.
Who pays for cost overruns on a build-to-suit?
The lease decides. With a fixed rent, the developer usually absorbs overruns except for tenant-requested changes. With a cost-based rent, overruns raise your rent unless the lease caps them. Tenant change orders are almost always the tenant’s cost, so put the rent formula, cap and audit rights in the LOI.
Is a pre-leased spec building the same as a build-to-suit?
No. In a pre-leased spec deal, the developer has already designed a market-standard building, and a tenant signs during construction and customizes office, power or improvements. In a true build-to-suit, the building itself is designed around the user. Pre-leasing can save months, but features like clear height and column spacing are mostly fixed.
If you are weighing a custom building against what is available today, Kern CRE can compare existing Kern County options with a build-to-suit budget and timeline so you decide with real numbers. Call Kern CRE at 661-885-6949 or contact us. Get Kern County CRE news monthly: subscribe to the Kern CRE report.
Sources
- U.S. Industrial MarketBeat Q2 2026, Cushman & Wakefield, July 2026.
- Q2 2026 U.S. Industrial & Logistics Market Report, CBRE, July 2026.
- 2026 Americas Industrial Construction Cost Guide, Cushman & Wakefield, 2026.
- Bakersfield Industrial MarketBeat, Q2 2026, Cushman & Wakefield, Q2 2026.
- Q2 2026 Bakersfield, CA Industrial Market Report, Lee & Associates, July 2026.
- Understanding Warehouse Lease Agreements: Essential Terms and Structures, Link Logistics, January 2026 (updated April 2026).
- Conditional Use Permit informational guide, Kern County Planning and Natural Resources Department.
- Zone Change informational guide, Kern County Planning and Natural Resources Department.
- Rule 9510 Indirect Source Review, San Joaquin Valley Air Pollution Control District, amended Dec. 21, 2017.
- 35 Years Can Be Taxing on a Landlord: The California Property Tax Implications of Leases of 35 Years or Longer, Cox, Castle & Nicholson LLP, July 2018.
About this article
Kern CRE prepared this article with help from AI research and writing tools. An editor reviewed the draft, checked its facts against the sources linked above and edited it for accuracy and clarity. It is general information, not legal, tax, investment or financial advice; talk with a qualified professional about your situation.