Spec Building (Speculative)
A building constructed without a pre-committed tenant, built on speculation that market demand will attract occupants after completion.
Definition
Speculative (spec) construction is when a developer builds without signed leases, betting that tenants will materialize during or after construction. Most small bay industrial parks are built spec because the tenant base—small businesses needing 1,500-5,000 SF—doesn't typically commit years in advance or require custom buildouts. Spec buildings are designed for broad appeal: vanilla shell delivery, standard clear heights, flexible unit sizing, and conventional loading. The spec approach allows faster delivery since there's no back-and-forth with specific tenants, but it carries lease-up risk. Developers typically secure construction financing based on market absorption rates and comparable rents, then refinance to permanent debt once stabilized.
Example
A developer builds a 48,000 SF small bay flex project with 20 units ranging from 1,800 to 3,600 SF. They break ground without any signed leases, delivering vanilla shell units 14 months later. Pre-leasing begins at foundation pour, and they achieve 70% occupancy within 6 months of completion.