Move Over Gateway Markets. Here Are The Latest Industrial Hotspots
Inland Empire, Miami, the NJ corridor and other gateway markets have traditionally been the major markets for the industrial asset class. But other secondary and tertiary markets are growing in importance and attracting new investment, as costs, capacity and production patterns drive new activity in previously lesser-loved markets. What makes for a hot emerging market? Ranking methodologies and criteria vary, but there are a few unifying factors. Jennifer Suhr, associate director, industrial and logistics research, for CBRE, explains what’s behind CBRE’s Top 10 Industrial Markets Q1 2023 report. “Some dynamics that make up our emerging markets (may include, but are not limited to these aspects) are those located near growing population centers, those within close proximity to ports/airports/good rail connectivity and/or elevated levels of consumers with certain radii parameters, well-connected transportation routes and markets where we’re witnessing increasing industrial occupier/investment activity,” she says. One metric CBRE uses is a “growth rate” taking into account a market’s YTD net absorption divided by its total industrial inventory. That percentage provides insights on markets seeing industrial growth relative to the size of their own market. CBRE’s top markets by growth rate, in descending order, are: Savannah (3.9%), Louisville (2.0%), Indianapolis (1.9%), San Antonio (1.6%), Pennsylvania’s PA I-78/81 Corridor (1.4%), Memphis (1.1%), El Paso (1.1%), Phoenix (1.1%), Reno (1.1%) and Las Vegas (1.0%). COSTS COUNT TOO Cost is a driver too. Carolyn Salzer, director and head of industrial research for the Americas at Cushman & Wakefield, points out that the attractiveness of a market is subjective to the type of occupier involved. Amazon, Walmart or Target, for example, are already located in most markets where they need to be so they are probably not moving around. But newer retailers that are working with a 3PL to start establishing their distribution network may need to move these emerging markets, especially with some of the more established or proximate markets being too expensive. “A lot of these emerging markets are a lot more inexpensive, in terms of rents. Real estate costs in terms of the whole supply chain are still only about 7 to 10%, whereas transportation or labor are the 30 to 50%,” she says. “So being able to find a more affordable real estate option, proximate to a good labor force or being well located for transportation is definitely going to be a big factor among those emerging markets.” A BUSINESS-FRIENDLY ENVIRONMENT Colliers’ report “10 Emerging U.S. Industrial Markets to Watch in 2023” highlighted the merits of Austin, Charleston, Las Vegas, Memphis, Raleigh-Durham, Reno-Sparks, Richmond, Salt Lake City, Savannah and Stockton/Central Valley. Stephanie Rodriguez, Colliers’ national director of industrial services, says there are a few prevailing themes when sizing up emerging markets. First among them is accessibility to infrastructure, whether that’s rail, a port system or highway convergence. Another is population growth. “I would say that having a very friendly business climate has also been important to some of these markets where we hadn’t seen so much activity prior. Another would be lower costs — being a lower cost alternative to some of the tier one markets is another driving force,” she says. WEST COAST ALTERNATIVES Low vacancy rates, capacity constraints and labor issues at West Coast ports have occupiers and logistics providers looking for alternatives, which is opening opportunities for smaller markets to compete. “The Inland Empire and a lot of the Southern California markets even have development moratoriums right now because of nimbyism, so that’s forcing people to look at other places like Las Vegas, the Phoenix area, and some of those other markets because there’s just no product available and there’s not that much being developed in some of them right now,” Rodriguez says. Las Vegas has several factors that make it a resilient market for investors and occupiers, according to JLL’s Industrial Outlook report: Twenty-five percent of the U.S. population is within a two-day drive, it has competitive labor rates and real estate remains attainable. “Despite increased capital costs and elevated construction costs, Las Vegas has an extensive pipeline to meet ongoing demand,” it says. The market is currently characterized by continued positive absorption, persistent low vacancy, significant growth in leasing activity and more new construction. In Reno, occupancy gains reached 6.7 million square feet in 2022 and vacancy hit a record-low rate of 0.6% in the middle of last year though has since started to float back up. And in Las Vegas, industrial net absorption totaled 7.4 million square feet in 2022, down from the high-water mark of […]
