Why Savvy Investors are Turning to Second-Tier Industrial Cities
MyEListings' markets and economics editor and creates content about global macro events and their impact on US commercial real estate.
Second-tier industrial towns like Savannah, Charlotte, and Phoenix are drawing more and more interest from investors and tenants as the industrial sector continues to expand. These cities provide special benefits for commercial real estate prospects, according to latest Colliers research.
Industrial property in the US is undergoing something of a renaissance, as US interests in the world shift. Top-tier traditionally-industrial cities such as Chicago, Houston and New York stand to benefit relatively less than some of the up-and-coming tier-2 industrial cities. This is because the smaller cities are often better-able to be able to accommodate the needs of today`s smaller, nimbler industrial operators. As manufacturing capacity, in particular, gets re-shored or friend-shored, US consumers will have the luxury of the country`s industrial plant roughly doubling over the next few years, largely due to these phenomena and without the unnecessarily-long supply lines to which we have become accustomed.
Second-tier industrial cities have the ability to provide investors with rapid growth in addition to steady income. New construction and expansions are fueling demand for industrial real estate in Savannah, Charlotte, and Phoenix, which are all experiencing strong growth in their respective industrial sectors. These tier-2 cities each have particular advantages, but they also share some similar challenges.
Savannah
When it comes to lease rates for brand-new industrial properties, Savannah is at the head of the pack. Savannah has a higher average lease rate per square foot for new industrial properties at $6.57 than Charlotte ($5.87) and Phoenix ($5.36). This is a result of the region`s increased industrial demand, particularly from e-commerce and distribution center businesses. The demand for industrial real estate has increased as a result of the opening of large fulfillment facilities by Amazon and Target. The Port of Savannah, the third-largest in the nation, provides easy access to the region`s industrial infrastructure.
Due to its advantageous location, Savannah is a desirable place for both tenants and investors. The city`s coastal location makes it a prime spot for businesses wishing to import and export commodities. The Port of Savannah, also located in the city, and with over 20000 cargo vessels loaded and offloaded last year, serves as a significant hub for imports and exports. Because of this, Savannah is a desirable location for logistics and distribution firms.
Savannah also has to deal with some difficulties in terms of industrial real estate. The availability of land for development is one of the major drawbacks to development in the city. Despite the fact that there are still some sizable land parcels that can be developed, many of the most desirable locations have already been constructed or are currently being developed. Due to this, it may be challenging for businesses wishing to establish a presence in the area to secure acceptable locations for brand-new construction.
Charlotte
The market for industrial real estate is competitive and in high demand in Charlotte, on the other hand. The industrial vacancy rate in Charlotte is only 4.1%, which is much lower than the national average of 5.4%. As a result, rents for existing properties in the city have increased, making them a desirable choice for investors. Additionally, Charlotte`s existing industrial base is more than twice the size of nearby Charleston`s, which gives it a bit of an advantage in terms of what is available for new construction to plug into, of which over 4.5 million square feet are currently in progress.
Due to its robust workforce, Charlotte is a desirable location for investors and tenants. Several prestigious universities, like the University of North Carolina at Charlotte, are located in the city, and they contribute to the city`s consistent supply of highly qualified workers for the industrial sector. The city also has a robust transportation system, including an international airport and a number of important motorways. Because of this, Charlotte is a great place for logistics and distribution businesses.
Charlotte also has to deal with certain problems related to industrial real estate. Similar to Savannah, there are concerns about the availability of land for development, especially in metropolitan areas. In some regions, it can also be difficult to find qualified personnel due to a lack of labor availability and workforce training. This is especially true for modern manufacturing and logistics. History, however, is replete with examples of corporations overcoming workforce impediments to get their staffing needs adequately met.
Phoenix
When it comes to industrial real estate, Phoenix has a special advantage thanks to its location. Given its proximity to important transportation hubs like the Ports of Los Angeles and Long Beach, the city is a desirable location for logistics and distribution businesses serving the region. Phoenix also offers a lower cost of living than other important industrial cities, which may be a big draw for tenants. With investments from firms like Intel and Taiwan Semiconductor Manufacturing Company, the city has also seen a rise in the technology and semiconductor sectors.
Due to its advantageous location, sunny weather and dry climate, Phoenix is a desirable place for both tenants and investors. The city`s location in the southwest of the country makes it a great choice for businesses that wish to cater to clients in both Mexico and the United States. The city also has a robust transportation system, including an international airport and a number of important motorways, as well as infrastructure inroads such as energy trunk lines, rail and roadways which enable greater cooperation with the US` biggest trading partner, Mexico.
To Sum Up
Industrial property is undergoing something of a technology-enhanced renaissance in the US, and investors can take advantage of certain nuances by exploring the potential of second-tier cities for industrial property. These opportunities offer greater potential for returns, because new industrial construction is heavy on technologies that enable greater output with less input, and because the existing industrial bases in these cities are relatively small, so expanding them offers a greater degree of leverage than in a larger city with a larger installed industrial base. As the US doubles its industrial plant over the next few years, these properties in second-tier industrial cities could offer much better returns than their larger counterparts.
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