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Monday, April 15, 2024

Best Cities for Warehousing in 2023

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As the first quarter of 2023 comes to an end, industrial property is proving to be one of the most popular investment picks within the commercial real estate arena. 

Developers, buyers, and investors alike are seeing a growing need for industrial real estate, especially warehousing facilities, as international trade numbers are on the rise after years of disrupted supply chains and overseas COVID lockdowns.

However, the cities that have formerly been ideal for product warehousing may not retain their competitive edge going forward. This is due to global supply chain shifts as many businesses look for ways to avoid future shutdowns and labor issues.

The Introduction of “China Plus One”

Many U.S. companies are reducing their reliance on China by locating one or more additional countries as secondary product sources. This is called taking a “China Plus One” approach. 

Other companies plan to move production out of China and to another Asian country. For example, Apple has shifted some iPhone production to Vietnam, with some MacBook laptop production to follow.

Other companies that have followed Apple’s example, moving some production out of China to Vietnam, include Adidas, Nike, and Samsung.

Offshore to Onshore

Other U.S. based companies are making a decision to bring their production facilities back home after years of outsourcing to China and other Asian countries. 

Automotive giant General Motors, Intel, and US Steel are some of the biggest names opening new factories in America. 

All of these add up to some major shifts in global supply and distribution routes. How will this affect warehousing and related types of industrial real estate? Which cities will be best-positioned to profit from these moves? 

Here are our picks for 2023’s best cities for warehousing.

1. Charleston, South Carolina

Home to a deepwater harbor that handles over $72 billion in cargo annually, Charleston sees plenty of ocean carrier activity. This creates opportunities for warehouse and industrial investors.

Industrial property is currently in high demand, with vacancy rates at a low 1.8% and median sales prices of around $215 per square foot. Over 6.8 million square feet of new industrial construction is underway.

A development of particular interest to investors: Camp Hall, a state-of-the-art commerce park. Currently offering undeveloped tracts from seven to 600 acres, several warehouses are currently in development or construction here, including two modern spec warehouses built on 26 acres. 

The larger of the two Camp Hall warehouses will offer over 300,000 square feet of warehouse space with 30 dock doors, 20 trailer spaces and 375 vehicle spaces. 

Data for Q3 2022 recorded absorption for industrial space within Charleston was 809,832 square feet, with leasing activity at just under 800,000 square feet. Currently, there’s over 6.8 million square feet of industrial construction going on. 

The state of South Carolina is considered business-friendly, with a 2.50% corporate income tax rate that’s currently the lowest in the nation. Charleston’s employment growth rate is 1.65%, which is around three times the national average.

2. Nashville, Tennessee

A strong economy, a low cost of living, and low vacancy rates for commercial property have made Nashville popular with warehousing investors. 

Recently, Nashville was awarded first place as a CRE “Market to Watch”, according to the Urban Land Institute (ULI)’s 2022 Emerging Trends in Real Estate report. 

The vacancy rate for industrial real estate recently sank from 2.8% in 2022 to 1.2% in 2023, and the city’s average asking rents are at $6.62 per square foot. New industrial construction is currently underway, which will bring over 15.5 million square feet of new warehouses and distribution facilities to the market.

Another reason for investing in warehouse property: Nashville’s location. Over 40 million consumers are located within a 325-mile radius. Also, a truck leaving Nashville is within an overnight drive of over 70% of the American population, as it’s one of only six cities with three intersecting interstate highways. 

3. New York City

The business capital of the world, New York City will always offer opportunities for investors in all types of commercial real estate. Those interested in industrial and warehouse properties have serious investment incentives for 2023 and beyond.

One of these is the $500 million Bronx Logistics Center. Featuring a 585,000 square foot, two-level warehouse, the state-of-the-art facility is scheduled for completion by fall 2023. 

The project’s developer has described the new warehouse as ideal for supporting all types of tenants, while offering the same technology, amenities and access as new warehouses in other areas. It also offers a prime location next to the East River, an active freight rail station and four interstate highways.

The urban warehouse complex has another rare, sought-after advantage: parking for employees and customers, plus over 1,500 trailer stalls.

Other reasons for investing in New York warehouse properties include busy industrial leasing activity, with asking prices rising by over 30% for industrial space during 2022. Industrial inventory is at over 142 million square feet, which translates into opportunities for all investor interests and budgets. 

While New York business taxes are higher than our other picks at 6.50% to 7.25%, they are by no means the highest in the nation.

4. Atlanta/Savannah, Georgia

Atlanta developers have been planning the city’s industrial success for years, and their efforts are paying off. The city offers plenty of development potential and vacant land and is connected by interstate highway to the port of Savannah to the Southeast.

Even with new warehouses and distribution centers entering the Georgia market in 2023, demand still outstrips current availability. As of November 2022, industrial vacancies were at 2.6%, one of the lowest rates in the nation.

Currently, around 20 million feet of speculative industrial space is under construction in Atlanta, while similar developments have taken over 10 million square feet of similar space in Savannah. 

A local CRE executive described demand for Savannah warehouse space as record-breaking, with enquiries for everything from storage yards to import centers offering millions of square feet of space landing on his desk.

Additional industrial projects are in the works for the I-85 and I-985 corridors north of Atlanta. These include a 586,000 square foot industrial park near the town of Gainesville and a 2.2 million square foot logistics park in Jackson County. Both developments currently offer plenty of speculative space.

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