As the United States continues to battle the ongoing pandemic, various trends have emerged in the area of industrial real estate. An e-commerce boom continues to drive demand for general warehousing and distribution space, while a continuing surge in online grocery sales has strained the cold chain and led to increased demand. This article will discuss industrial site selection and how it has been impacted by the COVID-19 pandemic.
Changes in Site Selection Priorities
In light of shifting demands and requirements, here are some changes in common industrial site selection trends and preferences.
- Financial incentives. Financial incentives from local governments and economic development agencies often lure industrial businesses into a region. Common incentives of this nature include tax relief and low-interest financing. In the wake of the pandemic, however, tax revenues are down, and state and local governments may not be able to afford the usual financial incentives they might typically use to attract new businesses.
- Labor availability. Prior to 2020, industrial business leaders had to carefully analyze the available labor pool of an area before breaking ground to make sure there would be enough workers to staff their new facility. Though state re-openings have put a lot of unemployed people back to work, national unemployment was still about 11 percent at the end of June 2020. Even rural areas currently have no shortage of unemployed laborers looking for quality work, which broadens the scope for industrial business owners when siting new locations.
- Location. Industrial businesses will still need to focus on access to transportation, such as major highways and railroads. The unprecedented rise in e-commerce means that the ability to ship quickly to key markets is now of increasing importance to retailers and e-tailers as they site new distribution and warehousing locations.
- Costs. Cheap land and cheap taxes have been key drivers of site selection for many years. This remains true for most manufacturers, but many e-commerce businesses and distributors are willing to pay more for space nearer to key markets that can help them improve the customer experience.
New Post-Pandemic Trends in Site Selection
The COVID-19 crisis has forced many industrial business leaders to reevaluate their real estate footprints. As the initial wave of coronavirus trends downward in most states, business executives are beginning to gain a clearer picture of what their real estate needs will look like in a post-pandemic world.
- More space. The impact of stay-at-home policies shined a light on the shortcomings of Just-in-Time inventory management practices. While holding enough inventory to last for several months simply isn’t feasible, most businesses have reexamined their current inventory management practices after experiencing stockouts and material shortages during the worst of the pandemic. A recent study from CBRE showed that manufacturers, wholesalers, and retailers are planning a 5 percent increase in held inventory moving forward, generating demand for an additional 400–500 million square feet of warehouse space nationwide.
- Repurposing. Many retailers have closed stores or gone out of business entirely. As commercial office leases begin to expire over the next decade, newly implemented remote work programs will result in a lack of lease renewals. All of that commercial space will need to go somewhere, which may cause property owners to convert unwanted commercial space into usable industrial space where demand remains high.
- Reshoring. As some industrial stakeholders focus on locating their assets on U.S. soil, convenient access to ocean shipping and air travel may become less important than it once was. This could be a boon for inland industrial hubs with good rail and highway access.
Site Selection Support From Phoenix Investors & Phoenix Logistics
Between Phoenix Investors and our affiliate Phoenix Logistics, we maintain a comprehensive and continuously expanding portfolio of industrial real estate that currently spans 22 states. We’re prepared to help you meet your increased demand with a new warehouse or distribution center staffed by our knowledgeable employees and optimized using our advanced warehouse management system. To see how we can help with your industrial site selection, please contact us.