Critical Location Considerations for Industrial Real Estate
An industrial property's location is one of the most important determinants of its success. Keep in mind that different facilities have different considerations.
Start Your Application and Unlock the Power of Choice$5.6M offered by a Bank$1.2M offered by a Bank$2M offered by an Agency$1.4M offered by a Credit UnionClick Here to Get Quotes!While the location of any property — commercial or residential — is a key factor in asset value, industrial buildings have particular location requirements that can drastically impact operations, desirability, and an investor’s ROI.
Accessibility Is Key
The most important aspect of an industrial property’s location, particularly for a distribution center, is its accessibility to major highways. While most new distribution hubs are built alongside major interstates, even those nearby are worthy of additional considerations. The key question to consider: How easy is it for multiple trucks to get to and from the nearest interstate? If an 18-wheeler needs to navigate a series of narrow, winding roads to get to an asset, this could severely cripple a tenant’s ability to move goods efficiently, which could play into difficulties around leasing down the road.
While highways are, broadly speaking, the most versatile avenue for distributing goods, depending on the facility’s use, other nearby methods are worth consideration. For example, is a freight rail line in operation nearby? What about a nearby shipping port or intermodal hub?
What About Last-Mile Locations?
All that said, any location can be an advantage, depending on the use of the property. Consider the rapid growth in last-mile distribution centers in recent years. These buildings are generally located within major population centers, and as a result are often far from freight transport lines. However, they are being seen as increasingly valuable, especially as transportation costs typically are higher than leasing space closer to more consumers.
Related Questions
What are the most important factors to consider when selecting an industrial property location?
When selecting an industrial property location, the most important factors to consider are proximity and ease of access to major transportation corridors, such as highways, seaports, intermodal terminals, and freight railroad lines. Additionally, public infrastructure improvements in the metro area should be taken into account, as they can improve access to and from the property and drive value. Lastly, the demand for last-mile distribution space should be considered, as smaller warehouses in major metropolitan areas can be a cheaper option for tenants compared to renting one large space outside a city.
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What are the advantages and disadvantages of locating an industrial property in an urban area?
The advantages of locating an industrial property in an urban area include increased tenant demand due to proximity to major transportation corridors, public infrastructure improvements, and the potential for last-mile distribution space. The disadvantages include higher costs due to the higher land values in urban areas, as well as increased competition for tenants.
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What are the benefits of locating an industrial property in a rural area?
The benefits of locating an industrial property in a rural area depend on the type of industrial property and the needs of the tenant. Generally, rural areas offer lower land costs, lower taxes, and less competition for tenants. Additionally, rural areas may offer access to natural resources, such as timber or minerals, that can be used in the production process. Rural areas may also offer access to a larger labor pool, as well as a more relaxed regulatory environment.
For example, a rural area may be ideal for a manufacturing facility that requires access to natural resources or a large labor pool. On the other hand, a distribution center may benefit from being located near a major highway or port.
Ultimately, the best location for an industrial property depends on the needs of the tenant and the type of industrial property. It is important to consider the advantages and disadvantages of each location before making an investment.
What are the key considerations for selecting an industrial property in a suburban area?
When selecting an industrial property in a suburban area, there are a few key considerations to keep in mind. Proximity and ease of access to major transportation corridors is essential, as the volume of trucks coming and going from most distribution hubs requires relatively painless ways for semis to get from a highway to the building’s loading doors. Additionally, public infrastructure improvements underway in the metro area should be taken into account, as anything that improves access to and from the property will drive value. Lastly, the spike in demand for last-mile distribution space in the past few years should be considered, as a number of small warehouses in a major metropolitan area could be a much cheaper option for tenants compared to renting one large space in a mega warehouse well outside a city.
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What are the potential risks associated with locating an industrial property in a remote area?
The potential risks associated with locating an industrial property in a remote area include higher transportation costs, lower tenant demand, and limited access to public infrastructure improvements.
Transportation costs tend to be higher in remote areas due to the distance from major transportation corridors. This can make it more expensive for tenants to move goods in and out of the property. Additionally, tenant demand may be lower in remote areas due to the lack of access to major transportation corridors. Finally, public infrastructure improvements may be limited in remote areas, which can limit the potential for value appreciation.
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What are the advantages and disadvantages of locating an industrial property near a major highway?
The advantages of locating an industrial property near a major highway include improved access to and from the property, which can drive value. This improved access can lead to increased tenant demand and lower transportation costs. Additionally, having a highway nearby can be beneficial for operations, as it allows for semis to get from the highway to the building’s loading doors with relative ease.
The disadvantages of locating an industrial property near a major highway include increased noise and air pollution, as well as potential safety hazards due to increased traffic. Additionally, the property may be subject to increased property taxes due to its proximity to the highway.