August 26, 2016
Rising transportation costs and demanding service requirements are pushing companies closer to their customers. As a result, real estate decisions about distribution warehouses are increasingly crucial.
When it comes to supply chain optimization, companies must ultimately make site selection decisions that pin their strategy to the ground. JLL Industrial Research identified 32 specific metrics to evaluate and rank industrial market performance from a supply chain and logistics perspective. Important factors in the selection of distribution and warehouse location include population and demographics, labor availability, wage rates, energy costs, transportation infrastructure, the local industrial real estate leasing market, as well as local tax and economic incentive opportunities. All of these factors must be weighed in distribution decision-making.
The gap between supply chain strategy and real estate execution is real and exists today. As transportation costs escalate, sustainability increases in importance, and customer service requirements get more competitive – companies that closely integrate supply chain strategy and real estate execution will benefit the most.
Weighing the above mentioned factors in regions across the U.S., JLL Industrial Research has identified the nation’s Top 10 distribution markets.
1. New Jersey/New York Metro Area
Boasting the country’s highest population density and the East Coast’s largest seaport, the New Jersey/New York Metro area is a clear front-runner. Even with higher real estate costs, the region provides the diversity in site selection options, as well as labor availability that make it desirable for distribution networks. The location of this metro area allows it to serve other major cities and populations along the eastern seaboard and offers direct connectivity to another important distribution region, the Central and Eastern Pennsylvania market.
2. Southern California
Like its East Coast counterpart, distribution in Southern California benefits from a massive population base. The region however, does not offer major city adjacencies. Instead, population density thins significantly as you move away from Southern California markets. Even still, Southern California serves as the U.S. gateway for Asia Pacific trade through the Ports of Los Angeles and Long Beach. Because of this, the region serves as a hub for many goods from Asia distributed across the country. Warehouse and distribution real estate costs can be high, but the distribution submarkets of Los Angeles and the Class A big-box opportunities of Inland Empire make this region a mecca for distribution space.
3. Central and Eastern Pennsylvania
Just southwest of the New York/New Jersey metro area, is another distribution and supply chain heavy hitter, Central and Eastern Pennsylvania. The vast geographic area offers significant reach to other large cities and to a large U.S. populace in every direction. The region also offers a variety of transportation modes and a well-established transportation infrastructure. Advantages of the area over its two larger counterparts are the cost-effective basis for logistics real estate and more large-block development opportunities.
4. Chicago and Milwaukee
A central node for freight and cargo, Chicago and its satellite distribution market, Milwaukee, are a necessary supply-chain stop for many. A winner in terms of intermodal capacity, with Class I rail and other infrastructure benefits like the O’Hare International Airport, the area draws regionalized and large users looking to reach a vast geographic footprint. What it lacks is the broader population density of a New Jersey or Central PA market and the population growth potential.
5. Dallas/Fort Worth Metroplex
Due south of the number four distribution market is the Dallas/Fort Worth Metroplex. Not only does this region have a large population base, it’s also projected to grow by the greatest overall differential in the U.S. over the next five years. A relatively low cost labor force market and attractive pro-business environment make it a distribution destination for many companies. The Metroplex is home to Class A options at lease rates that provide savings over other major U.S. markets. Class I rail lines, an extensive interstate network and major air cargo capabilities connect it to other markets.
Coming in at number six, Atlanta serves as an anchor market for the southeast, connecting markets like Charleston and Jacksonville. Supply chains in this area benefit from connectivity to the Savannah seaport, the fourth most active container port in the U.S., as well as three Class I intermodal rail terminals. A strong pro-business environment and growing population bid well for the area’s future position as a logistics mainstay. Logistics real estate in Atlanta remains affordable, and development activity has been heating up in the last 18 months in response to continued demand for Class A space. Affordable land costs per square foot should support development as long as demand warrants it.
7. The Mideast (Indianapolis, Columbus and Cincinnati)
Each of these cities are geographically positioned to reach most of the country within a day’s drive. While they may not have the rail capabilities of other markets, these cities have the interstate connections and air cargo to give them a boost. In addition to the region’s infrastructure and connectivity to the rest of the U.S., the cost of living, favorable labor rates, and relatively inexpensive real estate benefit these markets.
8. The Mid-Atlantic (Baltimore, Washington, DC Metro, Richmond and Hampton Roads)
While the cost of living is high in this region, it also benefits from one of the highest median incomes in the country. The area enjoys inland connectivity to both the eastern seaboard and the Midwest. The region is home to several international airports, a strong network of interstate highways, rail lines, and a major seaport in Baltimore. Richmond and Hampton Roads do not have the populace on their own to stand out but they are able to reach other mid-Atlantic markets within a relatively short drive time. As a whole, the region is expected to see some significant population growth by 2020.
9. Southeast Texas (Houston and San Antonio)
Although not as centrally located as its Metroplex neighbor to the north, Southeast Texas is increasingly becoming a distribution destination for reasons of its own. Houston itself boasts an extremely large and growing population pool. It is also a major port market particularly for energy, commodities and breakbulk product. San Antonio’s expected population growth and median hourly wages make it a market to watch in the future.
10. Honky Tonk Triangle (Louisville, Memphis, Nashville)
Rounding out the top ten is the greater Louisville-Memphis-Nashville market. The region has the most Class I rail lines in the country outside of Chicago and its transportation infrastructure position it as vital logistics junction. Home to major logistics and distribution centers like FedEx’s global “SuperHub” and the central home for UPS, the region is sure to remain an important link in U.S. supply chains.
To learn more about the top distribution markets in the U.S., click here.