Border Towns Primed for More Industrial Development

Increased trading by the US with Mexico and Canada and a drop in trading with China has created demand and propped up interest in developing new industrial space in border towns, according to a new report from Marcus & Millichap.

The US traded 12 percent more with Mexico year-over-year and 9 percent more with Canada. Activity with China fell 13 percent.

Cities that contain a border entry point, however, have smaller industrial stocks, suggesting demand will spill over into larger metros that are farther from the border but have greater regional connectivity.

A group of domestic and international companies is planning, or in the process of, nearshoring operations to North America, the report said.

The northeast Mexican state of Nuevo Leon in particular is gaining attention with Whirlpool, Hisense, Bosch, and Danfoss having opened or broke ground on new plants in the area, and Tesla, Brembo, Noah Itech, and American Woodmark are also building or planning factories in the state.

Marcus & Millichap said that in San Diego, industrial development is centered in Otay Mesa, where a new 10-lane border crossing is slated for 2024 completion.

Additionally, El Paso’s port of entry has received a $600 million modernization investment, a boon for the more than 3.8 million square feet of industrial space that was underway in March.

Elsewhere, Laredo, Texas’s pipeline equates to nearly 8 percent of its current stock, while roughly 8.5 million square feet is ongoing in Detroit.

There’s a ‘Perfect Storm’ of Fundamentals

Jason Richards, partner at Stos Partners, tells GlobeSt.com that while previously small in comparison to the number of imports coming from China, “the rate of growth in cross border traffic has grown tremendously during the past four years and well beyond expectations.”

He said it’s the result of a “perfect storm” of fundamental shifts in its favor.

“The first being the rapid growth of e-commerce over the last decade and its strong demand for more just-in-time product fulfillment and reduced transit times,” Richards said.

“Then next came the pandemic-driven dramatic supply chain disruptions and exploding costs to bring product in from overseas which deepened the need to have product nearby. Then add to that the current escalating geopolitical tensions with China which has taken near shoring from a good business decision to more of a critical one to assure minimal future disruptions.

“Meeting this growing appetite and demand has been challenging as the ability to deliver new supply is limited as a result of infrastructure deficiencies and resource challenges. This has resulted in rents and values nearly doubling in the past five years and a very bullish forward outlook.”

Stos Partners currently owns and operates over 1.5 million sf of industrial distribution product in Laredo, which is currently the largest commercial land border crossing in the US.

Marcus & Millichap said nearly 60 percent of investors plan to remain active in the first half of this year and have large volumes of capital to deploy.

The report said industrial assets are a preferred asset class because of tight vacancy and record-asking rent.

Marcus & Millichap offered San Diego, Detroit, San Antonio, and Seattle as top potential markets.