5 Emerging Markets for Industrial Development

Demand for warehousing, shipping, and distribution centers is creating new sweet spots for industrial development, according to a report from Colliers, which identified ten emerging markets for this asset class. Here are the first five. Look for our second article on this list tomorrow.

Austin. Rampant population growth continues to fuel record industrial demand. Georgetown and Leander – both in the greater Austin metro — were the two fastest-growing cities in the country last year at a 10.5% and 10.1% annualized rate, respectively.

Austin’s industrial growth was mostly driven by Tesla’s new “GigaTexas” automotive manufacturing facility and Samsung’s new semiconductor factory.

Ancillary manufacturers, suppliers, and third-party logistics (3PLs) “are all chasing a piece of the manufacturing pie,” according to Colliers.

Austin continues its reputation as a “final” destination for goods with final-mile deliveries supported by major distribution centers in nearby Dallas and Houston.

Supply began to outweigh the demand in recent quarters for industrial product. Vacancy remains relatively tight in all size ranges in the Austin market with a vacancy rate measured at 5.7% and 5% in flex spaces. The overall vacancy rate was 5.5%.

The outlook for 2023 is mixed, “as the market may have some quarters of negative absorption given the sheer volume of supply under construction – and many more projects in planning,” according to Colliers. “This new product should be absorbed in an appropriate time frame; however, the extreme levels of pre-leasing will wane, and the market will return to equilibrium.

Tight vacancy and high demand have driven rents significantly higher in the past two years. “Given the competition for tenants, rent growth will moderate as submarkets recalibrate to the new supply landscape,” the report said.

Charleston. It was an incredible year in 2022, and 2023 is anticipated to be even stronger as the next wave of development begins to deliver, according to Colliers.

A combination of 3PLs, manufacturers, and retailers shifting from “just in time” to “just in case” inventory strategies will lead demand higher.

The automotive sector (Volvo, Mercedes-Benz) is investing “substantial capital” in this market and the Southeast to accommodate the shift from internal combustion to electric vehicles.

The 52-foot-deep Port of Charleston allows the largest vessels to access the harbor, which plays well, along with a new terminal.

The state is investing billions of dollars to remove transportation bottlenecks in the interstate system to efficiently move goods from the port to their destination.

During the past year, the overall industrial vacancy rate fell 243 basis points, to a historical low of 1.9% for 2022 and developers are expected to continue to target Charleston for new construction due to the limited availability of space near its growing seaport.

Las Vegas. This industrial market continues to thrive despite a slowdown in investment and land sales over the last six to eight months. It’s seen record-setting lease rates and all-time low vacancy as Las Vegas has become a strategic West Coast distribution hub, according to Colliers.

Companies like its competitive tax structure and friendly business climate, as well as excellent access to interstates and highways, including the new I-10 linking Las Vegas with Phoenix.

Nearly 40 million are visiting the Las Vegas resort corridor, making it a crucial destination for the Valley’s logistics infrastructure.

“As developable industrial land comes off the market, developers are now looking north to Apex and south to the El Dorado Valley and Jean,” according to the report.

Overall industrial asking rental rates increased significantly at the end of 2022, to $14.40 per square foot, 24% higher year-over-year.

“The meteoric rise in asking rents is likely curbing the market’s appetite for space and impacting businesses facing economic headwinds, ranging from interest rate hikes to predictions of a recession in 2023,” Colliers said.

Memphis. On a three-year run, Memphis is “hitting on all cylinders,” having absorbed 12.5 million square feet to go with strong occupancy gains in its favorable central US location and home to Memphis International Airport, recognized as the busiest cargo airport in North America and the second busiest in the world.

It saw eight total Class A transactions, each topped 400,000 square feet or greater while top national developers continue to move dirt across the Memphis metro area, with 9.6 million square feet underway and another 20 million square feet proposed in four submarkets.

With continued user growth and the impact of Ford Blue Oval City in Western Tennessee, Memphis “is poised for growth in advanced manufacturing and logistics,” according to Colliers.

More than 27,000 companies have operations in Memphis, including over 400 trucking companies. Memphis is a market mover “with enough happening behind the scenes to make 2023 a top-five sales year for the market,” according to the report.

Raleigh-Durham. Here, vacancy remains at record-breaking lows, and the new industrial product continues to attract interest from a variety of diverse tenants as the demand for warehouse product doesn’t show signs of slowing.

Large developments continue to be announced as the Triangle region continues to expand, adding population and skilled labor. Many signs point toward it becoming an industrial hub for the Southeast in the future.

“As people migrate to the Triangle, companies in need of warehouse space follow for distribution and manufacturing,” Colliers writes.

This consistent demand has led to many developments across the region, notably in submarkets such as Johnston County or the I-40 / I-85 corridor, which connects Raleigh-Durham to Greensboro.

Plenty of developments should deliver in 2023, however, demand is strong enough to avoid a significant jump in vacancy rates.

Brokers are pleased that sales volume and price per square foot also increased for the fifth consecutive year.