Here’s where experts say the next warehouse hotspots will be

The ports of Long Beach (in Los Angeles County) and Newark have long cemented southern California and New Jersey as the top hubs for warehouse space in the US, and that isn’t likely to change any time soon.

But amid supply-chain challenges, e-commerce growth, shipping costs, and the lingering effects of the Covid-19 pandemic, the retail landscape is changing rapidly, and the warehousing industry is changing with it.

As companies scramble to build out their distribution capabilities, they’re taking into account labor supply, proximity to consumers, and cost per square foot. And they’re looking toward places like Phoenix, Las Vegas, Savannah, and Dallas as their next big warehouse hubs.

Warehouse realities

Warehouse vacancy rates around the country are extremely low, and in valuable Southern California, they’re at less than 1%, Melinda McLaughlin, SVP and global head of research at Prologis, told Retail Brew.

“It’s an environment of extreme scarcity and it’s very expensive,” McLaughlin said. She added that Prologis, which is the largest global developer of logistics properties, is seeing an increased “open mindedness” among its client companies about where they’re storing products.

2021 was a record-breaking year with over a billion square feet of industrial leasing activity in the US, James Breeze, global head of industrial and logistics research at commercial real estate company CBRE, said.

• 2022, is the second-best year ever, Breeze added. The amount of warehouse construction has doubled in the last 12 months, and there’s no fear of oversupply, he said.

The big considerations:

Chris Domby, chief supply chain officer at UPS company Ware2Go, said many of his customers are aiming to provide an Amazon-esque delivery option for consumers, meaning two days or less.

• There are cheaper locations where those speeds are still possible, Domby said. For example, companies can store inventory in Las Vegas and still get packages to Los Angeles and San Diego in a day, he explained.

Jason Murray, co-founder and CEO of logistics company Shipium, said that while real estate cost and proximity to customers are dictating the growth in new markets, labor is another important element.

• “It’s obvious that moving forward, access to labor will become the biggest factor in 2023 and beyond,” Murray, who previously served as VP of retail systems and services at Amazon, told Retail Brew via email.

Jason Miller, associate professor of supply-chain management at Michigan State University College of Business, said transportation costs are the main consideration in choosing warehouse locations. “Transportation is a much larger cost share than warehousing,” he told Retail Brew.

• From an economic perspective, companies want to offload their goods as soon as possible when they enter the country, Miller explained. It’s often still worth it to pay the high rent prices in Long Beach or Newark rather than transport long hauls from those ports, he said.

So, where are the emerging warehouse hubs?

Breeze said the next hot markets will either be where there’s a growing population, a major logistics hub—like a seaport or rail port—or a location where manufacturing is on the rise.

• Dallas/Fort Worth leads the pack for the most under-construction warehouse space this year, according to CBRE data.
  • The population growth of Texas and the flow of goods into the US from Mexico, in addition to the modernity of the new warehouse space, all make Dallas a hot spot, McLaughlin said.
• Savannah is another hot destination, in part because it’s one of the last seaport markets where there’s land left to develop, Breeze said, pointing to CBRE data ranking Savannah as the market with the highest growth rate in the country.
• Phoenix is for more than just snowbirds, ranking in CBRE’s top five for warehouse growth, construction, and existing inventory.
  • Breeze said the Phoenix region has graduated from “emerging market” to “top core market” as warehouse space moves east from Los Angeles.
• Las Vegas’s more central location makes it a great option for companies looking to offer quick turnaround times to West Coast population centers, Domby said.
• Pennsylvania’s I-78/81 corridor also makes CBRE’s top ten list for both under-construction square footage and existing inventory, and is taking over some of the demand for larger spaces that can’t be found in northern and central New Jersey, Breeze said.

Reigning champs: But despite the massive growth in different parts of the country, Southern California and New Jersey will always be the most desirable, Miller explained. Ultimately, companies will want to offload their goods as close to their point of arrival as possible.

“It’s not like these locations are going to somehow supplant LA and New York…At the end of the day, geography is destiny. You’re going to have major warehousing complexes outside the ports because of transloading. There’s no way around [that.]” —MA