By Eric Voyles, executive vice president, chief economic development officer, TexAmericas Center
Whether you are considering moving your business to a new market, acquiring/merging with a competitor, adding staff or increasing your service lines, the risks of expanding an industrial business can be enormous.
But with careful research, smart decisions and adequate support, the benefits to taking the next step for your business can far outweigh any negative pressures.
For companies looking to expand, the considerations are extensive. Minimizing downtime and supply chain disruption are top priorities and planning ahead can help overcome those pitfalls. Consider these factors when making your decision:
3PL Support
For many businesses, it will be the help of third-party logistics (3PL) services that will ultimately provide the best supply chain support and play the most pivotal role in helping reshape the world’s economy and allowing businesses to expand more confidently.
There are several trends that have led companies to 3PL services, which help them minimize risk and outsource elements of their operations. Warehousing, fulfillment services, transportation of goods and management of labor forces are all benefits that 3PL companies can provide.
Whether companies are manufacturing or distributing, they need flexibility. They are typically looking for locations with adequate labor supplies, great access to major transportation routes and existing physical structures or facilities.
A company that is testing a market or a concept might be looking to lease space. Outsourcing any of these requirements to a 3PL and having a trusted partner that can provide needed services in a flexible format is a great way to test a market.
Build or Lease?
When doing due diligence for an expansion, determine first whether you would best be served by purchasing an existing building or if a new facility designed to suit you is best.
Don’t expect to catch a price break either way. While sky-high steel and lumber prices are making costs of new construction more expensive right now, the lack of available space in major markets also has existing industrial buildings selling at premium prices.
Companies must also consider the minimum size commitment that their operations require, as well as how much space they expect to utilize. Industrial users should begin their property searches with those parameters in mind.
Many companies now find themselves in a scramble for industrial space. Industrial vacancy rates remain at an all-time low despite high levels of investment in new facilities. Throughout the country, there simply is not enough warehousing and manufacturing space available to meet this spike in demand and unique needs that have been highlighted and exacerbated by the pandemic.
In the past, elevated demand for e-commerce and centralized distribution space brought the industrial real estate market to a state within which companies operated enormous regional centers. With millions of square feet, these sites would service multi-state areas. Now, however, there’s significant risk to such large warehousing spaces. A COVID-19 outbreak could shut down a facility — and potentially stymie the flow of revenue from a multi-state region — for weeks.
Because of the pandemic, companies might instead opt for multiple, smaller sites, often in more rural locations and smaller metro areas. This strategy can help minimize vulnerability. Meanwhile, 3PL providers can alleviate the burden put on businesses that comes with managing multiple
properties.
Consider New Transit Avenues
As of 2022, supply chain disruptions are ongoing due to an array of factors, including limited storage space for elevated volumes of product that are passing through ports whose waterways are congested and backlogged.
Another critical factor is turmoil in the trucking industry. The trucking workforce has decreased and evolved such that many drivers don’t want to pursue long-distance, over-the-road trucking, or deal with regulations and restrictions that can slow down the movement of goods. Rising prices for fuel are further compounding issues in this industry.
For these reasons, rail transit might be a good option for some users to consider. Trains can carry four times the volume that trucks can, and they can do it for less money, thus improving consistency and reliability.
TexAmericas Center (TAC) is gambling on the future of rail in America — and we’re confident this is a good bet. Just last year, TAC purchased the assets and contracts from Lone Star Rail Car Storage Co. and hired railroad industry veteran Darrell Thompson as general manager of railroad and transload operations.
In addition, TAC was recently awarded an $864,550 grant from the U.S. Economic Development Administration to construct new rail facilities and refurbish those that are already in use.
If industrial users have multiple trucks entering and leaving their facilities on a daily basis, they may need to locate their properties within two miles of a major interstate. If a company doesn’t ship nearly as much product, it can opt for a less expensive building that’s further away.
In either case, tenants must ensure that there are 80,000-pound truck routes leading from the gate all the way to the interstate.
If a property is truly development-ready, end users can begin construction much sooner. Companies don’t need lengthy delays while the entitlement, infrastructure, utilities and transportation requirements are put into place.
Other features of modern industrial buildings to consider include the number of dock doors, height of ceilings and the amount of outdoor acreage for additional storage or trailer parking. Whatever the case, users must avoid paying a premium for amenities that simply aren’t useful to their core business needs.
Eric Voyles, TexAmericas Center
If a tenant is debating between two properties, and one is a bit tight while the other is a tad large — go big — and factor in the potential for growth over a five-to-10-year period.
Once a tenant is already established in its building, there’s no need to be so landlocked that the need to move again arises. The direct cost to move machinery, as well as the indirect costs of losing people and experiencing disruption to production, is simply too high.
Many developers will negotiate with tenants to give them access to additional acreage for several years, with the option to decline or accept that land later. At TAC, we build this philosophy and operating principle into every transaction.
Lastly, the presence of restaurants, hotels and nightlife venues, which might not seem critical to industrial builds, actually is a key consideration.
Keep in mind that some of your employees will want to go out to lunch, and that clients will need a place to stay for site visits. Traveling executives will likely look for evening entertainment after their meetings.
Ultimately for you and your employees, happiness at work and in life matter, and the inclusion of these uses can go along way in making that vision a reality.
— Eric Voyles is the executive vice president and chief economic development officer at TexAmericas Center, one of the largest mixed-use industrial parks in the Americas, with 12,000 acres and 3.5 million square feet of commercial and industrial property. This article originally appeared in the June 2022 issue of Texas Real Estate Business magazine.