Here’s a statistic that really shouldn’t surprise anyone who has ever been involved in the site location process: roughly three out of four expanding companies that open up a new manufacturing or distribution facility end up moving into an existing building.
This may seem counterintuitive, given the seemingly endless array of heavy construction equipment busily converting farmland into industrial sites on the outskirts of every town in America but, in fact, that scenario is more the exception than the rule.
Why? Because it is also axiomatic that, by the time most companies get serious about selecting the best site for their next major facility, their preferred occupancy date is yesterday, if not six months ago. In other words, most don’t have the time to go through a long, drawn out process of permitting and building a facility from scratch … and that means finding a suitable existing building and modifying it as necessary.
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There’s a fairly simple way for those companies to narrow their search somewhat by first identifying cities with an above average inventory of commercial and industrial property. Typically, those markets also have lower prices, as well. |
Given the fact that time — or, rather, the lack thereof — is usually a overriding factor in most site location searches, it’s important to be able to bring some sort of strategic order to the process, particularly if the site search involves multiple states.
Fortunately, there’s a fairly simple way for those companies to narrow their search somewhat by first identifying cities with an above average inventory of commercial and industrial property. Typically, those markets also have lower prices, as well.
For the past eight years, we have published our list of the Top 40 Real Estate Markets in the U.S. by looking at the commercial and industrial real estate market from the perspective of the corporate executive looking for an available building or property not as an investment, but rather as a site for a manufacturing plant or distribution center or regional headquarters or other such application.
It’s a list guaranteed to give any commercial real estate investor nightmares: a ranking of metro areas where low prices and high vacancy rates come together to create ideal opportunities for expanding and relocating companies to save money on their real estate costs.
Topping this year’s list of the Top 40 Real Estate Markets — from the perspective of companies actively engaged in the site location process — is New Orleans, La., followed by Tulsa, Okla., El Paso, Texas, Birmingham, Ala., and Oklahoma City, Okla.
Rounding out the top 10 are Columbus, Ohio, and Dallas, Texas, followed by San Antonio, Texas, Greenville-Spartanburg, S.C., and Memphis, Tenn.
As in years past, the primary sources of data for the Top 40 Real Estate Markets ranking are The National Real Estate Index (NREI), which is produced by Global Real Analytics (www.nrei.info), for the 1st quarter of 2006; Grubb & Ellis’ Office Market Trends and Industrial Market Trends (www.grubb-ellis.com) for the 2nd quarter 2006; and RS Means’ 2006 Construction Cost Index (CCI), a product line of Reed Construction Data (www.rsmeans.com). For the most up-to-date and detailed information on a specific metro area, you should consult those companies.
First, we compared the square footage purchase price for CBD and suburban office space for the 1st quarter of 2006, as well as for industrial/warehouse and retail space. In this, as in all our calculations, lower prices were considered a good thing, while higher prices were considered bad.
To get a feel for the price volatility of the market in each of those categories, we looked at the purchase price for the 1st quarter of 2005 and compared it to the 1st quarter of 2006. Decreasing prices were considered a good thing, increasing prices bad.
Next, we compared the square footage lease costs for CBD and suburban office space, as well as for industrial/warehouse and retail space, and we also compared the 12-month volatility in lease costs.
We also compared vacancy rates in each of the above market segments, with high vacancy rates considered a positive feature and lower vacancy rates considered a negative.
Because existing building rarely match completely with the new owner’s requirements, it is always important to also factor in construction costs, even if they only involve modifications to the existing structure. As with everything else in these rankings, the lower the construction costs, the better.
Finally, in order to get a relative feel for the consistency over time of each metro’s rankings, we compared each metro’s average overall ranking in this study for the past three years.
See what I mean about this list being the absolute antithesis of how a real estate investor would measure the local market? That’s because these rankings are created from the perspective of you, the business executive looking for maximum choice at the lowest price.
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