Site Selection for Land-Intensive Occupiers in Infill Areas

Key Concepts

  • Industrial properties with 30% or less improvement square feet compared to land square feet (“low coverage”) are increasingly scarce in metropolitan areas of the United States
  • Land-intensive industrial uses, which typically use low coverage industrial properties, can be challenging to entitle and therefore understanding zoning is critical to a project’s success
  • Successful site selection for land-intensive industrial occupiers typically involves a proactive approach to finding and securing suitable properties
  • The ability to compare the relevant internal and external data with a robust property search and indentification process exponentially increases the effectiveness of the site search

Availability of Low Coverage Properties

Finding available infill properties for land-intensive industrial occupiers is typically much more challenging than office, warehouse or manufacturing uses. Throughout most primary, secondary, and even tiertiary US industrial markets, low coverage properties are increasingly an endangered product type. With no more than 30% of their land area covered by improvements, low coverage properties have been developed into “higher and better” uses, subject to strict zoning regulations, and even turned into other property types.

Due to these challenges, site selection for land-intensive industrial occupiers must be designed differently to increase the odds of success. A successful site selection strategy for such occupiers incorporates the relevant internal and external sources of information with a proactive approach to investigate, target, and secure properties which align with company objectives.

The Proactive Site Selection Process

The site selection process involves multiple steps which ultimately lead to a desired site at the best cost/benefit ratio possible. Generally these steps are assembling project stakeholders, defining requirements, researching the market, analyzing potential options, negotiating, and acquisition. All these steps are important but I won’t be discussing all of them here. If you are interested, there are plenty of site selection articles in industry publications which discuss the site selection process in detail.

In any site selection search that has limited property availability in a desired area, such as the infill low coverage sites considered here, companies cannot follow the same playbook as a search for suburban office building or a dry warehouse and expect great results. Instead, I think there are two key areas where land-intensive companies should focus their resources.

First, firms should use internal and external data with GIS mapping platforms, such as Esri, to identify the areas in which they would consider a new location. GIS mapping technology can easily show customer locations, competitor locations, available properties, average real estate costs, zoning, labor, drive times, and more. A much better conversation can take place when stakeholders can see all the relevant information required to make location decisions.

Furthermore, it is especially effective to use GIS mapping when searching for properties that are difficult to find. Rather than just focusing on the location of currently available properties, via GIS mapping the stakeholders can determine:

A) the areas they would consider a location (“Areas of Consideration”)

B) zoning overlays within the Areas of Consideration which will allow their use (“Entitled Areas of Consideration”)

C) all properties within the Entitled Areas of Consideration which meet their minimum physical requirements (“Set of All Amenable Properties within the Entitled Areas of Consideration”)

D) all available properties, if any, within the Set of All Amenable Properties within the Entitled Areas of Consideration

E) then layer in additional data as needed.

The second key area I would recommend firms focus is actively marketing their requirement to owners of property within the Set of All Amenable Properties within the Entitled Areas of Consideration (Item C above), investor/developers, and brokers. This practice increases the odds of finding one or more suitable sites and can also create negotiating leverage with the owners of any sites currently on the market. The marketing can be done without divulging the company name, if helpful only indicating the basic requirements and creditworthiness to further entice landlords or sellers.

Marketing the requirement to owners is the inverse of what is typically done by an owner marketing its property. Similar to an effective property marketing program, a marketing program for an occupier can be structured in the same manner with marketing materials and scheduled follow ups being made to prospective landlords or sellers.

Another benefit of actively pursuing the key areas above is the trust it can build within the organization. Many site selection leaders experience the doubt expressed by others when available properties are difficult to find. By virtually exploring all the possible properties via GIS mapping and proactively marketing to those property owners, these leaders are able to show other stakeholders that no opportunities are being left “uncovered” and the organization is doing all it can to find a suitable site. This can engender trust in the site selection process internally and help prevent the dreaded “I see available properties everywhere. Why can you find one?” response many of us have heard.

INterchange 2019

I attended the Cushman & Wakefield industrial conference known as INterchange 2019 last week. As a recap, here are some of the interesting points I heard there:

Occupiers

  • Availability of qualified labor is a primary concern in site selection.
  • Tenants and landlords are investing heavily in developing or adding amenities which can help companies attract labor
  • Industrial firms may value certifications such as WELL which indiciate a higher standard of amenities and health for employees
  • Staffing companies which are compensated based on their ability to retain employees as opposed to finding them are gaining in popularity

Capital Markets

  • Opportunities for rent growth in smaller spaces, 50,000 square feet or less
  • Larger buildings (500K+) are less attractive investments since many investors do not want to allocate high levels of capital to a single investment
  • Yield pain in primary markets continues to lead to investor interest in secondary and tiertiary markets
  • Secondary and tiertiary markets often have lower yields than many new investors expect
  • Value add opportunities are seeing the greatest buyer pool
  • Core opportunities typically will see 5-6 offers
  • 3-7 year lease term is most desirable for investors
  • 10+ lease terms are discounted +/-25 basis points since investors
  • Investors want to be able to forcast their exit or increase in future value
  • With land prices approaching market building values, covered land plays are increasingly desirable

3PLs

  • Procurement is increasingly driving the bid process for 3PL customers
  • More 3PLs may look at strategic campuses of multiple buildings
  • Expect more merger and acquisition activity in the 3PL space
  • Shipping companies are aggressively expanding into the 3PL space

Site and Efficiency

Embed from Getty Images

According to the Merriam-Webster dictionary, efficiency is defined as “the ability to do something or produce something without wasting materials, time, or energy” 1.  Efficiency has an obvious importance to industry.  However, its level of importance to corporations can vary in respect to growth and other corporate priorities.   Recent studies have indicated that U.S. corporations are planning on investing capital to improve efficiency in their home countries and services to their current customers 2.

In employing such investments, industrial firms should strongly consider the role of its real estate site selection and improved performance.  In considering a specific site, the following categories and answers to key questions can have a significant impact on the operational efficiency of an industrial firm:

  • Location-How is the site’s access to highways, airports, incentive zones, customers, and suppliers?
  • Labor-Is there available labor? How favorable are the wages, organized labor rates?  What is the average education level?
  • Building and site layout-Does the building configuration and bay spacing meet standards for flow or manufacturing processes?  Does the site allow for present and future distribution and parking requirements?  Is there a potential to expand the building on the site?
  • Amenities-Does the clearance height and sprinkler system allow product to be stored in an efficient manner?  Is the electrical infrastructure currently sufficient and expandable to meet future requirements?  Does the building have fiber installed or available to the building?
  • Building tenancy-Single tenant versus multi-tenant?  Does the security of a single tenant building outweigh the flexibility of a multi-tenant building?
  • Number of Building(s)-Is it important to have a single building with no labor competitors nearby?  Would a campus/park environment be preferred for expansion options in the future?
  • Utility-How reliable is the energy supply to the building?  How do the energy rates compare to other sites?  Can the utility supply to the building be increased to meet future demand?  At what cost?
  • Tax and Incentives-What are the insurance rates?  Are the any employee training programs nearby?  What is the workers compensation insurance structure?  Are there any relocation incentives offered?  What is the municipal and state tax structure?

These categories and questions are by no means exhaustive and each individual firm will have its own priorities when it selects a site.  What is universal is the promise of increased efficiency when industrial firms make rational site selection decisions.


  1.  “Efficiency”.  Merriam-Webster.  Merriam-Webster, n.d. Web. 05 Apr. 2014 
  2.  “HBR Blog Network.” Harvard Business Review. N.p., n.d. Web. 07 Apr. 2014;  CFO SignalsTM: 2014 Q1 Results.” Deloitte. N.p., n.d. Web. 06 Apr. 2014