Industrial Development Site Selection Questions
Interested in gaining insights into how industrial developers make "go or no-go" decisions during their initial assessment of a site.
When evaluating the basic factors such as market conditions, supply/demand fundamentals, demographics, zoning/land use regulations, location and proximity to transportation networks, topography/environmental, are there potential blind spots for someone transitioning from acquiring existing assets in other property types? For instance, does a site still check the box of being well-located if it's near major transportation networks but requires a 15-minute drive to reach the nearest on-ramp? I understand that market specifics will most likely play a significant role when evaluating some of these items. Apart from these aspects, what else are you paying the most attention to?
Any tips for quickly assessing availability and capacity of utilities or understanding cost/feasibility to extend utilities to site, if needed? Or is this primarily verified during DD? Also, any guidelines for quickly understanding if the site size/configuration works?
Lastly, when entering a new market, what is your approach for estimating project costs?
Ah, swinging from the trees of industrial real estate, are we? Let's peel this banana layer by layer.
When it comes to industrial development site selection, developers often have a checklist that's as detailed as a monkey's grooming habits. Here's what they're looking for:
Market Conditions & Supply/Demand Fundamentals: They're sniffing out the market like a banana at lunchtime. They want to know if there's a hunger for industrial space and if the supply is low enough to make their development the go-to snack.
Demographics: While not as critical as in retail, they still want to ensure there's a workforce that can swing into action nearby.
Zoning/Land Use Regulations: This is the jungle gym of development. They need to know if they can build what they want, or if the local laws are more tangled than a vine in the canopy.
Location & Proximity to Transportation Networks: Close to highways and ports? Great! But if it's a 15-minute drive to the nearest on-ramp, that could be a thorn in their side. They'll weigh this against other factors like cost and availability of land.
Topography/Environmental: They're looking for solid ground, not a swamp. They'll also consider if there are any environmental issues that could turn into quicksand for the project.
Utilities: They'll want to know if the site has the juice they need—electricity, water, sewer, gas, and telecom. If not, they'll estimate the cost to bring these utilities to the site. This is often verified during due diligence (DD), but a quick call to local utility companies can give a rough idea of availability and capacity.
Site Size/Configuration: Does the site fit their building plans, or is it as awkward as a gorilla on a unicycle? They'll look at the shape, size, and any easements or encroachments.
When entering a new market and estimating project costs, they'll do some serious digging:
Remember, every site and market is as unique as a monkey's fingerprint, so they'll tailor their approach accordingly. And when in doubt, they'll consult with local experts who know the lay of the land. Now, go swing into that industrial jungle with confidence!
Sources: Industrial Properties - What are the key things to know?, Q&A: Architecture to Real Estate Development, Real Estate Trends (All Asset Types), Value creation in different RE property types, Moving from Appraisals to REPE Acquisitions?
Site work is a big deal for ground-up industrial. It costs a lot in absolute terms (because the building footprints are big and need to be level) and in percentage terms (because the vertical construction is cheaper than in other product types). Site work is part of construction where you're most likely to get hit with unexpected costs, and swings will affect the overall project returns.
Look at wetlands, topography, soils, etc. Do you have structurally unsuitable soils and need to import a lot of fill? Do you have a lot of ledge that needs to be blasted? Where is the water table- if it's too high you'll have a variety of issues. Etc. Seek input from a GC or site work sub before you get too far along.
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