February 12, 2021

The Importance of Secondary Markets in Industrial Real Estate

The Importance of Secondary Markets in Industrial Real Estate

Many states have partially or fully reopened. In theory, this would allow employees to return to offices in at least some capacity. However, nearly 42% of the American workforce was still working remotely at the end of 2020, with more than 26% expected to continue doing so through 2021. With many workers no longer tied to a physical urban office, many U.S. workers have left expensive population hubs to live in less populated areas. Many Americans left unemployed by the pandemic also left major American cities behind in search of work and more affordable living.

While this urban exodus will undoubtedly be temporary for some, a sizeable percentage of those who left metropolitan living behind will remain in their new location for the foreseeable future. The population influx has largely benefited industrial businesses located in secondary markets.

What is a Secondary Market?

Lower population cities within a reasonable distance of sizeable primary markets are called secondary markets. Examples would include Milwaukee, Wisconsin for easy access to Chicago, or Hoboken, New Jersey for its proximity to New York City.

Secondary markets have sizeable populations of their own, but not on the scale of their nearest primary market. They are also large enough to guarantee reliable rail service, major highway access, and fast internet. Most cities in this category have a number of colleges and technical schools, as well, ensuring that incoming businesses have access to a skilled and educated workforce.

The high-dollar price tags and low availability of properties in primary markets were an issue long before COVID-19 reared its head. Even before the pandemic, secondary markets had gained the attention of industrial real estate firms and developers for their abundance of affordable real estate.

The Land of Opportunity

Here are some industrial businesses that stand to benefit from the larger consumer population and more diversely skilled workforce now available in secondary markets:

  • Reshoring manufacturers. With 69% of manufacturers planning to bring production back to North America from abroad, reshoring businesses will need to find space for their various machine shops and assembly lines. Secondary markets will provide ample opportunity for manufacturers of all types as they seek to place more production assets back on U.S. soil.
  • E-commerce distribution. While the current e-commerce boom won’t last at its current levels forever, there’s little doubt in the minds of most experts that e-commerce will retain a much larger percentage of total retail sales than it held pre-pandemic. With no physical stores to hold some of their inventory, e-commerce warehouses require about three times the space of a warehouse that serves a standard brick-and-mortar retailer. Secondary markets provide opportunities for online sellers to expand their distribution footprint without sacrificing one-day and two-day shipping to primary markets.
  • Cold storage. The United States will need as much as 100 million additional square feet of cold storage space over the next several years. A surge in online grocery sales has strained the nation’s existing frozen and refrigerated storage assets, while COVID-19 vaccines requiring ultra-cold storage have been held up by a lack of appropriate storage facilities in key geographic areas. Secondary markets provide ample space and opportunity for building out America’s cold storage footprint.
  • Secondary markets are often prime locations for transloading facilities, rail yards, intermodal hubs, trailer drop lots, cross-docks, and various other types of transportation-related facilities. Rails and trucking thrive in secondary markets, which provide convenient access to at least one primary market and numerous other destinations.

As more people move to secondary markets and the rural areas that surround them, the industrial sector stands to benefit. Working with an experienced industrial real estate firm will help you to locate the best possible real estate for your industrial business.

About Phoenix Investors

Founded by Frank P. Crivello in 1994, Phoenix Investors and its affiliates (collectively “Phoenix”) are a leader in the acquisition, development, renovation, and repositioning of industrial facilities throughout the United States. Utilizing a disciplined investment approach and successful partnerships with institutional capital sources, corporations and public stakeholders, Phoenix has developed a proven track record of generating superior risk adjusted returns, while providing cost-efficient lease rates for its growing portfolio of national tenants. Its efforts inspire and drive the transformation and reinvigoration of the economic engines in the communities it serves. Phoenix continues to be defined by thoughtful relationships, sophisticated investment tools, cost efficient solutions, and a reputation for success.

Mr. Frank P. Crivello began his real estate career in 1982, focusing his investments in multifamily, office, industrial, and shopping center developments across the United States. From 1994 to 2008, Mr. Crivello assisted Phoenix Investors in its execution of its then business model of acquiring net lease commercial real estate across the United States. Since 2009, Mr. Crivello has assisted Phoenix Investors in the shift of its core focus to the acquisition of industrial real estate throughout the country.

Given his extensive experience in all aspects of commercial real estate, Mr. Crivello provides strategic and operational input to Phoenix Investors and its affiliated companies.

Mr. Crivello received a B.A., Magna Cum Laude, from Brown University and the London School of Economics, while completing a double major in Economics and Political Science; he is a member of Phi Beta Kappa. Outside of his business interests, Mr. Crivello invests his time, energy, and financial support across a wide net of charitable projects and organizations.

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