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Via Bisnow 

As major U.S. companies look to capitalize on international freight connectivity and industrial growth, many are zeroing in on Middle America over coastal gateway markets.

Millions of square feet of warehouses are under construction in Memphis, as well as in other cities like Cincinnati and Fort Worth. All have airports with major cargo capabilities.

Amazon, FedEx and UPS have all announced multibillion-dollar expansions in these and other inland markets to capitalize on existing transportation hubs. Developers and e-commerce companies are now following freight, spurring an industrial boom across America’s heartland.

“One of the reasons we see so much buildup around these inland ports is it cuts down on transportation time and transportation costs,” said James Breeze, CBRE senior director and global head of industrial and logistics research. “Transportation costs are the highest costs for a supply chain and any way occupiers can find to cut down on that cost they will, including building up around distribution centers.”

Memphis, home to North America’s busiest cargo airport by volume, has been FedEx’s corporate hometown since 1973.

Freight companies are attracted to the markets due to their central location and land availability to scale up international operations. The cargo connectivity is now having a spillover effect in the industrial sector.

“We are seeing uniform demand increases around sites with compelling logistical qualities,” said Andrew Iglowski, the managing partner and co-founder of Boston-based industrial investment and development firm The Seyon Group. “Sites that are effectively junctions of product distribution are overtly strategic and less replaceable.”

Nike’s 2.8M SF Memphis distribution facility is the athletic company largest in the world. Other companies — like Williams Sonoma, consumer electronics company Technicolor, and Amazon — have distribution centers in Tennessee’s second-largest city.

About 7.5M SF of warehouses is under construction for companies looking to tap into Memphis’ rich distribution resources, according to a JLL Q4 report. The Tennessee city is also the third-largest inland U.S. maritime port.

“Memphis’ geographic location, distribution and transportation assets — namely runway, river, rail and roads — are the biggest drivers in [Memphis International Airport] remaining America’s Aerotropolis,” Memphis Shelby County Airport Authority President and CEO Scott Brockman said.

Industrial demand may be the highest in coastal markets with large populations increasingly expecting next-day or even same-day delivery, but the demand and population density also push land costs up.

While inland markets may lack the population and income of Los Angeles, New York City, San Francisco or Boston, they have more available land at a significant value. Industrial rents in Memphis average just over $3/SF, according to JLL. In Cincinnati, warehouse rents average a little more than $4/SF. The price value and connectivity make the regions attractive to e-commerce distributors when many companies are looking to trim supply chain costs.

Logistics costs increased more than 11% in 2018, according to the Council of Supply Chain Management Professionals. Increased costs associated with trucking have made companies turn to alternative transportation hubs to reduce costs.

Developments happening close to the airfield are expected to fuel even more surrounding industrial growth.

FedEx is spending $1.5B to modernize its Memphis facilities, which process nearly half of the carrier’s overall daily package volume. The modernization plan includes a 1.3M SF sorting facility. UPS is expanding its Memphis International Airport facility by 266K SF as part of a planned $216M expansion.

Along with the Memphis expansion, UPS is also adding “super hubs” near existing transportation hubs in Eastern Pennsylvania, Tacoma, Washington, and Ontario, California.

Whether by air, rail, or sea, transportation center expansion is expected to continue to be the catalyst for U.S. warehouse growth.

Read the full article at Bisnow.