Industrial Development Returns to the Rails

Tags: Site Selection, Rail, Logistics, Supply Chain

The United States’ inadequate supply of Class A industrial space located close to international shipping facilities adds complexity and cost to distribution networks. With sky-high land acquisition and development costs, and limited land availability around the busiest ports, companies are forced to scatter operations in several smaller facilities or pay premium prices for adequate space.

Companies with sophisticated logistics needs are searching for a solution to bypass these increasingly expensive port areas.

Led by a new crop of innovative executives and real estate professionals, modern Class 1 railroads are responding to these demands and spearheading substantial rail-oriented industrial development projects across the nation.

These projects combine rail efficiency with lower land costs and ease of development to help industrial users solve the shortage of well-located, industrial space. The lower costs also allow developers to create larger industrial parks than they could in areas near the ports at a fraction of the cost, while still enjoying access to interstate and international shipping options via rail lines.

With construction starting in 2018, Kansas City Southern’s (KCS) Southwest International Gateway Business Park in El Campo, Texas, will take the rail-oriented development project to the next level. Financed and owned by Stonemont Financial, with development by the Ridgeline Property Group, the project will bring to the market approximately 8 million square feet of Class A logistics-oriented industrial space on a 548-acre site.

Access to International Rail

It will also provide unrivaled access not just to the United States via KCS’ line running to the St. Louis terminal, but also direct international rail service via KCS’ line running down to Mexico’s ports.

The project will provide U.S. companies the opportunity to streamline exports. It will also enable U.S. companies and consumers to more easily access foreign raw materials and finished goods to facilitate enhanced economic production.

The El Campo project is a perfect distillation of the factors that play into a successful rail-oriented development project. Most importantly, the town lies directly on an existing Class 1 freight rail line. Access to the more than 41,000 miles of freight rail across the United States is a crucial first step in securing prime locations for rail-oriented development.

Another important factor in these projects is land and development costs. Currently, an 8-million-square-foot project near the nation’s two busiest ports—Port Elizabeth in New Jersey or the Ports of Los Angeles/Long Beach—would be difficult and costly to pull off, despite market demand for the space. With significantly lower acquisition and development costs in a place like El Campo, developers have more flexibility in the size and type of projects they can execute.

Many companies with export/import needs are moving to U.S. regions that offer a lower cost of doing business and fewer regulatory burdens, and placing operations near these new, highly efficient rail-oriented properties.

The pace of rail-oriented development will only increase as companies look to create more efficient and less costly logistics networks to meet the needs of a high-speed, global economy.