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There’s No Space Left In Cities Like Laredo As Industrial Breaks For The Border

When representatives from Laredo, Texas, go to industry shows, they tout the city's trade opportunities with Mexico, its low cost of doing business and a young, eager workforce.

But companies interested in snagging space in Laredo have come across an issue hitting other border towns that have sold themselves too well: There's no industrial space available in the city. 

Downtown Laredo, Texas

"We have all these properties being developed — horizontal developers, vertical developers, but right now the inventory is effectively zero," Laredo Economic Development Corp. CEO Gene Lindgren told Bisnow. "So, there are millions of square feet of facilities that will be available over the next year or two. But for those that are looking for something right now, we got nothing to offer."

A flood of companies looking to nearshore operations amid prolonged supply chain disruptions have driven the city's vacancy rate somewhere just north of 1%, less than a quarter of the 4.7% national average, per Yardi Matrix.

Enrique Volkmer, a Laredo native and resident who works as a broker at Keller Williams in San Antonio, can count Laredo's land under development off the top of his head.

Counting aloud, he estimated there are 4,000 acres under development or ready for development in the city, but they are all owned already. Similarly, he said, virtually all of Laredo's industrial space under construction is already leased. 

"People are leasing or submitting a letter of intent a year before they're done," Volkmer said. "Forget about sold. I think it's the same turnaround time. We recently listed an 80K SF, it was an old warehouse, and we had seven offers, and they went [20%] above list price."

Laredo, a Texas border city with a population of about 300,000, experiences commercial traffic that Lindgren said is more akin to a national hub like Dallas, and the area has seen commercial activity steadily rise over the last decade, only stumbling briefly from the coronavirus.

It is a similar story in the Borderplex region of El Paso-Juárez, where industrial vacancy sits at 1.5% on the U.S. side of the border and 0.7% on the Mexican side, per CBRE, and in markets like California's San Diego-Otay Mesa, where vacancy is under 3%, according to Marcus & Millichap.

Laredo has seen about 43% population growth since 2000 and signed $177M in capital commitments last year. With little concern about jumping through hoops to attract business, Laredo is focused on how fast developers can build to meet demand.

The answer, sources told Bisnow, is not nearly fast enough.

Cargo delays at the port of Long Beach and Los Angeles, pictured here, have spurred a run on the border for companies hoping to nearshore their supply chains.

The key to Laredo's appeal is in its position on the Texas-Mexico border, connected to sister city Nuevo Laredo in Mexico, a position that has only become more relevent as congestion mounts at major U.S. ports and lengthy supply chain snags juice demand for moving goods through Mexico and South America via border towns in Texas and California.

Other border towns along the Rio Grande River have gotten more attention in recent years, including Brownsville's Space X-fueled boom.

But Laredo, historically the largest land port in the U.S., is an exploding hub of warehouse and industrial activity. Among the roughly 15 nationwide points of entry along the U.S.-Mexico border, Laredo sees 56% of that activity, with millions of trucks passing through each year. 

“Laredo is one of the most established border crossings for trade between the United States and Mexico, which is why the vacancy rate for industrial space is below two percent and rents are up more than eight percent,” Realterm Managing Director and fund manager Ed Brickley said in a release earlier this month announcing a new transload warehouse in the city. “Land is becoming scarce in the industrial areas closest to the border."

The growth and appeal of the city have seen companies build facilities there to complete logistics, distribution, manufacturing and other functions they would have previously undertaken once they reached a larger transit hub, usually Dallas. 

"That's the beauty of Laredo, that it has a geographical advantage from being in the center of Mexico, being in the center in the United States [border]. We can do anything here," Volkmer said.

New attention over the last year has included Realterm's warehouse, Majestic Realty committing $1B in warehouse development for Laredo, including a 1,992-acre master-planned logistics park, Port Grande, and avocado distributor Mission Produce opening a giant new distribution center.

“We think there will be big growth between Mexico and America,” Majestic Realty CEO Reon Roski told Bisnow late last month.

Twice this spring Laredo surpassed Los Angeles ports for value of goods coming into the United States.

Even Covid-19 couldn't slow the city down, with the rush to import goods like toilet paper resulting in a new 100K SF facility to import Mexican toilet paper. 

"Some during Covid thought the world would end. Laredo just got pumped, because people wanted more [goods]," Wolkmer said. "People wanted more and wanted more. A lot of what we do [in Laredo] is automotive. You still drive by dealerships, and there's no cars. The majority of them are being manufactured in Mexico. Laredo just doesn't slow down."

Laredo's working population, according to both Volkmer and Lindgren, is overwhelmingly Latino and is younger than the national average, 29 versus about 38. They both describe a tightknit, hardworking community, about 30% of which works in the industrial sector. 

"Some people will still rightfully say that we're a binational community like no other," Lindgren said. "Laredo is separated by a river, but it's just one community. People live, shop, dine on both sides without even thinking." 

U.S. Customs and Border Protection check trucks inbound from Mexico at the World Trade Crossing International Bridge in Laredo. The bridge is the most important truck crossing on the U.S.-Mexico border.

All the relocation to the border, along with nationwide construction material price hikes, is seeing industrial development become more expensive.

Existing industrial buildings now lease for about 60 cents per SF, while new buildings lease at about 74 cents per SF, both triple net, according to Volkmer. That is priced similarly to Houston's asking rents. New homes, too, have risen about 38% in cost from 2020, according to Volkmer, who also represents homebuilders. 

But he added that wages have gone up, making the pinch a little easier on residents. Laredo unemployment midway through 2022 is nearly half what it was in 2020, closer to 2016 figures, according to city data.

In June, the U.S. Economic Development Administration granted $1.5M to Laredo to fund the 2-mile Springfield Avenue Extension, opening a new commercial route to serve approximately 170 acres of badly needed industrial land.

Even more infrastructure spending is on the way, with Lindgren estimating that $660M will be spent to boost the city's booming industrial market over the next four years.

“Specifically, this funding will be used to extend a road almost 2 miles and support hundreds of temporary jobs,” U.S. Rep. Henry Cuellar, who represents Texas' 28th District, said in a release. “I will always fight for additional federal funding that brings jobs, and business opportunities, to my hometown."

Volkmer said the future of Laredo as it tries to achieve supply-demand balance will include a lot of playing catch-up. Left with a vanishingly small number of move-in-ready industrial properties, economic development officials end up showcasing existing, leased property — a process Lindgren likened to touring a model home.

The city is small, he said, and not for everyone, but he said he welcomed the growth that will eventually come its way.

"There's this beautiful community when you see past our heat or [that] we might be missing a couple of restaurants," Volkmer said. "We have something beautiful going on in our city."