Five Important Factors When Considering Warehouse Site Selection

By Mike Paleo & Alex Foley

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Key Takeaways

• Warehouse site selection is the process of evaluating candidate locations across proximity, transportation, labor, real estate cost and the regulatory environment to minimize total occupancy cost while preserving room to scale.
• Transportation accounts for ~50–60% of total U.S. logistics costs (CSCMP State of Logistics), meaning location is one of the highest-leverage cost decisions a distribution business will make.
• The five core factors are proximity, workforce, transportation access, real estate cost and building scalability. Four factors most lists miss are zoning/regulatory, infrastructure (power & connectivity), safety/security and local market trends.
• Foreign Trade Zones can deliver duty deferral, duty elimination on re-exports and inverted-tariff relief. High relevance in the current tariff environment.
• The U.S. industrial market is more tenant-friendly than it has been in years. Inland Empire availability has more than doubled since pre-Covid levels, and subleases can often be had at 20% to 30% below market asking rents. Leverage is real for tenants who run a real process.

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Selecting the perfect warehouse location is a multifaceted endeavor that goes far beyond typical space considerations. Whether you’re embarking on a lease agreement or making a long-term investment in a property, warehouse site selection is a critical component of your company’s competitive advantage. A comprehensive supply chain model encompasses all possible flows and facilities. Additionally, it will present various network configuration options, highlighting those with the lowest costs, enabling you to select the most suitable one for your business needs.

Five Core Factors When Considering Warehouse Site Selection

At Hughes Marino, we have identified five critical factors to consider when performing a site selection analysis to identify the right industrial warehouse for your business. Proximity to suppliers and customers, consideration of access to transportation networks, the regions availability of a skilled workforce, and real estate costs and availability must all be considered.

1. Proximity to Suppliers and Customers

Choosing a location that is strategically positioned near your suppliers and customers can yield significant benefits in terms of reducing transportation costs, improving delivery times and fostering stronger relationships with key stakeholders.

A warehouse’s location impacts a business’ success across a number of measures—and one of the key considerations is the proximity to a business’ customer base and suppliers. In the era of instant gratification, which has driven the need for next-day delivery, customers expect fast turnaround on orders, and meeting those expectations requires strategic planning when it comes to selecting a warehouse location. Time and transportation requirements will drive up costs as well—so decisions around location need to consider the ease with which goods can be transported in and out. If goods are typically being moved via ship, a port-adjacent warehouse may be ideal. For businesses delivering goods and fulfilling online orders to inland markets, proximity to a major parcel transit hub like the Memphis Intermodal Facility or DFW International Airport will streamline operations. Other considerations that can impact shipping times include proximity to carriers with terminals and, if that’s not possible, easy access to major highways. As part of this consideration, a business should make sure to take into account the local weather patterns and risk of natural disasters, and how those events will impact operations and their ability to deliver on-time.

2. Workforce Availability and Labor Costs

A skilled and reliable workforce is critical for the smooth operation of any warehouse facility. Assessing local labor market dynamics, including availability, skills and associated labor costs can help ensure that your staffing needs are adequately met.

Understanding the warehouse’s workforce needs and ensuring that it is located in a market with a high number of skilled job candidates is key to a business’ long-term success. A state-of-the-art facility is of no value if there is nobody operating within its walls. Infill locations will ensure a larger local talent pool and proximity to transportation hubs, but typically demand increased rental rates, often time for older less superior product. It’s important to note that it’s increasingly challenging for businesses to find and retain skilled warehouse employees, especially since Covid, requiring not only considerations around location but also a willingness to offer competitive wages and other perks—including flexible schedules and benefits. If locating further from an urban center is the best option to reduce lease costs, businesses must consider how they will get workers to the site—and can look into employee perks such as public transportation allowances or commute rebates.

3. Access to Transportation Networks

Efficient access to transportation networks, including highways, railways, airports and ports, is essential for facilitating the smooth flow of goods in and out of your warehouse. Evaluating factors such as traffic flow, transportation costs and proximity to major hubs can help optimize logistics operations.

Understanding the geographical distribution of your customer base and suppliers can help optimize inventory management and distribution strategies. Accessibility to transportation infrastructure, including roads and highways, is crucial for ensuring efficient inbound and outbound logistics. Factors such as traffic density, congestion patterns and road quality should be carefully evaluated to minimize transportation costs and delivery delays.

4. Real Estate Costs

Real estate costs vary widely depending on factors such as location, property size, age and market demand. With high-cost, port-close markets like Los Angeles commanding higher rates, your team can consider more outskirt markets with newer and improved warehouses like the Inland Empire.

In practice, companies often have specific requirements that must be considered as constraints in the supply chain network optimization process. These constraints can include limitations on the number of facilities or annual step costs that remain fixed within certain ranges. Intentional supply chain network optimization aims to identify the best combination of factories and distribution centers to efficiently meet supply and demand while minimizing costs.

It’s also important for companies to consider the potential government incentives and tax credits available to new entrants to a market. Many states will offer hefty incentives to lure a business across state lines. These incentives can be significant and in many cases the state will not only offer tax credits, but sometimes they will even source the land and fund the construction of facilities.

Conducting thorough research and financial analysis can help identify cost-effective options that align with your budget and operational requirements. Comparing buildings and different markets from a total cost perspective helps accounts for the hidden costs, such as inventory and franchise taxes, as well as incentives that can offset those costs, including local tax benefits designed to attract new businesses.

5. Building Availability and Expandability

Ultimately, a warehouse is a critical part of a business’ long-term strategy. If there are plans to expand and grow in the near future, it’s important that the warehouse can accommodate that growth. Businesses need to have a plan for their next phase. If expansion isn’t possible on-site, for instance, they can ensure that there’s alternative space nearby to accommodate growth, so that if moving is necessary, the business can retain its workforce and make a smooth transition.

The ability to scale your business over time is directly impacted by the availability of suitable buildings. For instance, securing a facility in a prime location can enhance proximity to both customers and suppliers, optimizing operations.

However, envisioning the future, imagine your operations doubling in five years, necessitating additional warehouse space. If your initial warehouse choice was in a highly competitive area with no available expansions, significant logistical challenges arise, requiring a complete reevaluation of location selection. This isn’t to dissuade from competitive market choices, but rather to underscore the importance of considering long-term implications in warehouse site selection.

Depending on your business’s import/export requirements, proximity to transportation hubs such as airports, railway stations and ports may be advantageous. Additionally, operating within a foreign trade zone (FTZ) can provide benefits such as duty deferral, tariff relief and streamlined customs procedures.

Foreign Trade Zones (FTZs): When and Why to Consider One

If your warehouse handles imported goods, a Foreign Trade Zone is one of the most overlooked levers in industrial site selection.

A Foreign Trade Zone is a federally designated, secured area treated for U.S. Customs purposes as outside U.S. customs territory, even though it sits physically inside the United States. Goods can be imported, stored, manipulated, assembled, kitted and re-exported with deferred, reduced or eliminated duties. Per the U.S. Foreign-Trade Zones Board’s most recent annual report to Congress, more than $900 billion in goods were admitted to FTZs in a recent year, with manufacturing operations alone accounting for hundreds of billions of dollars in shipments.

FTZ status is most valuable when:

1. You import a meaningful share of inventory
2. You re-export a portion of finished goods
3. Component duty rates exceed finished-goods duty rates
4. Tariff uncertainty is creating cash-flow drag

Activation requires application to the FTZ Board, customs supervision and operational compliance, but for the right operator, the cash-flow and duty-savings benefits compound year after year.

Beyond the Five: Four Factors Most Site Selection Lists Miss

Zoning Laws and Regulatory Environment

Before signing any LOI, confirm the parcel is zoned for the operational use you intend, light industrial, heavy industrial, manufacturing or distribution, and that ancillary uses (outdoor storage, truck parking, hazardous materials handling, 24/7 operations) are explicitly permitted. State-level regulations on emissions, runoff, idling and indirect-source rules (especially CARB and AQMD restrictions in California) can constrain operations long after the lease is signed. Building permits, conditional use permits and environmental review timelines also affect occupancy schedule.

Infrastructure: Power, Utilities and Connectivity

Modern warehouses are infrastructure-dependent. Confirm power availability (kVA, transformer capacity and utility company timeline to upgrade), water/sewer capacity, gas service if needed, and, increasingly, fiber/redundant internet for WMS, automation and TMS systems. For automated facilities, EV truck fleets or cold-storage operations, power reliability and the cost-per-kWh of the local utility can swing total operating costs by hundreds of thousands of dollars annually. We’ve seen tenants commit to a building only to discover the utility couldn’t deliver the megawatts needed for their racking and automation plan inside a 12-month timeline.

Safety, Security and Local Crime Rates

Warehouse insurance premiums, employee retention and cargo theft exposure all track local crime statistics. Cargo theft is reported by industry associations including CargoNet to be at multi-year highs, with hot-spot regions concentrated around major distribution hubs. Evaluate site-level security infrastructure (fencing, lighting, gated yards, camera coverage), local police response times and crime trends in the immediate submarket. For high-value goods, this factor can rival labor cost in importance.

Local Market Trends and Economic Conditions

A submarket that looks favorable today may shift quickly. Track current vacancy and availability rates, sublease inventory levels, the construction pipeline and major tenant move-ins or move-outs. Watch macro indicators that drive industrial demand: port throughput, e-commerce growth, regional employment trends and tariff/trade policy. The Inland Empire’s swing from sub-4% availability in 2022 to more than double its pre-Covid baseline in 2025 is a textbook example of how quickly industrial fundamentals can move when macro conditions shift.

Why Tenant Representation is Crucial

In addition to all the important considerations noted above, it is critical for businesses to leverage a tenant representation team that specializes in the industrial sector to secure a real estate outcome with the client’s best interest in mind. The industrial market has distinct specifications unlike the other asset classes. Hughes Marino specializes in assessing all the technical prerequisites needed to locate the optimal industrial space tailored to each client’s unique needs. Our experienced team knows the questions to ask, the critical requirements and the conditions to be aware of when identifying the right space for your facility. Whether you’re leasing, renewing, expanding, contracting, consolidating, subleasing, buying a building or building a space from the ground-up, our team at Hughes Marino is committed to your success.

Frequently Asked Questions: How to Choose a Warehouse Location