Academic journal article Journal of Real Estate Portfolio Management

The Impact of Shifting Container Cargo Flows on Regional Demand for U.S. Warehouse Space

Academic journal article Journal of Real Estate Portfolio Management

The Impact of Shifting Container Cargo Flows on Regional Demand for U.S. Warehouse Space

Article excerpt

Executive Summary. Freight movements are an increasingly important determinant of warehouse/distribution space demand. In particular, the rising use of marine container terminals in the global movement of goods is a major contributor to demand in the United States. This paper examines the factors that will influence which ports will likely gain market share, including port facilities and transit times. Trends in ship size, use of the Suez and Panama Canals, "land-bridging," "transloading" and intermodal rail use are also examined. It concludes with a determination of which warehouse markets should benefit from the changing flows of containerized goods through the nation's largest ports.

This article is the winner of the Best Research Paper Presented by a Practicing Real Estate Professional manuscript prize [sponsored by the American Real Estate Society Foundation (ARESF)] presented at the 2004 American Real Estate Society Annual Meeting.

Introduction

Industrial properties offer several key advantages to real estate investors. In addition to bringing greater diversity to property portfolios, industrial assets can provide attractive risk adjusted total returns, high current income streams from mediumto long-term leases and low capital costs. Relatively short construction periods also allow investors to better ascertain future shifts in industrial supply/demand conditions.

Over the past decade, the continued outflow of manufacturing operations in the United States to other countries has given rise to rapid growth in the flow of imported goods through marine container terminals at the nation's ports. Containerized imports have helped fuel demand for warehouse/distribution space in industrial markets located near the ports and within the interior of the U.S. Participants in major markets like Los Angeles and Northern New Jersey credit much of their recent successes to "port-driven" demand. This paper examines industrial demand trends stemming from global trade and their impact on specific U.S. warehouse markets.

Findings: A Sneak Preview

Atlanta, Chicago, Dallas/Ft. Worth, Memphis. Why would a paper about seaports and containerized cargo include these inland cities? Shouldn't the focus be on big port cities like Los Angeles, Northern New Jersey, Houston or Seattle/Tacoma? In fact, ongoing growth in container volumes at the nation's largest ports is expected to greatly increase demand for warehouse/distribution space within interior markets. This is due to shifting trade flows at the nation's ports, the functionality of the ports and their capacity to meet expected growth in demand, the availability of expedited intermodal rail service between the ports and key warehouse markets, and an expected surge in intermodal rail use over the next decade.

Global Trade is Changing the Distribution Landscape

For decades U.S. companies have moved manufacturing jobs out of the country in search of lower costs, first predominantly to Mexico, now more often to Asia or other overseas locations. As a result, American consumers have greatly increased their consumption of imported goods over the past two decades. At the same time, U.S. exports of goods to the rest of the world have also shown large increases. Trade and political agreements such as NAFTA, the European Union and the World Trade Organization have helped to increase this trend toward globalization.

Global Trade is Important to the U.S. Economy

The importance of global trade to the U.S. economy is huge and increasing. Exhibit 1 shows the relationship of U.S. imports and exports relative to the size of the U.S. economy. Twenty years ago, imports and exports combined equaled 12% of the country's domestic spending; today they represent 25%. Looking ahead another ten years, the combined total is expected to equal 34% of U.S. GDP.

Growth in world trade has recently resulted in a sharp increase in imports into the U. …

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