John McCloud is editor of Industry Property Journal, from which this article is excerpted.

New York City—A dramatic rise in imported goods will continue to reshape American communities by prompting development of larger warehouses and distribution centers close to main transportation routes, according to a new report from Cushman & Wakefield Inc. Maria Sicola, the company's senior managing director of research and author of the report, says the finding has enormous implications for real estate owners, developers and urban development.

Supply chain management, which includes shipping, warehousing and distribution, has become the number one priority for many businesses today. "These goods are flooding into the US through a few major ports and then distributed to markets throughout North America," Sicola explains. "As more warehousing and distribution centers are built near ports and major inland hubs, some communities and even our rail system are experiencing significant growth." With imports continuing to climb by about 10% annually, Sicola expects the three following trends to have significant impact on commercial real estate decisions and US communities:

Use of Larger Ships:
Only a limited number of ports have deep enough channels and large enough equipment to handle the largest Post-Panamax vessels. The California ports of Los Angeles and Long Beach are considered the best positioned in this regard. Ports in Oakland, CA, Seattle and Tacoma, WA, Savannah, GA, Charleston, SC, Houston and the New York City/New Jersey area either can or soon will be able to handle the largest vessels. The need to off-load cargo quickly to free up dock space for newly arriving ships creates a huge jump in demand for large nearby distribution facilities. In places like Los Angeles/Long Beach, the need is so great that cargo is being sped by both truck and rail to sites as far as 50 miles inland for sorting.
Rail Making a Comeback:
Because rail is more cost-effective than trucking for many types of goods, there has been strong growth in the warehouse markets surrounding some of the nation's largest interior hubs. Cargo can be placed directly onto portside rail cars for fast shipment to the nation's interior rail hubs. Chicago, Memphis, Dallas-Fort Worth and Kansas City, MO all stand to gain from rail's resurgence because of their locations at the intersection of multiple rail lines and interstate freeways. These areas also have major players, including local governments, railroad companies and developers, willing to make investments that will keep the rails and the real estate surrounding them growing.
Super-Sized Distribution Centers:
Huge distribution centers built to manage the massive flow of low-cost imports are being located on the outskirts of the nation's most populated areas. While many of these facilities are built-to-suit for large tenants like Wal-Mart Stores Inc., IKEA International and Target Corp., there has been considerable escalation in speculative construction in the past 12 months. C&W expects Southern California to benefit most from these new developments.

"California will greatly benefit from the expanding trade volumes because of the abundant amount of goods being imported from Asia and the massive size of the consumer market in the Southern California region, which now extends as far east as Las Vegas and Phoenix," says Michael J. Williams, a senior research associate in C&W's Portland, OR office and contributor to the report. However, Chicago, Houston, New York City and New Jersey will also gain substantially, he adds.

Executives from some of the nation's top industrial development companies back C&W's observations about general trends and specific markets. Aaron Paris, executive vice president and COO of Reno-based DP Partners, reports his company adopted a strategy four years ago that focuses on ports, railheads and areas with large and growing populations. During the past two years, he continues, DP added a fourth element to the strategy by seeking properties in land-constrained markets.

Noting that US imports from China grew 1,500% in 15 years, from $15 billion in 1990 to $243 billion in 2005, John Picchiotti, first vice president of Denver-based ProLogis, agrees that imports, particularly retail imports from China, are creating demand for larger and larger big-box warehouse distribution centers. Container imports are driving 12 million sf to 15 million sf of expansion in the Interstate 80 market near Chicago alone, he says.

Picchiotti sees no abatement in demand because of the explosion in world GDP, which has doubled from $20 trillion 20 years ago to about $40 trillion today. Furthermore, he points out, world trade has increased by 300% in that time and will almost certainly increase by an even larger amount in the next 20 years.

Instant Insights /

Rise in Imports Reshaping US Cities

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