Can you give a brief summary of whatyou see occurring?


Spencer: We've had downward pressure on industrialdemand based of the lack of consumer purchasing power. Yes, that'shappening, but there's also an increase in wholesale inventory dueto just-in-time concerns and the need to have more inventory onhand than was needed a year ago. So that's a plus for industrialreal estate. I think the two forces will counterbalance oneanother.

| Why is this happening?


Spencer: In the late 80s, the concept ofjust-in-time delivery was perfected by automobile and computermanufacturers. The concept then expanded to the supply chain inconsumer goods, and the model is now completely ingrained in the USwholesale psyche. But while that model is easy to manage if allyour manufacturers and vendors are in the US, it's more difficultas you go to Canada and Mexico and even more difficult whenextended to 20 to 30 days out to places where the sophisticationlevel is much less than in the US. Still, as complicated as itbecame once manufacturing shifted to Asia, it was manageable. Till9/11.

| Then what happened?


Spencer: New regulations by Customs & BorderSecurity have put new strains on the supply chain, causing newdelays and making delivery times less certain. And every time youget into a delay or uncertainty, you mess up that just-in-timephilosophy. That's only going to get worse due to new regulationsto be imposed by the Department of Homeland Security. We're seeingthat manufacturers and importers are now looking to have more stockon hand to be able to maintain their just-in-time requirements.That means if they had 10 containers worth of goods on standby, itwill now be 11 or 12. Repeat that enough times over and you'vecreated demand for a lot more space. Manufacturers can't afford tohave a plant go down and retailers can't afford to have shelves sitempty. So they've got to build in a margin of safety to compensatefor delays due to security inspections.

| Do you see signs of this buildup?


Spencer: In 2007, we got very, very lean in thiscountry because we were anticipating a reduction in consumerdemand. So we let wholesale inventories get exceptionally low. Theevidence that we're hitting a turning point is that wholesale stockall over the US is growing even though retail inventories are not.On the manufacturing end, one manufacturer told me they're going toadd 20% more days in their safety stock. So if they had fourmillion sf of storage across the US, now they're going to need fivemillion sf. This now has hit a zenith. A very serious note hasoccurred in this whole symphony called the supply chain.

| Is this confined to port markets?


Spencer: It's happening all over. It will affectevery place where you've got industrial product. My feeling is itwill be as much a positive for the market as the recession is anegative.

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