The markets that appear to be benefiting most are located in thecenter of the country, away from the land-constrained port markets.These include Memphis, Kansas City, Pittsburgh, Las Vegas, SouthCentral PA, Dallas, Indianapolis and Nashville, all of whichexperienced positive warehouse net absorption in the first half of2008.

According to Torto Wheaton vice president and managing economistLaura Stone Mortimer, two primary factors underlie the continuingdemand for larger warehouses. First, she says, risingtransportation costs are prompting manufacturers and importers torethink their supply chains to gain more efficiency and long-termsustainability from their distribution networks. Their tacticsinclude shifting to rail or shipping to East Coast ports to reducetruck use, consolidating warehouses, pooling equipment and loadsand insisting on full containers and truckloads. In addition, shesays, some smaller manufacturers and distributors of lower-valuedgoods are increasing US production or sourcing to avoid the highcosts of shipping from Asia.

As examples of how businesses are adjusting their supply chains,Stone Mortimer points to Wal-Mart's recent decision to haltconstruction of all new distribution centers and Ikea's shift ofsome furniture production from Asia to the US. She notes thatKimberly-Clark has reduced the number of manufacturing and regionaldistribution centers from 70 to nine over the past four years, withthe remaining facilities in more central locations that allow thecompany to reach 90% of the North American population in eighthours.

While the Torto Wheaton economist believes manufacture ofsmaller, lower-value goods that are easier and less costly to shipprobably will not move back to the US, she says we may start to seea trend toward domestic production of bulkier goods that don'ttravel well in containers or are already being partiallymanufactured in the US. She adds that rising wage and internaltransportation costs in China might push activities such aslabeling and tagging back to the US as well.