Real Estate Industry Needs to Address New Trade Era

For instance, how are these trends impacting regions as far away and different from each other as Shanghai, Los Angeles and Chicago? How is the transportation industry responding? How will this open up economic opportunities for communities that fear job losses due to globalization?

To answer these questions, Cushman and Wakefield is taking a deep look into globalization and its impact on the real estate industry through a series of white papers that focus on trade and real estate. The first segment, New Age of Trade (Part I), is based on the premise that increased trade is transforming business practices up and down the supply chain and causing dramatic changes in the design and location of distribution centers throughout the country.

The ever-accelerating volume of Asian imports is having an extremely disruptive effect on the supply chain as goods squeeze through the major west coast ports and are placed into warehouses or on trains and trucks en route to the nation's interior. This flood of goods flowing eastward from Asia is causing strains on ports, transportation infrastructure and communities while causing supply challenges for retailers who are demanding faster and more adaptive responses to changing consumer tastes.

This strain is causing shipping companies to build larger ships, which force ports to install bigger cranes and, in some cases, dig deeper channels. Once on land, quick decisions have to be made whether to ship immediately by truck or rail or to temporarily store the goods for seasonal needs or transload the goods for broader distribution.

The volume of goods is also leading to the development of super-sized distribution centers, which often weigh in at more than one million sf. Further, these facilities often have to be very flexible--they need cross-dock facilities for fast moving inventory as well as deep capacity for retailers looking to stock up and ensure that their seasonal inventory will make it to stores during the end-of-year madness.

In terms of industrial demand, C&W data indicate the regions that have benefited the most from these trade patterns have been proximate to deepwater ports (such as Southern California and Seattle) as well as major inland hubs with large population bases and superior rail connectivity (such as Chicago, Atlanta and Dallas).

Well-publicized strains on the Port of Los Angeles and Long Beach, have resulted in a broad-based cry for diversification across the supply chain. Port authorities across the nation are citing diversification as a reason for local government and businesses to invest in port infrastructure programs and many of these port authorities are claiming success. In looking at the numbers, it is hard to tell if diversification has had a significant impact because shipping volumes are up dramatically across almost all of the nation's ports.

Increased trade and globalization will benefit a range of communities and the economic benefits will flow to those regions that make the right strategic investments to ensure their role in the global scheme. The Port of New York/New Jersey is making massive infrastructure investments and developing brownfield sites needed for close-in staging near the port. Memphis is taking advantage of its air cargo dominance and investing in infrastructure that serves air, rail and truck cargo. Kansas City is partnering with a major railroad in order to encourage new linkages to an emerging port in Mexico. Communities around Chicago and Houston are using tax increment financing and other funding methods to help finance highway to rail linkages and other infrastructure.

For a long time, familiarity with our local markets has been an important competitive advantage for many of the most successful professionals in the real estate industry. This familiarity, however, is going to have to expand considerably in order to interpret how global economic trends impact local markets.

Maria Sicola is the senior managing director, research at Cushman & Wakefield.