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NEW YORK CITY-The development of larger warehouses close to main transportation routes to manage the rise in imported goods will continue to reshape American communities, according to a new white paper released today by global real estate services firm Cushman & Wakefield.

“We wanted to get a handle on the pivotal role commercial real estate is playing in meeting the demands of consumers and the dramatically changing global trade environment,” says Maria Sicola, senior managing director of Research at Cushman & Wakefield says of the paper. “As more warehousing and distribution centers are being built near ports and major inland hubs, some communities and even our rail system are springing to life.”

Record rates of consumption are being fueled by the influx of low-cost goods being manufactured in low-cost countries and imported through a handful of major ports, says Sicola. “These goods are flooding into the US through a few major ports and then distributed into markets throughout North America.” She says supply chain management, which includes shipping, warehousing and distribution, has become the top priority for many businesses today. “The implication for real estate owners, developers and urban developers is enormous.”

Manufacturing Moving Abroad is the major influence of the future of trade and goods transportation. In order to meet the demands of American consumers and businesses for low-cost goods such as apparel, electronics, motor vehicles, appliances and machinery, US manufacturing companies have moved production abroad to take advantage of low-cost labor. The C&W report predicts that domestic manufacturing will continue to decline and imports of goods entering the US will continue to rise, resulting in a 10% increase year-over-year in the proliferation of goods entering US ports.

The C&W report states there are three major trends in the US service-based economy that will impact the commercial real estate business in the foreseeable future: larger ships, a comeback of the rail system and enormous distribution centers.

As the amount of goods purchased overseas increases, it will result in a need for larger ships to carry them. The larger ships will have added capacity, but will also cause more congestion because only a limited number of ports can handle their size and amount of cargo

.The major ports around Los Angeles; Long Beach, CA; Oakland, CA; and Tacoma, WA will be impacted the most. The real estate impact of larger ships will call for off-loading the ship cargo to nearby inland locations. For example, in Ontario, CA, about 50 miles inland from the ports, large amounts of land are being utilized for distribution center development. New locations north of Los Angeles and ex-military bases are also being considered for this purpose. Large multi-functional facilities that combine cross-docks for short-tem inventory, and storage space for longer-term inventory are becoming more common in Washington’s Kent Valley submarket.

“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 extends to Las Vegas and Phoenix,” says Michael J. Williams, a contributor to the white paper and a senior research associate in Cushman & Wakefield’s Portland office. “Los Angeles and Long Beach in particular have the channel depth, infrastructure and the track record for handling large amounts of imports.”

The increased use of rail has led to strong growth in the warehouse markets surrounding some of the nation’s biggest interior hubs, such as Chicago, Memphis, Atlanta and Dallas. Once the cargo is delivered to the port it can be placed directly onto rail cars for the fastest route to the nation’s interior. Rail is more cost-effective than trucks for many types of goods heading into the nations interior, especially for large shipments that can be sourced from ports to holding destinations, such as super-sized distribution centers.

Chicago, Memphis and Dallas-Fort Worth all stand to gain the most from rail’s resurgence. These regions have the ability to serve large markets and are located at the intersection of multiple rail lines and interstates. These areas also have major players such as local government, railroads and developers, who are willing to make investments that will keep the rails and the real estate surrounding them growing.

Finally, the increased use of large, million-sf distribution centers is a direct result of the massive flow of low-cost products that are being imported into the US. These sizable distribution centers are often found on the outskirts of the nation’s most populated areas. The nation’s largest retailers, such as Wal-Mart, Lowes, Target and Home Depot, are dominant users of these distribution centers. While many of these facilities are built-to-suit for large tenants, there has been a considerable escalation in speculative construction during the past 12 months.

As for markets to watch, C&W expect Southern California and Chicago to benefit the most from these new economic developments. Additionally, markets that will benefit from these three growing trends will be Houston and the New York and New Jersey area.

Houston is a rapidly growing area, where large distribution centers are built for generous incentives. The first phase of the Port of Houston’s $1.2-billion investment at the Bayport Container and Cruise terminal is expected to be completed in 2006, positioning Houston as one of the nation’s major distribution centers.

“New York and New Jersey should benefit from port investment, including 14 brownfield locations that have been designated for ports,” Sicola says. “These locations are meant to push distribution center activity closer to the port, which will increase value to shippers who look to minimize the port-to-distribution center link.”

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