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SANTA ANA, CA-The rising importance of logistics space as a subset of industrial space has prompted Grubb & Ellis Co. to release its first ever research report on logistics space in the US, which ranks the top 10 markets and includes statistics on vacancy rates, rents and other data for 25 other logistics markets across the country, including regional overviews. Southern California claims two of the top logistics spots, the Los Angeles and Inland Empire markets. The others are Chicago, Atlanta; Dallas/Fort Worth; North and Central New Jersey; East and Central Pennsylvania, Houston, Indianapolis and Columbus, OH.

The new report, produced by Grubb & Ellis research along with the company’s global logistics practice, points out that, “Supply chains and logistics buildings have become the focus for manufacturers who are intent on ringing cost savings from their operations.” In addition, it points out that the outsourcing of US manufacturingjobs to China, Mexico and other countries with low labor costs “has given rise to a sophisticated logistics industry focused on bringing products manufactured abroadinto and through the US.”

Grubb & Ellis established a set of criteria to identify logistics properties and divide them into three classes, A through C. The criteria focus on the age of a property, clear height, number of loading doors per 1,000 square feet, truck turning radius, sprinklers and other systems.

Among other conclusions, the report reveals that the construction of new, class A logistics buildings is the major force driving up the industrial vacancy rate in the US. While the vacancy rate for the overall industrial market ended 2008 with an 8.8% vacancy rate that was only 1.1% higher than year-end 2007 vacancy, the vacancy rate for logistics properties rose 2.6% in 2008 to end the year at 11.7%, according to the report. It also shows that logistics properties absorbed 410 million square feet of space through the first eight years of this decade, with 26 million square feet of that coming in 2008. Other industrial properties absorbed 327 million square feet of space during the same time, with 24 million square feet absorbed in 2008.

Grubb & Ellis SVP and chief economist Robert Bach, one of the authors of the report, comments that, “Although market conditions are expected to soften over the next few quarters, when the economy slows, the demand for logistic space still tends to hold up well.” Bach explains that manufacturers need to store excess inventories while their sales slow, in turn boosting demand for warehouse space.”

Another of the report’s authors, SVP and director of global logistics Tim Feemster, analyzes port container traffic and says that the Grubb & Ellis analysis forecasts that container volume in 2009 will be down 1% versus 2008 after falling 3.9% last year. “Not until 2010 will annual growth return to prior levels of around 4%,” Feemster says. He adds that West Coast ports “will continue to have challenges with container traffic volumes in 2009, and the East Coast will also see a slowing until the economy begins to pick up steam.” Port related logistics projects also will slow down on this same schedule, he says.

In a section on Southern California’s role in the logistics industry, SVP of global logistics Terry Reitz outlines how the Southland’s logistics industry “plays a crucial role in both the local and national economies.” He points out that the recession, fuel cost inflation and am unstable dollar “are having sweeping effects on the shippingbusiness.”

The cost of moving containers across the Pacific has tripled since 2003, Reitz points out, and container cargo shipments through the local ports were down by nearly 10% in 2008 from their peak in 2006. In addition, imports slowed in 2007 and 2008 as the collapse of the housing market impacted shipments of construction materials and home furnishings.

The Southern Californian ports are facing challenges such as the opening of the expanded Panama Canal in 2014/2015, which will drain some business, and environmental concerns have prompted the ports to launch several initiatives to reduce their carbon footprint, Reitz points out. “The fact that the Southern California ports are tackling these environmental concerns now, before their counterparts around the nation, may eventually work in their favor as the nation moves into a new, environmentally mindful age,” Reitz concludes.

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