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Port traffic opens window to the world of logistics

Writing about high-cube warehouse distribution centers is no doubt less glamorous than chasing angles on gleaming new office skyscrapers or planned upscale shopping centers. But to dismiss the industrial warehouse sector as ho-hum would be to misunderstand the role it now plays in an evolving supply chain, largely driven by global trade.

The massive rise of imports through U.S. seaports and the sophisticated distribution methods used to transport consumer goods to their final destination — store shelves — is one of the biggest commercial real estate stories of our time.

Consider this compelling fact: In 1994, the volume of containerized cargo imported to the U.S. totaled 48 million tons. In 2004, imports rose to just over 120 million tons, with Asian imports accounting for more than half that total, or 64.2 million tons. That dramatic jump in tonnage has strained the nation's busiest seaports like the Port of Los Angeles and led to dramatic growth at smaller ports such as Savannah, Ga.

As reporter Matt Hudgins discovered in compiling this month's cover package, “Rising Tide of Imports,” the seaport angle is only one part of the story. “Distribution is like peeling away the layers of an onion. There is always another factor to consider,” says Hudgins, who interviewed nearly 20 sources and traveled to the Port of Houston to get a firsthand look at how containerized cargo arrives ashore.

The rising cost of transporting goods on rail lines or trucks means that developers must see the big picture. “Today's developers need to understand the logistics business, not just the real estate angle,” says Hudgins.

Some of the nation's biggest industrial REITs are capitalizing on the growth of port activity. In February, Duke Realty acquired 18 buildings totaling 5.1 million sq. ft. near the Port of Savannah. That same month, Duke bought a 184-acre tract in East Baltimore, the site of a former 3.2 million sq. ft. General Motors assembly plant. Duke plans to raze the complex to make way for 2.8 million sq. ft. of distribution buildings for port-related businesses.

At the moment, the stars are perfectly aligned for the industrial market. The national vacancy rate stands at a healthy 8.1%. Bear Stearns reports that some coastal markets with barriers to entry, as well as markets tied to the supply chain, could see double-digit rental rate increases over the next few years. Until demand wanes or new supply careens out of control, the port business window of opportunity for developers and investors remains wide open.

TAGS: News
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