2013 Global Logistics, Trends and Their Impact on Industrial RE

Prepared By: Curtis D. Spencer, PresidentIMS Worldwide, Inc.

IMS Worldwide, Inc.

• 35 Years of Industry Experience• Over 300 FTZ Projects Conducted

• Applications (New Zones, Expansion, ASF, MBMs, Subzones, etc.)

• Activations • Manufacturing Authorizations

• Strategic Development and/or Marketing Partner to top REITs, Developers and EDC groups

• C-TPAT and Supply Chain Security Audits

www.imsw.comForeign-Trade Zone, Logistics and Supply Chain Consulting

IMSW Overview of National FTZ and Strategic Development

Projects 1977-2012


Agenda

• What is Industrial Real Estate in 2013?• How Trade Impacts Real Estate• Logistics and Transportation Trends• Panama Canal• Shifts in E-commerce Fulfillment Centers• Impact on Industrial Real Estate

www.imsw.comwww.imsw.comForeign-Trade Zone, Logistics and Supply Chain Consulting

What is Industrial Real Estate in 2013?

• Manufacturing Buildings: The “norm” in 1950-1970, then manufacturing shifted to Mexico, then China in 2001. Now we are seeing it come back to North America

• Growth of E-Commerce Fulfillment Centers

• Continued demand for cross-dock, transload, distribution and warehousing facilities in growth markets

• Export Centers for consolidation of containers and goods


Top Industrial Real Estate US Markets4th Quarter 2012

Source: CBRE 4th Quarter 2012

Market Total Market Space (SF x1000)

Availability Rate

NNN Asking Rent

Greater Los Angeles 1,653,763 8.3% $6.18

Chicago 1,191,438 9.1% $4.05

New York-New Jersey 800,264 10.25% $5.24

Dallas-Fort Worth 709,063 13.6% $3.82

Atlanta 547,781 17.6% $3.34

Detroit 509,918 11.0% $4.50

Houston 447,239 8.9% $3.91

Other Key Distribution Markets:

Phoenix 277,424 13.6% $7.08

Columbus 208,207 12.7% $2.78


How Trade How Trade Affects Affects

Real EstateReal Estate


Trade Impacts Real Estate

• Shifts in all industry levels can directly impact the size, shape, type, locations, infrastructure and demand levels for real estate

• Manufacturing–Shift of building type: From smoke stack to high-tech and from off-shore, to near-shore

• “Retail” now involves Industrial buildings! (E-commerce fulfillment centers, traditional Distribution Centers (DCs), etc.) Transportation (new routes, infrastructure, trends)


SLIDE FROM 2005, SHOWING THE CONNECTION BETWEEN GDP AND TRADE

Notice 2x to 3x Trade Volumes to GDP relationship exists “+ or –”

Real Exports to US in TEUs


NOW -- THAT TRUTH IS IN QUESTION!



2012 Total TEU Growth YOY vs. 2011

Source: Individual Port Websites*Estimate based on Nov YTD numbers

Port of Entry2012 TEU Volume

2012 TEU Growth over 2011

LA/LB 14,123,376 1.70%

NY/NJ* 5,520,211 .30%

Savannah 2,966,221 0.7%

Oakland 2,344,424 0.1%

Houston 1,922,479 3.0%

Hampton Roads 2,105,887 8.92%

Seattle 1,869,492 -9.2%

Tacoma 1,711,133 8.62%

Charleston 1,514,585 9.6%


TransportationTrends

www.imsw.comForeign-Trade Zone, Logistics and Supply Chain Consultingwww.imsw.comForeign-Trade Zone, Logistics and Supply Chain Consulting

Panama Canal

• Canal operating at capacity today

• Limited ship-sizes that can operate, 110 feet wide max, going to 185 feet wide!

• Impact on USEC and Gulf Ports

• Completion date; Dec 2014, start up Q1 2015

• Main “shift” will not be in West Coast, vs. East Coast, Asia-traffic market share, but in 1 ship carrying 12,000 TEUs vs. 3 ships carrying 3500 TEUs each!


`

THE PROBLEM!

THE FIX – up to 12,000 TEUs

EC Ports Will Grow Because:

• Increasing Eastern Europe/Indian Trade- Via the Suez. “Watch out for Pirates!”

• Increasing S. American (Brazil, Chile, etc.)

• GDP Growth

• Proximity to Major Markets

• Small increase in Asia-US trade through Panama and Suez routings


WC Ports Will Grow Because:

• Increasing Asian China Trade (GDP lowered to 7% Growth Rate for 2013)

• Increasing SE Asia Trade, non-China

• GDP Growth

• Proximity to quicker/cheaper Intermodal Routings that can penetrate to within 250 miles of East Coast.

• Small decrease in market share of China-based-US trade through Panama and Suez routings.


Panama Canal Bottom Line

• BALANCE – In Market Share after 2014 will be the answer. Approx. 52%-48% today, 50%-50% after 2014.

• IF- Ocean Carriers re-work pricing after Panama Canal Expansion- lowering prices by 30% for all water, compared to LA/LB + Intermodal, AND the RRs do not drop correspondingly—you could see 10%-20% Market Share drop from WC to EC.

• Likelihood of this happening? 1 in 10.


Why are Ports, Inland Ports, and Shipping Costs Important to Ind. RE?

• The means, method and pathway that goods flow through the country directly impacts the markets that win and those that miss out.

• Port and Inland Port markets that retain or absorb a large amount of the containers that are received have larger industrial real estate demand and opportunities.

• Still, the most important location decision is based on demographics (where are the people moving from 2015-2030 and “landed cost”.


Source: ShipmentLink.com (Evergreen) Sailing SchedulesFrom China, it takes about 2 weeks to bring cargo to the west coast and about 4 weeks to bring it in on the east coast. (2000)

3517

34

36 36

17$2,226

$3,380

$3,300

Shanghai to North American Ports: Slow Steaming Effects –2000 & 2013

Pricing as of April 2013

$1,200


The Future Port Model

• Select port gateways will serve near-port and inland port distribution and manufacturing• One, two or more inland ports supported by

truck and rail networks, in state and soon, out of states

• Increase the connectivity between ports and inland ports for imports and exports

• Support traditional distribution services with E-commerce fulfillment services that operate together from the same facility or separate facilities


z

Sources: Population, employment, and real estate growth forecasts by Robert Lang and Arthur Nelson of the Metropolitan Institute at Virginia Tech

and Phil Hopkins of Global Insight; Business 2.0, November 2005

East Coast-West Coast TEUCost Line Equilibrium- Mar. 2013

I-35 Corridor +40%

Gulf Coast Belt +31%

Cascadia +38%

Southland +35%

Valley of the Sun +81%

Great Lakes Horseshoe +10%

Atlantic Seaboard

+12%

Southern Florida +52%

Equilibrium

Line Q1 2013

I-85 Corridor +35%

New Types of Industrial Real Estate: Export Centers & E-Commerce

• Export Centers match up empty-import Containers with Export Loads.

• Where? At Inland Ports!

• E-commerce fulfillment center (like DC’s) are going to be different, larger, more diverse and in different markets.



Many Areas are Significantly Imbalanced …But This Can Be Addressed

Source: JOC Piers 1/30/13


Export Center


Retail Trends


E-Commerce Fulfillment

Types of E-Commerce

• E-Commerce = Electronic Commerce (Computer, Laptop, Desktop)

• M-Commerce = Mobile Commerce (Phone, tablets, readers etc.)

• S-Commerce = Social Commerce (Derived from Social Networks such as Facebook, Twitter, Groupon, etc.


Projected Impact of E-Commerce

• By 2025 it has been estimated that Ecommerce will represent 30% of all Retail Sales and account from 2.7 trillion in total sales (Source: Dematic)

• Within 5 years, the percentage of sales closed at physical stores vs. alternative sales channels (E-Commerce, M-Commerce and S-Commerce) will drop from 91% (today) to 76% (Deloitte Study)


E-Commerce Impact on Industrial

• One-third of all demand for big-box space in the US in 2012 was tied to multi-channel retail or E-Commerce (Area Development Magazine, 2013)

• The E-Commerce generation of industrial is up to 5 times more labor intensive than traditional retail/distribution: more parking, mezzanine build-outs and increased automation are some of the features difficult to retrofit to older buildings, but many can be converted. (Area Development Magazine, 2013)


E-Commerce Key Criteria for Site Selectors

• Avoidance of Nexus Tax (may get mitigated, but not yet….)

• Proximity to major markets • Inexpensive land• UPS and FedEx Truck Hubs nearby• Ample seasonal/surge labor pool• Reasonable proximity/access to interstates• Local incentives: Tax breaks—FTZ!!


Bottom Line for Industrial RE?

• Stay in the Markets where the PEOPLE ARE!

• Invest where they PEOPLE ARE GOING TO BE!

• 10 and 20 year Demographics are changing.

• Northeast did not sustain the “hit” that everyone predicted, because of the Recession.

• Florida and PHX actually stayed the same from 2008-2010. PHX and HOU fastest growing metros last 12 months.

• Look for where the demographic trends are likely to emerge in 10 year segments and plan accordingly.


z

Sources: Population, employment, and real estate growth forecasts by Robert Lang and Arthur Nelson of the Metropolitan Institute at Virginia Tech

and Phil Hopkins of Global Insight; Business 2.0, November 2005

Megapolitan Outlook2010-2030 (Post-Recession)

I-35 Corridor +40%

GROWS

Gulf Coast Belt +31%

GROWS

Cascadia +38%

Norcal +35%

Southland +35%

Valley of the Sun +81%

SLOWER RATE OF GROWTH

Great Lakes Horseshoe +10%

SUSTAINS

Atlantic Seaboard

+12%

SUSTAINS

I-85 Corridor +35%

GROWS

Southern Florida +52%

SUSTAINS

DECLINES

SUSTAINS

SUSTAINS

Top Domestic Migration States (2001-2010)

2001-2006 2007-2009 2010

Rank Census Estimates ACS ACS

1 Florida Texas Texas

2 Arizona North Carolina North Carolina

3 Texas Arizona Florida

4 North Carolina South Carolina Arizona

5 Georgia Georgia Colorado

6 Nevada Oklahoma South Carolina

7 South Carolina Washington Virginia

8 Tennessee Colorado Pennsylvania

9 Virginia Virginia Washington

10 Washington Utah KentuckySource: Census and American Community Survey


Conclusion: What Does This All Mean to Me?

• Recession is over, but growth is slow.• Supply Chains create need for more space. (E-

Commerce and export centers)• We are seeing this now in continued consolidation to

large “Big Box” DC’s.• New E-Commerce phenomenon will create more

demand for Industrial Space.• Incentives (like FTZ, large truck courts etc.) will

continue to distinguish Big Boxes. • Never forget…We add 4 Million new mouths to feed

each year in the USA!


Prepared By: Curtis D. Spencer, PresidentIMS Worldwide, Inc.

Documents

2013 Global Logistics, Trends and Their Impact on Industrial RE