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Handout

How Global Logistics Impacts
Local Real Estate Decisions
CLICK TO ADD TITLE
Agenda
• Introductory Questions
• Understanding Global Logistics
–
–
–
–
Origin Points
Sea Ports
Railroads
Intermodal
• Why do You Care- What is the Real Estate
Impact
• What Did Q1 Look Like
©Grubb & Ellis Company Confidential
2
Questions
• How many of you make your living as
–
–
–
–
–
–
–
Real Estate Brokers / Property Managers
Real Estate Developers / Institutional Owners
Consultants / Architects
Private Company Logisticians
Manufacturers
3PLs / Warehouse Companies
Don’t know?
• How many of you live within 150 miles of a Port city?
• Who has visited a Port or Intermodal Hub?
• What are the major challenges to Global Trade today
and in the future?
3
Local Delivery
4
But Boss, This IS FedEx
5
Local Recycler
6
Got to Feed the Cows
7
This Little Piggy Goes Market
8
Scrambled Anyone?
9
Chill Out
10
The Ultimate Rear View Mirror
11
Critical Parts Distribution
12
13
Billions
Value of Trade Per Annum
$2,000
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
Imports
Exports
1990
Source:
American Assn. of Port Authorities
1994
1998
2002
14
2006
Billions
Value of Imports
$2,000
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
Source:
U.S. Commerce Department
Mineral Fuel, Oil,
Etc.
All Other Imports
1990
1994
1998
2002
15
2006
16
17
Sourcing Patterns Unlikely to Change
PROJECTED LABOR COST (US$ per Hour)
PRODUCTIVITY GROWTH (%)
2004
2005
2006
2007
2008
2004
2005
2006
2007
2008
China
1.0
1.2
1.4
1.6
1.8
9.0
9.0
8.6
7.3
7.0
India
0.9
1.1
1.2
1.3
1.5
6.1
6.1
4.9
5.0
4.6
US
22.9
23.6
24.5
25.2
26.0
2.8
1.4
1.4
1.3
2.0
Czech Republic
7.6
8.6
10.1
12.0
12.6
4.0
4.5
4.7
4.5
4.1
Hungary
6.8
6.8
7.5
8.0
9.4
9.9
5.2
4.1
4.0
3.7
Poland
6.0
7.1
7.8
8.7
9.0
3.9
3.1
3.2
2.4
3.1
Russia
1.3
1.7
2.1
2.4
2.7
5.0
5.2
5.2
5.2
4.6
Slovakia
5.2
6.0
6.7
8.0
8.3
5.1
3.9
3.9
4.0
4.5
Brazil
3.5
4.7
5.5
5.4
5.5
1.7
1.4
1.4
1.4
1.2
Mexico
1.9
2.0
2.1
2.1
2.1
2.3
1.2
1.7
1.5
1.3
Eastern Europe
Latin America
Data Source: EIU, GRD Analysis
Data adapted from AMB 2007 Real Estate Logistics presentation - Dallas
18
Global Port Rankings- 2007 Data
27,900,000
Singapore- Singapore 1.
12.5%
26,100,000
Shanghai- China 2.
20.2%
2.5%
23,800,000
Hong Kong- China 3.
21,000,000
Shenzhen- China 4.
13.7%
15,600,000
LA/LB- US 5.
-1.0%
12,100,000
Busan- S Korea 6.
0.6%
Rotterdam- Netherlands 7.
10,700,000
11.5%
Dubai- UAE 8.
10,600,000
18.8%
Kaohsaung- Taiwan 9.
10,200,000
4.4%
9,900,000
11.7%
Hamburg- Germany 10.
Qingdao- China 11.
9,400,000
Ningbo- Chinac 12.
9,300,000
Guangzhou- China 13.
9,200,000
22.0%
Down Vs. 2006
8,100,000
Antwerp- Belgium 14.
7,100,000
Tianjin- China 15.
0
Up Vs. 2006
China $8 billion in port infrastructure improvements per year
5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 30,000,000
Source: American Assn. of Port Authorities & ProLogis
2007 TEUs
19
China Trade Impact
• In 1995, no major liner services called at a mainland
China port. Today, every major liner service has calls at
multiple China ports
• By 2008, “Greater China” global throughput will be near
34% of the world’s container traffic
Li Shenglin, China Communications Minister:
“China’s coastal throughput of containers, as measured in
twenty-foot Equivalent Units (TEU’s) will grow 75% from
74.4 million in 2005 to 130 million in 2010.”
20
China Port Expansion
Shanghai International Shipping Center
Yangshan Deep Port & Logistics Park
54
New Berths
21
22
Container Ship Evolution
CONTAINER SHIP SIZES
AND PORT REQUIREMENTS
23
The Emma Maersk- 14,500 TEUs
24
Panama Canal Constraint
If you think parallel
parking is a
problem…..
try this.
33.53 meters wide, 12 meters maximum draft
25
20
5.2
me
ma ter
xd sw
ra ide
ft,
,
no 17.7
loc m
ks ete
rs
26
26
NA Port Container Volumes 2007
Los Angeles
8,355,038
Long Beach
-1.4%
7,312,465
NY/NJ
0.3%
5,299,105
SEA/ TAC
4.1%
3,748,731
Savannah
-7.6%
2,625,350
21.5%
Oakland
2,388,182
-0.1%
Vancouver
2,307,290
30.5%
Hampton R.
2,128,366
4.0%
Houston
1,768,627
10.1%
Charleston
1,754,376
-10.9%
San Juan
1,695,134
-2.0%
Manzanillo
1,411,146
12.7%
Montreal
1,363,021
5.7%
Honolulu
1,125,382
0
Source: Grubb & Ellis Research
1.0%
1,000,000
2,000,000
West Coast
3,000,000
East Coast
4,000,000
5,000,000
2007 TEUs
6,000,000
7,000,000
Down Vs. 2006
8,000,000
Up Vs. 2006
27
9,000,000
U.S./Canada Container Volume by Coast
30,000,000
25,000,000
TEUs
20,000,000
Pacific
Atlantic
Gulf
15,000,000
10,000,000
5,000,000
06
20
04
20
02
20
00
20
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
19
80
0
Source: American Assn. of Port Authorities
28
Peak System Requirements 2002
29
Peak System Requirements 2035
30
What is on the Horizon?
31
China to North America Routes
NY/NJ
Direct via
the Suez
Canal
32
Why do We Care about Inland Ports
• As Manufacturing, Distribution, and Real Estate
professionals, understanding the Global Supply
Chain is “fun” but we need to know
– Where does the container come to rest
• Local destination- at or near the Port
• Non-local destination- via rail or truck to the inland Port
– This is where vertical happens- at the end of the “land
bridge”
Source: Grubb & Ellis Company Global Logistics
33
Elwood Intermodal Development- the beginning
34
Elwood Intermodal Development- NOW
35
Intermodal Transportation
U.S. Intermodal traffic has nearly doubled over the past 15 years. Trend expected to continue after 2008.
14,000,000
Containers / Trailers
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
2002
2003
Containers
8,588,822
9,472,518
Trailers
2,345,508
2,424,407
2004
2005
2006
2007
10,283,491 11,057,610 11,801,146 11,933,486
2,639,545
2,584,262
2,432,928
Source: IANA
36
2,145,466
New or Expanding Regional Hubs
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•
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•
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•
•
•
•
WESTERN PA
CHICAGO & NW INDIANA
DALLAS/FORT WORTH
COLUMBUS, OHIO
ATLANTA
HOUSTON
KANSAS CITY
MEMPHIS – NORTHERN MISS.
PHOENIX-VEGAS
37
Logistics Cost as a % of GDP and Diesel
10.5%
10.2%
10.1%
10.2%
9.9%
9.9%
10.0%
$3.31
9.5%
9.4%
9.5%
9.0%
$2.47
8.8%
8.8%
8.6%
8.5%
$1.96
8.0%
$1.55
$1.49
7.5%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Est.
Source: CSCMP Annual State of Logistics Report & Tim Feemster’s 2007 estimate
38
Site Location Cost Drivers
• Outbound Transportation from a DC is 2.5 to 5
Times More Expensive than Running the DC
• In the DC, Labor Is Usually 60-70% of the Total
Operations Cost
• Rent, Including the CAM Charges, is Only 4-8%
of the Total Logistics Cost of the DC
39
Logistics Cost Breakdown
Percent of Logistics Cost
60.0%
50.3%
50.0%
40.0%
17.3%
30.0%
21.8%
20.0%
7.8%
9.5%
10.0%
4.3%
2.7%
2.2%
se
s
ou
li e
eh
ar
rW
th
e
O
Cost Category
Establish, Inc/Herbert W. Davis and Company 2006 Database
1.2%
pp
str
a
ini
Ad
m
er
om
st
Su
tio
n
nt
Se
rv
Re
ic e
r
bo
La
to
ve
n
In
Cu
Tr
an
sp
o
r ta
t io
n
ry
0.0%
40
Profit Leverage
Value Category
$100.00 Sales
Sales Increase
100.00 Net
$90.00 COGS 90%
0.00 Cost Decrease in Rent
$10.00 Profit
Improvement
Sales
Cost
$100.00
$100.00
5.00
105.00
100.00
94.50
$90.00
0.00
4.50
$10.50
$14.50
$.50
$4.50
Cost leverage results in a much larger return
41
Profit Leverage
Profit Leverage Provided by Marketing and/or
Logistic Cost Reductions…
If the net profit on each sales $ is 5%, then...
A Rent Savings of
$5
$50
$500
$5,000
$50,000
$500,000
$5,000,000
Is Equivalent to a
Sales Increase of
$100.00
$1,000.00
$10,000.00
$100,000.00
$1,000,000.00
$10,000,000.00
$100,000,000.00
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43
Contrast of Goals
• Landlord
–
–
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• Client
Cover all costs
Minimize risk
Protect the investment
Long term leases
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Control costs
Minimize risk
Rent for flexibility
Short term leases
44
Landlord Top Ten
• Rent Escalation Throughout Term
• Minimal TI Investment
• Maintenance Of Entire Property to the Client- Including
Roof and Driveway
• Full Pass Through of CAM Charges
• Strong Credit of Client
• Renewal Options with Automatic Escalation in Base
Rent
• Full Responsibility for Tis to Client Outside of Lease
• Maximum Land Coverage- Minimal Truck Parking
• Return Facility to Prior Condition
• No Sub-lease Without Approval
45
Client Top Ten
• Flexible Renewal Options and Term Length
• Termination Prior to Lease Term
• Space Expansion or Moving Options with Same
Landlord
• Fixed Rent Over Term or Minimal Escalation
• Capped CAM Charge Escalation- Access to Actual
Costs
• Minimal Sub-lease Restrictions
• Fixed or Capped TI Cost Upfront
• Exclusions for Roof and Driveway Repairs
• Free Rent
• Trailer Parking
46
Top Shipping Companies
• A.P. Moller-Maersk
• Mediterranean Shipping
Co.
• CMA CGM Group
• Evergreen Line
• Hapag-Lloyd
• China Shipping Container
Lines
• COSCO Container Lines
• APL
• NYK Group
• OOCL
•
•
•
•
•
•
•
•
•
•
Hanjin Group
MOL
“K” Line
Zim Group
Yang Ming Line
CSAV Group
Hamburg Sud Group
Hyundai Merchant Marine
Wan Hai
Pacific International Lines
47
Top 3PLs
•
•
•
•
•
•
•
•
•
•
DHL & Exel Supply Chain
UPS Supply Chain
GENCO Distribution
Caterpillar Logistics
UTi Worldwide
CEVA Logistics
Jacobson Companies
AmeriCold Logistics
Ozburn-Hessey
Kenco Logistics
•
•
•
•
•
•
•
•
•
•
MBX Logistics
Atlas/Versacold
Ryder Systems
Penske Logistics
Warehouse Specialists
DSC Logistics
NFI Logistics
Kuhne + Nagle
APL Logistics
Menlo Worldwide
48
Top Retailers
•
•
•
•
•
•
•
•
•
•
Wal*Mart
Home Depot
Kroger
Costco
Target
Sears
Walgreens
Lowes
CVS
Safeway
•
•
•
•
•
•
•
•
•
•
Best Buy
SuperValu
Federated Dept. Stores
Ahold USA
Publix
McDonalds
JC Penney
Staples
Rite Aid
TJX
49
Industrial Vacancy Rate 2004-2008 Q1
U.S. Industrial Vacancy Rate
Standard Industrial vs. R&D/Flex
17%
15%
13%
11%
9%
9.1% 9.1%
8.8% 8.7%
8.2%
7%
5%
2004
7.9%
7.6% 7.5%
7.5%
7.3% 7.3% 7.1% 7.1% 7.2% 7.1% 7.1% 7.2%
2005
Industrial
2006
R&D/Flex
Combined
2007
2008
Source: Bob Bach, Grubb & Ellis Company
50
Absorption & Completions 2004-2008 Q1
Industrial Absorption & Completions
60
50
Million Sq. Ft.
40
30
20
10
0
2004
2005
2006
Absorbed
2007
Completed
51
2008
Construction as % of Inventory 2004-2008 Q1
SF Under Const. as % of Inventory
Construction = speculative + build-to-suit + owner built
Inventory = multi-tenant + single tenant + owner occupied
1.4%
1.20%
Percent Under Construction
1.2%
1.03%
1.0%
1.14%
1.11% 1.10% 1.10%
1.07%
1.01%
0.93%
0.83%
0.8%
1.25% 1.26%
0.86% 0.88% 0.85%
0.69% 0.71%
0.6%
0.4%
0.2%
0.0%
2004
2005
2006
2007
52
2008
Space Under Construction 2004-2008 Q1
Industrial Space Under Construction
Speculative vs. Build-to-suit/Owner-built
160
140
Million Sq. Ft.
120
100
80
60
40
20
0
2004
2005
2006
Spec
2007
2008
B-T-S
53
Warehouse/Distribution Rent 2004-2008 Q1
Warehouse/Distribution Rental Rate
Weighted Average Asking Rate NNN
$5.20
6%
5.6%
$5.00
5.4%
3.6%
3.6%
2.8%
2.7%
2.2%
$4.80
2%
1.5%
0.6%
$4.60
-0.2%
-0.6%
-0.9%
-1.3%
-1.6%
$4.40
-0.4%
-1.5%
-2%
-3.8%
$4.20
$4.00
-6%
2004
2005
2006
Rent/SF/Yr.
2007
2008
% Chg. Q/Prev Y End
54
U.S. Industrial Market First Look: 2008-Q1
•
•
The vacancy rate moved higher in the first quarter by a small yet significant margin, ending
the quarter at 8.0% compared with 7.7% at year-end 2007. This increase comes on the
heels of six consecutive quarters where vacancy was largely stable at either 7.6% or 7.7%.
Of the 50 industrial markets that Grubb & Ellis tracks in detail, 32 posted rising first quarter
vacancy rates while 18 posted declines. Among large U.S. markets,
–
–
–
•
The surplus of new space delivered over net absorption drove vacancy higher in the first
quarter.
–
–
•
Completions totaled 37.4 million square feet
21.1 million square feet absorbed – the lowest rate of absorption since the first quarter of 2004.
Construction starts totaled 33.8 million square feet in the first quarter, down significantly
from the recent peak of 53.3 million square feet started in the second quarter of 2007.
–
–
•
Vacancy was lowest in land-constrained, trade-fueled Los Angeles County at 1.6% and highest in
Memphis at 16.1%.
Markets posting vacancy increases over one percentage point during the quarter included
California’s Inland Empire, Nashville, Las Vegas, Oklahoma City and Phoenix.
Only two markets saw their vacancy rates decline by more than a percentage point: Sacramento and
Northern Indiana (South Bend area).
With completions exceeding new starts, the construction pipeline has narrowed over the last two
quarters to a still-robust 121.1 million square feet, down from the recent peak of 142.4 million
square feet in the third quarter of last year.
The Inland Empire led all markets with 22.0 million square feet in the construction pipeline at the end
of the first quarter, followed by Chicago with 14.7 million square feet.
Asking rental rates for all types of industrial space were unchanged in the first quarter at
$5.87 per square foot per year triple net. Over the past four quarters, the average asking
rate increased 13 cents, a gain of 2.3%.
55
2008 Forecast Revised Q1
•
The economy appears to be poised on the cusp of a recession if not
already in one. It won’t be certain one way or the other for several
months because the National Bureau of Economic Research, the
organization charged with setting business cycle dates, won’t
announce its findings until the trend lines are unequivocal. A
recession certainly is not good news for commercial real estate, but
thanks to global growth and the weak dollar, exports are booming –
up nearly 21% in dollar volume over the 12 months ending in
February. Imports have surged by 16.4% during this period despite
the weak dollar. Exports help manufacturers in particular, while
global trade in general creates demand for warehouse/distribution
space.
56
2008 Forecast Revised Q1 (continued)
•
•
•
•
•
The construction pipeline is set to deliver some 121 million square
feet of space over the next few quarters, a period during which
demand for that space will be lackluster.
Expect the vacancy rate to end the year between 8.5% and 9.0%,
below the prior peak of 10.1% in the first quarter of 2003.
Rental rates have increased sporadically in the just-ended
expansion cycle, but the overall gains have been muted. The
average asking rate for warehouse/distribution space, for example,
has risen just 10% since bottoming out in the second quarter of
2004.
Soft market conditions will likely bring a period of flattening rental
rates, where the average inches up one quarter and down the next.
Overall, growing international trade is likely to rescue the industrial
market from the worst effects of the economic downturn, be it a
recession or just very slow growth that feels uncomfortably like one.
Source: Bob Bach, Grubb & Ellis company
57
Your Container is “On the Water”
Tim Feemster
Sr. Vice President
Director of Global Logistics
Grubb & Ellis Company
972-450-3225 O
214-693-7689 C
tim.feemster@grubb-ellis.com
58

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