Logistics Market Trends First Half 2010

United States

In This Issue…

State of the Market . . . . . . . . . . . . . . . . . . . . .1

State of the Market
Vacancy and Rental Rates . . . . . . . . . . . . . . .2
Demand for logistics space surged in the first half of 2010. Net absorption totaled 17.3
Site Selection in the New
million square feet, the best six-month performance since the first half of 2008. A
Millennium . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
rebound in the manufacturing sector coupled with growth in global trade emboldened
Market in the Spotlight: occupiers to take advantage of good deals offered by landlords and sellers. Developers
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
delivered 7.5 million square feet in the first half of the year, the lowest rate of
Logistics Building Classifications . . . . . . . .8 completions in more than 10 years. Just 2.8 million square feet of that total was
delivered in the second quarter, and just 1.3 million square feet of true logistics space
Market Quick Takes . . . . . . . . . . . . . . . . . . . . .9
began construction in the first half of the year. The plunge in construction coupled with
the return of demand for space pushed the vacancy rate down to 13.1 percent at the end
of the second quarter from 13.7 percent at the beginning of the year. Most of that
improvement occurred in Class A product, which offers top-of-the-market functionality,
systems and finishes. The vacancy rate for Class A logistics space declined from 16.5
percent at the beginning of the year to 15.3 percent at mid-year. Some of this
improvement in demand occurred as tenants moved up in quality, taking advantage of
the low rents and generous concessions offered by landlords. Similarly, businesses
Over the Hump… interested in buying properties were able to negotiate great deals, although with the
% economic outlook still murky, many preferred the flexibility of renting over the
14
commitment of owning. But the demand for space was being fueled by more than just
13 companies switching spaces. Vacancy rates for Class B and C space dipped slightly in the
12 second quarter, suggesting that demand is beginning to return not just for Class A space
11
but for older, still-functional properties as well.

10 Firming demand for space this year helped arrest the slide in rental rates. The average
9 asking rate for logistics space offered on the market at mid-year 2010 was $3.78 per
square foot per year, triple net, which was nearly unchanged from $3.79 at year-end
8
2009. Since peaking at $4.21 at the end of 2007, asking rates have slipped by 10 percent
7
’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10

US Logistics Vacancy Rate

All classes of logistics space

Logistics Market Trends Robert Bach Joan Burress Grubb & Ellis Company
is a newsletter published Senior Vice President, Manager, Research Field Services 1551 N Tustin Avenue
semi-annually by Grubb & Ellis Chief Economist 586.573.8717 Suite 300
Company. To obtain additional 312.698.6754 Erin O’Leary Santa Ana, CA 92705
copies or other Grubb & Ellis Tim Feemster Manager, Affiliate Research Services e-mail: research@grubb-ellis.com
publications, please contact: Senior Vice President, 312.698.6789 www.grubb-ellis.com
Director of Global Logistics
972.450.3225

www.grubb-ellis.com 1
© 2009 Grubb & Ellis Company. Some of the data in this report has been gathered from third party sources and has not been independently verified by Grubb & Ellis. Grubb & Ellis makes no warranties or representations as to the completeness or accuracy thereof.
 Class A Logistics Market Vacancy and Rental Rates
Note: Vacancy and rent data refer to Class A logistics buildings with minimum size thresholds of 100,000 square feet. Inventory includes multi-tenant, single-tenant and owner-occu-
pied space. Rental rate data refer to space that is available for lease on the market at the end of the quarter. Rates are per square foot, quoted on a triple net basis. Rates for each build-
ing are weighted by the amount of available space within the building.

% Vacant $ Asking Rent

4.4 Los Angeles 7.36 Broward County, FL
6.4 San Jose-Silicon Valley 5.95 Los Angeles
6.6 Minneapolis-St. Paul 5.88 Minneapolis-St. Paul
6.8 Orange County, CA 5.72 Miami
7.3 Pittsburgh 5.51 Cleveland
8.0 Denver 5.24 Washington, DC
8.4 Kansas City 5.20 Orange County, CA
9.7 New Jersey, Southern 4.74 Charleston, SC
9.7 Cleveland 4.72 Portland, OR
10.0 Jacksonville 4.72 Seattle
10.2 Indiana, Northern 4.67 Pittsburgh
10.3 Stockton, CA 4.65 Delaware
11.2 Richmond 4.59 Denver
13.0 Inland Empire, CA 4.57 Houston
13.1 PA, Central & Eastern 4.42 Baltimore
13.3 Delaware 4.38 New Jersey, Southern
14.2 Broward County, FL 4.26 Detroit
14.6 Indianapolis 4.25 Jacksonville
14.6 Washington, DC 4.10 San Jose-Silicon Valley
15.0 Memphis 4.09 PA, Central & Eastern
15.2 Charleston, SC 4.00 Richmond
15.2 Baltimore 3.99 Kansas City
15.3 U.S. Average 3.94 New Jersey, No. & Central
15.9 Atlanta 3.91 U.S. Average
16.7 Houston 3.89 Phoenix
18.4 Dallas-Fort Worth 3.80 Chicago
18.8 Chicago 3.79 Stockton, CA
19.4 St. Louis 3.61 Oakland-East Bay
20.7 New Jersey, No. & Central 3.59 Inland Empire, CA
22.8 Portland, OR 3.55 Dallas-Fort Worth
24.7 Phoenix 3.50 St. Louis
25.0 Oakland-East Bay 3.33 Indianapolis
27.8 Seattle 3.14 Indiana, Northern
28.9 Miami 3.06 Atlanta
32.0 Detroit 2.64 Memphis

0 5 10 15 20 25 30 0 2 4 6 8

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© 2010 Grubb & Ellis Company. Some of the data in this report has been gathered from third party sources and has not been independently verified by Grubb & Ellis. Grubb & Ellis makes no warranties or representations as to the completeness or accuracy thereof.
 while effective rates, which are the Class A properties. At mid-2010, the consumers don’t have jobs or aren’t
actual taking rates minus concessions average asking rates for Class A, B and C confident they can keep the jobs they
such as periods of free rent, are down by space stood at $3.91, $3.86 and $3.41, have, retail sales will suffer. The majority
16 percent this year compared with their respectively. The relatively low rent of economists continue to forecast that
recent peak in 2008. Comparing data premium for Class A space is not just a the recovery can be sustained, though
from the first and second quarters of function of the quality and age of the growth will be disappointingly slow in
this year, asking rates increased slightly properties but also their size and the second half of this year. A double-dip
from $3.76 to $3.78, and the slight location. Class A buildings tend to be recession, i.e. another near-term
increase extended to all three classes of larger, which pushes down the average recession, is not the most likely scenario.
logistics space, another sign that the rent per square foot, and they are often Nevertheless, analysts are watching the
nascent recovery is spreading beyond located further from cities where land flow of economic data carefully as they
prices are lower, another factor pushing try to gauge the outlook for the next few
rents lower. Holding the building size months. Look for the recovery in the
Logistics steady, the rent premium for Class A logistics market to be sustained, but the
Absorption Vs. Completions space is higher. For example, properties rate of improvement will be slow.
Millions of Square Feet by Quarter
in the range of 100,000 to 249,999
40
35 square feet command average asking
30 rates of $4.50 for Class A space, $4.11 for
25
Class B and $3.64 for Class C product.
20
15
The firming of rental and vacancy rates
10
5 in the first half of 2010, particularly the
0 second quarter, suggests that a
-5
meaningful recovery in market
-10
-15 fundamentals has taken hold.
Manufacturing activity, international
Absorption Deliveries
trade, port activity and freight shipments
all have registered big increases over the
past year, and the demand for space
finally has begun to respond. However,
Logistics Rental Rate*
By Quarter this improvement has come just as the
economy appears to be slowing down
$4.50
again, which has placed the durability of
the recovery in question. The most
$4.25
worrisome economic indicator is the
weak labor market. Of the major
$4.00
property types, the industrial market is
least dependent on job creation, but the
$3.75
subset of logistics properties relies
heavily on demand from retailers and
$3.50 the 3PL companies that serve them. If
’02 ’04 ’06 ’08 ’10

* Weighted Average Asking Rate NNN

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© 2010 Grubb & Ellis Company. Some of the data in this report has been gathered from third party sources and has not been independently verified by Grubb & Ellis. Grubb & Ellis makes no warranties or representations as to the completeness or accuracy thereof.
 Site Selection in the
New Millennium
By Tim Feemster When locating your next distribution center or warehouse, you will consider a list of site
Senior Vice President, Director of selection criteria. Area Development’s 24th Annual Corporate Survey ranks various site se-
Global Logistics lection factors that corporate managers deem important or very important to their deci-
Grubb & Ellis Company sion. This year over 81 percent of respondents said inbound outbound shipping costs were
either “very important” or “important” to their analysis. This makes inbound outbound
And shipping costs the 10th most influential factor in site selection for 2009.
Joseph Tillman Before you throw a dart at a map to select a site, pause to reflect on the implications that
Senior Researcher and Consultant the new site will have on your company’s overall network and go-to-market strategy.
Supply Chain Visions Today supply chains are no longer local phenomena; they span the globe creating a
smaller, flatter world. Consumers are fluid, markets shift and third party logistics
providers are more plentiful and capable than ever. To be responsive, companies need a ro-
bust distribution network, not a perfect site. Even if the dart lands in California, the prime
site to modify in your distribution network may be in Washington, Oregon or even Geor-
gia when transportation flows, fuel costs, lease terms, facility size, growth projections and
customer expectations are taken into account.

Top 10 Site Selection Factors Oscillating fuels costs, new laws and regulations, fewer state and local incentives due to
public budget constraints, and an aging infrastructure have corporate managers rethink-
ing their strategy for site selection. While corporate planners have no control over these
Rankings 2009 2008 factors, they do have control over the design of their distribution network. By creating a
1. Labor costs 96.7 91.4 (2)* flexible, robust distribution network that takes a long term view, they can alleviate poten-
2. Highway accessibility 92.9 95.4 (1)
tial problems that may pop up.

3. Tax exemptions 88.4 88.6 (4)

To create a robust distribution network, first look at the individual distribution centers
and determine how those sites fit into the overall network flow and the company’s go-to-
4. Energy availability and costs 88 87.9 (5) market strategy. Before adding or changing a site, ask yourself:

5. Corporate tax rate 87 85.3 (8) • What markets will the new site serve?

6. Availability of skilled labor 86.9 87.7 (6) • Should the site be a larger facility that supports multiple regions or should we build
7. Occupancy or construction costs 86.7 90.4 (3) more distribution centers that are smaller and closer to customers?

8. State and local incentives 84.9 87.2 (7) • What are our transportation options at those new sites, especially if our customers
change their strategy?
9. Availability of advanced ICT 83.2 55.5 (21)
services • What is our service to the market likely to be in the future: three-day, two-day or
10. Inbound/outbound shipping 81.7 N/A same/next-day?
costs
• Will our client’s order patterns change to require more frequent and smaller ship-
Source: Area Development magazine
ments to reduce inventory at their end of the supply chain?

To figure out what markets you will serve can be as easy as looking at a map or as compli-
cated as hiring a site selection consultant to perform a service area study. One way to gain
insight on this question is to contact nearby distribution facilities; ask them why they are
there, how they view the transportation infrastructure and whether they are meeting the
cost and service targets that were set before they located to the area.

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© 2010 Grubb & Ellis Company. Some of the data in this report has been gathered from third party sources and has not been independently verified by Grubb & Ellis. Grubb & Ellis makes no warranties or representations as to the completeness or accuracy thereof.
 Logistics Costs
Percent of Total

Supplies If you are worried about reaching out to other distribution fa-
2%
cilities in the area, don’t be! There are plenty of opportunities
Admin. Other Warehouse
Rent 3% to speak with representatives from those sites. Begin a dis-
1%
4%
cussion on a social networking platform like LinkedIn. Attend
Customer Service
8% local professional meetings hosted by SIOR, WERC, NAIOP,
CSCMP, etc. Attend a national conference hosted by one of
the professional organizations. One reason to attend local
Labor meetings and conferences, especially in the logistics and sup-
10% Transportation ply chain field, is to discover best practices and issues that
50%
could plague your distribution facility. Another reason is to be
able to benchmark against competitors. Keep your trans-
portation options open. Look for sites that provide a mix of
options from air and rail to truck and ocean shipping. Your
Inventory
22% customers’ business strategies are changing as fast as
teenagers. If your customer changes plans a year after you
Source: Establish, Inc/Herbert W. Davis and Company start operations and expects you to deliver to another region
in the country or to another country altogether, can you re-
ceive and send shipments using a combination of shipping
methods? And don’t forget about the potential to expedite orders. While FedEx and UPS have their place in supporting your strategy, the
cost of this service must be included in your total cost analysis. Being located near a combined heavy weight/small package air hub can
make a difference.

Take the time to understand any long term plans that could alter the mix of products and how that will impact your shipping methods
and service delivery. And remember that transportation is typically over half the cost of a company’s supply chain with labor running
around 17 percent. Rent, taxes and maintenance typically are less than 10 percent of supply chain costs.

Be sure to consider your company’s growth potential and with which customers. Will the business grow or decline over the next five
years? Will it expand or reduce overseas operations? Having multiple smaller distribution facilities will speed delivery to customers and
lower fuel and trucking costs, but it will be harder to manage the inventory and consolidate deliveries if something changes.

At the same time, don’t fall into the one-size-fits-all approach. If your company provides a range of products and services, locating a large
cold storage facility, for example, in a central location to support all those customers may make sense. The larger facility will have higher
costs associated with transportation – longer routes, slower delivery and higher fuel usage – but lower costs when taking other factors
into consideration such as work force training, lower inventory levels and ability to consolidate orders.

The old saying that the top three elements of a good commercial real estate site are “location, location, location” is changing. Today we
need to look at the 3 “Ls” as “logistics cost, labor and love.” Logistics cost and labor are major elements in the total cost of your network as
outlined above. The love comes from the local and state governments that must embrace the investment your company will make in
their community. Without a true desire for the type of investment you will make, the local market may limit or offer no incentives, which
will make smooth operation of your facility difficult or more expensive.

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© 2010 Grubb & Ellis Company. Some of the data in this report has been gathered from third party sources and has not been independently verified by Grubb & Ellis. Grubb & Ellis makes no warranties or representations as to the completeness or accuracy thereof.
 Market in the Spotlight
Texas account for 251 million square feet. Roughly half of the logistics
inventory is categorized as Class A space, while another 32
By percent is considered Class B space.
Ariel Guerrero, Client Services Manager
The Dallas-Fort Worth industrial leasing market gained traction
And
during the first half of 2010, and the logistics sector followed suit
Beverly Woodall, Research Analyst
recording over 3.1 million square feet of positive absorption for
Grubb & Ellis Company the first six months of the year. Growing leasing demand helped
to push the vacancy rate down 60 basis points since year-end
2009 to 15.8 percent at the close of the second quarter, the
sector’s lowest vacancy level since early 2009. With the
DALLAS-FORT WORTH construction pipeline empty and leasing activity on the rise,
overall asking rental rates for logistics space held firm over the
Logistics Infrastructure last year at about $3.50 per square foot per year, triple-net, with
The Dallas-Fort Worth Metroplex has become a regional hub for Class A space averaging $3.55.
the transportation, distribution and wholesale trade industries.
Several national firms have recognized the benefits afforded
The region’s central U.S. location is equally close to five major
them by relocating or expanding in the North Texas region,
business centers across the Northern Hemisphere: New York,
including Lego, Whirlpool Corp. and American Standard Brands.
Chicago, Los Angeles, Mexico City and Toronto. Further, more than
Lego recently expanded its North American distribution center in
50 million people can be reached from Dallas-Fort Worth
the Alliance Global Logistics Hub from 402,000 square feet to
overnight by truck or rail, and 98 percent of the U.S. population
596,000 square feet due to strong U.S. sales in the last two years.
can be reached within 48 hours. The area’s central U.S. location
ensures lasting growth from passenger and air cargo activity at Whirlpool Corp. announced plans to build a 1 million-square-foot
DFW International and Alliance airports, the metro’s vast regional distribution center in First Park DalPort Distribution
trucking and rail industries and a huge distribution Center to serve the southern United States. The new Lego facility
infrastructure. Among North Texas’ strongest attributes will be part of a nationwide consolidation of more than 40 older
contributing to the area’s global strength is its very low costs of sites into 10 regional distribution centers to streamline deliveries
doing business. The Metroplex gained a key regional competitive and increase efficiencies. American Standard Brands consolidated
advantage in early 2010 when the DFW Foreign Trade Zone its distribution operations from three facilities in San Antonio into
became one of the nation’s first trade zones authorized by the Intermodal I, a 626,100-square-foot warehouse located in the
U.S. Department of Commerce to operate under new and southern portion of the Metroplex that will serve as a distribution
streamlined procedures. This will allow eligible businesses in the center for the south and central regions of the United States.
six-county DFW area to receive FTZ designation, enabling them
to lower operating costs and more effectively compete within the Forecast
global marketplace. Trade activity is a key demand driver for warehouse space in the
Metroplex, and import-export demand has started to rebound at
Market Overview the area’s distribution hubs including DFW International Airport,
As a result of the North Texas region’s competitive advantages, which reported a 36 percent increase in air freight to Asia
the area houses one of the largest industrial markets in the U.S. through March 2010 compared with the prior year. Low fuel
with a total inventory of more than 664 million square feet. Of prices and elevated natural gas inventories have held
this total, logistics buildings with 100,000 square feet and up transportation costs flat over the last several quarters, but if the

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© 2010 Grubb & Ellis Company. Some of the data in this report has been gathered from third party sources and has not been independently verified by Grubb & Ellis. Grubb & Ellis makes no warranties or representations as to the completeness or accuracy thereof.
 economy can sustain its recovery, expect transportation rates to network of highway, rail, intermodal and air connections, as well
increase and available truckload capacity to tighten in the second as the Port of Houston’s leadership in foreign trade, also helps
half of the year and place additional pressure on landlords to boost its logistics and distribution activity in allowing shippers to
keep leasing costs at current levels. economically transport their goods between Houston and inland
points. The port is also in a prime position to capitalize on the
Logistics Inventory Top 10 Markets expected increase of traffic that will come through the Gulf
Millions of Square Feet Coast with the 2014 completion of the Panama Canal expansion.
Chicago
427
Market Overview
Other With over 417 million square feet of competitive industrial
936
Atlanta inventory, the Greater Houston area is considered more of a
319
regional distribution hub when compared to the Dallas-Fort
Worth Metroplex – just 225 miles to the north. Grubb & Ellis
Inland Empire tracks a 148 million-square-foot subset that is categorized as
St. Louis 273
79 logistics space in buildings greater than 100,000 square feet. A
Baltimore little over one-third of the regional logistics inventory is
96
Houston Dallas-FW
148
219 categorized as Class A, with its increasing share driven by the
NJ North & Central PA East & Central 32.2 million square feet of product delivered since 2005. Like
231 219
Los Angeles other markets across the country, Houston’s logistics market felt
252
the effects of sluggish trade volume, depressed retail sales,

HOUSTON reduced manufacturing activity and declining inventories moving

through corporate supply chains, but the market weathered the
Logistics Infrastructure recent recession better than most of the country’s major
International trade has played a key role in Houston’s remarkable metropolitan areas.
economic recovery from the oil price collapse of the mid-1980s. Within the past two years, the vacancy rate in Houston’s logistics
Along with health care and biotech research, space exploration and market has increased from 7.7 to 9.0 percent, mirroring rising
other high-tech industries, international trade has diversified the vacancies across the U.S. As experienced in North Texas, this
city’s formerly energy-dependent economy in recent years. increase was driven primarily by the delivery of new logistics
Centrally located on the Gulf Coast, Houston is a strategic gateway space rather than a drop in leasing demand. During this period,
for cargo originating in or destined for the U.S. West and Midwest. Houston recorded only a single quarter of negative absorption –
As the fourth most populated metro in the country, Houston lies the third quarter of 2009. Net absorption totaling 7.7 million
within close reach of a critical mass of consumers. More than 17 square feet within the past two years was overwhelmed by 12.7
million people live within 300 miles of the city, and approximately million square feet of new supply added to the inventory. As the
60 million live within 700 miles. construction pipeline has thinned out within the past year,
Houston's long list of attributes appealing to distribution- and overall asking rental rates for logistics space have declined
logistics-minded companies include the largest container port on slightly by $0.19 to $4.54 per square foot per year, triple-net, with
the Gulf Coast; the 11th-largest international air cargo gateway Class A rates at $4.57.
to the U.S.; a favorable business tax climate; and one of the The East Southeast Far submarket, which includes the port area,
largest concentrations of industrial space in the nation. The city’s currently has the highest vacancy citywide at 23.3 percent,

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© 2010 Grubb & Ellis Company. Some of the data in this report has been gathered from third party sources and has not been independently verified by Grubb & Ellis. Grubb & Ellis makes no warranties or representations as to the completeness or accuracy thereof.
 resulting from the massive building boom experienced in recent Forecast
years. From 2005–09, developers added roughly 14.3 million Strong population growth, housing construction resulting from
square feet of logistics space to the submarket, accounting for in-migration and continued growth in local retail sales will
nearly 45 percent of the new inventory delivered citywide. The bolster warehouse demand going forward in the region.
expansion of industrial space in the southeast quadrant started Although demand is not expected to reach the levels seen during
after Wal-Mart Stores Inc. decided to build 4 million square feet the energy boom in the near future, there is promise in Houston
of distribution space in the Houston Ship Channel area. That for future trade with East Asian markets, and the Panama Canal
project placed Houston on the logistics map, and other third- expansion will be critical in accommodating larger vessels. The
party logistics companies soon followed. completion of the Panama Canal expansion in 2014 is predicted
to triple local freight tonnage according to the Port of Houston
Authority. The Canal’s expansion will make way for larger vessels
that will increase not only cargo traffic along the Houston Ship
Channel but also the need for improved infrastructure and rail
access to the port.

Logistics Building Classifications

Class A Buildings Class B Buildings Class C Buildings
 State-of-the-art functionality,  Some functional obsolescence  Considerable functional
systems and finishes obsolescence
 Fair to good building systems
 Minimum of 28-foot clear height for  Less than 110-foot truck
 Minimum of 22-foot clear height for
buildings over 100,000 square feet turning radius
buildings over 100,000 square feet
 Excellent truck door/building ratio  Below 22-foot clear height for
 Adequate loading capability
(minimum of 1/7,500 square feet) buildings over 100,000 square feet
 .33/3000 to .45/3000 sprinkler
 Excellent truck yards with minimum  Insufficient number of truck doors
system
of 135-foot truck turning radius
 Non-calculated fire sprinkler system
 Minimum of 110-foot truck
 Minimum of .60/3000 or ESFR
turning radius
sprinkler system

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© 2010 Grubb & Ellis Company. Some of the data in this report has been gathered from third party sources and has not been independently verified by Grubb & Ellis. Grubb & Ellis makes no warranties or representations as to the completeness or accuracy thereof.
 Market Quick Takes
Regional Overview

NORTHERN CALIFORNIA/ recovery is expected to continue at a have improved. From June 2009 to June
PACIFIC NORTHWEST measured pace through the rest of the 2010, total import cargo volume at the
Oakland-East Bay: Container traffic at year and into 2011… Stockton: Kyoho ports of Los Angeles and Long Beach in-
the Port of Oakland surged during the Manufacturing California shut down in creased 15 percent, driven mostly by in-
first half of this year, totaling 1.09 mil- April. The 260,000-square-foot auto ventory restocking among retailers.
lion containers. That is up by 12.9 per- parts plant was a supplier to the Recent weakness in retail sales suggests
cent from the first half of 2009. Traffic in NUMMI plant in Fremont, Calif., which that demand for logistics space could
June was 21 percent higher than June also closed. But the vacancy rate for dis- soften again as retailers finish their re-
2009. Port officials say they are waiting tribution space has dropped over the stocking. One positive indicator is that
to see if the upswing lasts beyond the last two quarters, a trend that is ex- total container traffic at the ports is pro-
inventory restocking cycle, which drove pected to continue. Occupiers have jected to expand by 14 percent this year
traffic earlier in the year as manufactur- emerged to capitalize on both lease and with another 5 percent gain likely in
ers, wholesalers and retailers replen- purchase opportunities. Currently a 2011… Orange County: In the largest
ished inventories that were depleted handful of tenants are searching for sale of the second quarter, Frick Family
during the recession. A $433 million spaces in the 500,000-square-foot range Properties, LLC, a packaging supply com-
dredging project completed late last in the San Joaquin Valley. If these deals pany, consolidated from two Los Ange-
year deepened the Oakland harbor from close, they will significantly reduce the les County sites, acquiring a
42 feet to 50 feet… Portland: United Sta- market-wide vacancy. 246,732-square-foot distribution facility
tioners recently leased 190,000 square in Orange for $22.2 million.
feet for a new distribution facility that SOUTHERN CALIFORNIA
will consolidate several smaller facilities MOUNTAIN/SOUTHWEST
Inland Empire: Southern
throughout the area. Portland saw the
California is the gateway to the world’s Denver: Pent up demand
delivery of a significant amount of new
economy where 44 percent of all con- for retail goods drove a rise in consumer
space in 2007 and 2008, but absorption
tainerized cargo enters the U.S. On aver- spending and subsequent need for
has been slow, and tenants can still get
age, half of this is bound for local manufacturing and warehousing ac-
great deals… San Jose-Silicon Valley:
markets to serve the basin’s 18 million tivity across the board. In the second
Though it is not a logistics hub, Silicon
residents. After years of rampant specu- quarter, warehouse-distribution prop-
Valley does have about 20 million
lative construction, the Inland Empire is erties absorbed nearly 600,000 square
square feet of logistics space. Vacancy is
very attractive to logistics operators feet… Phoenix: Logistics properties ab-
currently balanced at 10.1 percent over-
seeking first-generation, Class A space sorbed nearly 1 million square feet in
all and just 6.4 percent for Class A prod-
at highly competitive rental rates. The the second quarter. Companies such as
uct. Many of the occupiers are locally
vacancy rate for Class A logistics space Staples, Home Depot, Tower Automo-
based technology companies such as In-
in buildings of 100,000 square feet-plus tive, Big O’ Tires and Wal-Mart occu-
termolecular, which recently took
was 13.0 percent in the second quarter pied the space, taking advantage of
130,000 square feet in the second quar-
2010, down 260 basis points from one lower lease rates and better conces-
ter’s largest deal… Seattle: The local lo-
year ago… Los Angeles: The Logistics va- sions. Vacancy held steady in the sec-
gistics market began to rebound in the
cancy rate currently stands at 4.4 per- ond quarter, which was good news
first half of 2010 with year-to-date posi-
cent, 110 basis points higher than the considering all of the new space added
tive net absorption of 912,000 square
vacancy rate for the overall industrial in late 2009 and early 2010.
feet. Improvements are being driven by
market. With retail sales being hit hard
healthy gains in port volume (Port of
by the recession, logistics operators
Seattle TEUs were up 93 percent year-
have felt the pinch in the form of re-
over-year in June) and increasing confi-
duced demand for space. But conditions
dence among manufacturers. The

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© 2010 Grubb & Ellis Company. Some of the data in this report has been gathered from third party sources and has not been independently verified by Grubb & Ellis. Grubb & Ellis makes no warranties or representations as to the completeness or accuracy thereof.
 Market Quick Takes
Regional Overview

TEXAS/GREAT PLAINS GREAT LAKES/ advanced batteries. General Electric and

Dallas-Fort Worth: Early OHIO VALLEY battery maker A123 are investing mil-
this year, the DFW Foreign Trade Zone Chicago: Logistics activity remains lions to manufacture and distribute
became one of the nation’s first trade strong. In one of the largest lease trans- wind turbines and advance car batter-
zones to operate under new procedures actions last quarter, ALG Worldwide Lo- ies… Indianapolis: The logistics market
allowing companies to import products gistics (ALG Direct) moved into 500,000 absorbed nearly 850,000 square feet in
from foreign countries and delay the square feet in Romeoville, while NACA the first half of 2010. Johnson & John-
payment of duty taxes until the goods Logistics will double its space when it son Sales and Logistics recently an-
leave the FTZ. At the Alliance Global Lo- moves into 440,000 square feet in Carol nounced its acquisition of 120 acres for
gistics Hub, ATC Logistics & Electronics Stream in the third quarter. Planning is the construction of a 1 million-square-
recently rolled out its FTZ services to underway on the Illiana Expressway, a foot distribution facility opening in
provide its customers with reduced ex- limited-access east-west highway that spring 2011 in the southwest submar-
penses and a streamlined import/ex- will connect I-55 in Illinois with I-65 in ket… Minneapolis-St. Paul: Many truck-
port process… Houston: Logistics firms Indiana south of Chicago. CenterPoint ing companies are trying to figure out
have been taking advantage of rental Properties’ newest logistics center and how to meet lower customer demand
rate discounts in key locations near rail intermodal facility, CIC-Joliet, will have without reducing the level of service or
service and the Port of Houston. Jacob- the capacity for 20 million square feet at increasing prices. This paradox has
son Warehouse Company Inc. became build-out. The $2-billion, 3,600-acre fa- forced some companies to downsize,
the latest in a string of 3PL firms to ex- cility is slated to receive its first train on leave the market or consolidate with
pand by taking down an additional August 1, 2010. It will be an inland port other firms, which has left vacancies in
210,000 square feet near the port… for Union Pacific Corporation, handling distribution buildings throughout the
Kansas City: The State of Kansas will freight traffic from Los Angeles to Twin Cities… South Bend-Northern Indi-
provide BNSF with a tax incentive worth Chicago… Cleveland: The Lake Carriers ana: Patterson Dental recently acquired
$35 million toward the construction of a Association announced in March that more than 200,000 square feet in the
planned intermodal facility in Edgerton, Great Lakes shipping levels have north submarket, the largest block of
Kansas. A condition of the grant is that quadrupled since mid-2009 mainly due Class A warehouse-distribution space in
construction must commence this year. to an increase in steel production. In the the area.
While there aren’t many large users in first half of 2009, no iron ore was deliv-
the market right now, officials from ered to the Port of Cleveland while the
BNSF recently expressed confidence in first half of this year saw more than
the long term viability of the Kansas City 500,000 tons imported. A 511,000-
logistics market… St. Louis: Demand square-foot distribution facility is under-
turned up slightly in the first half of way, the largest new industrial project
2010. In the largest recent transaction, built since 2004. Several hundred-thou-
P&G leased 500,000 square feet in sand square feet of new logistics occu-
southwest Illinois. Rates remain flat at pancy will be realized by year-end as
35 to 40 percent below prior-year levels. current transactions in the pipeline are
Despite consolidation continuing, net finalized… Detroit: An undercurrent of
absorption was positive last quarter fol- demand is beginning to rise thanks to
lowing six quarters of negative absorp- investments in alternative energy and
tion. No new construction has occurred.

Logistics Market Trends North America First Half 2010 www.grubb-ellis.com 10

© 2010 Grubb & Ellis Company. Some of the data in this report has been gathered from third party sources and has not been independently verified by Grubb & Ellis. Grubb & Ellis makes no warranties or representations as to the completeness or accuracy thereof.
 Market Quick Takes
Regional Overview

NORTHEAST/ Demand has increased among logistics dustrial Park. These and other recent ex-
MID-ATLANTIC companies seeking large blocks of pansion projects will bring 5,200 new
Baltimore: In this tenant-friendly mar- space. Existing, cost-effective buildings jobs to the region… Jacksonville: There is
ket, many Baltimore companies have are winning out over build-to-suit op- still an ample supply of logistics space
been able to secure the perfect space portunities. Because large blocks of con- available. The port continues to increase
that lets them optimize fuel costs, ceil- tiguous space are hard to find, users are its container traffic, which is expected to
ing height, trailer storage, power and willing to look farther afield in locations reduce the vacancy rate in these facili-
other factors crucial to supply-chain effi- such as Fredericksburg, Md. and the Bal- ties by the end of the year… Memphis:
ciency… New Jersey: An uptick in de- timore-Washington Corridor. Virtually Market conditions are improving
mand for warehouse space in Northern no new logistics buildings are in the slowly… Miami: Activity continues to in-
and Central New Jersey translated into construction pipeline. Some large air crease. DHL Global Forwarding Americas
more than 3.1 million square feet of ab- freight companies are making strategic recently inked a lease for 201,000
sorption during the second quarter of expansions, betting on increasing air square feet at the Miami International
2010, which countered the 2.6 million freight volume and gains in market Commerce Center in the Airport West
square feet of losses recorded one year share from weaker competitors. submarket. The company took advan-
ago. Current market conditions have en- tage of historically high market avail-
couraged a flight to quality among ten- abilities and low lease rates to
SOUTHEAST
ants seeking to upgrade their space consolidate its operations. Econocaribe
Atlanta: Developers broke Consolidators, a Miami-based forward-
needs while locking in favorable leasing
ground in July on a new inland port in ing and logistics company, signed a
packages… Philadelphia-Eastern Penn-
Cordele, Ga. The $8.6 million intermodal 144,000-square-foot lease… Richmond:
sylvania: Demand is being driven by
project will facilitate transport of cargo The market experienced an uptick in ac-
3PLs as retailers outsource supply-chain
trucked in from nearby states onto tivity with major trucking companies ex-
management in order to mitigate risk
trains headed for the Port of Savannah. panding and looking for new facilities.
associated with fluctuating consumer
The goal is to entice shippers away from Activity at the Port of Virginia has in-
spending. Contract rents are at levels 25
the port facilities in Mobile, Ala. The creased both in containers and in bulk
to 35 percent lower than pre-recession-
project is expected to generate 2,500 commodities.
ary rates due to the glut of supply on
jobs… Charleston: Last fall Boeing chose
the market. The abundance of available
the region as its location to manufac-
space resulted from over-development
ture the 787 Dream Liner aircraft. The
rather than demand deterioration…
company is building a 700,000-square-
Pittsburgh: The airport area is attracting
foot facility on a long-term land lease at
logistics operations. Chapman Proper-
the Charleston International Airport.
ties broke ground on a 300-acre distri-
This is in addition to the 600,000 square
bution park located on the new toll
feet of space that the company cur-
road, I-576, which connects I-376 to
rently occupies in the market. Boeing’s
Route 22, the first leg of the planned
expansion is attracting interest from a
beltway around Pittsburgh. Trammel
number of other companies looking at
Crow continues to promote a planned
the Low County for expansion opportu-
600,000-square-foot distribution devel-
nities. TBC Tire Kingdom is building a
opment on the airport’s “Northfield” site
new 1.2 million-square-foot East Coast
next to Dick’s Sporting Goods’ new
distribution center in the Rockefeller In-
world headquarters… Washington, D.C.:

Logistics Market Trends North America First Half 2010 www.grubb-ellis.com 11

© 2010 Grubb & Ellis Company. Some of the data in this report has been gathered from third party sources and has not been independently verified by Grubb & Ellis. Grubb & Ellis makes no warranties or representations as to the completeness or accuracy thereof.
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Logistics Market Trends

United States First Half 2010

© 2010 Grubb & Ellis Company. Some of the data in this report has been gathered from third party sources and has not been independently verified by Grubb & Ellis. Grubb & Ellis makes no warranties or representations as to the completeness or accuracy thereof.