Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
The industrial property sector is partying like it's...well...2005.
The market—which lumps together manufacturing, warehouse and distribution center, transportation, and logistics
facilities—is experiencing one of its strongest cycles in years. Warehouse rents are rising, with the average rental
rate up 4.4 percent from a year ago, according to JLL, a real estate and logistics company. CBRE Inc., a huge developer, pegs
the year-on-year gain at about 3.1 percent. In the southern California market, home to the country's largest seaport complex,
rents are up nearly three times that, driven by huge demand for port-centric property as well as the need for more cross-dock
space to handle the transloading of goods from 20- or 40-foot marine containers to 53-foot boxes moved inland via truck or rail
intermodal.
Vacancy rates nationwide in the third quarter dropped to 7.2 percent, the lowest level in six years, according to JLL data.
Vacancies in red-hot markets like the Lehigh Valley in central Pennsylvania have dipped below that, hitting levels not seen for a
decade or more, according to Jake Terkanian, vice president of the global industrial services group at CBRE. Nationwide
availability, which tracks current vacancies and space that will become available in the next six months, reached their lowest
levels in the quarter since the first quarter of 2008, according to CBRE.
Nationwide net absorption, broadly defined as the amount of occupied space less the amount of space vacated, hit 143.8 million
square feet through the first nine months, up 28.5 percent from a year ago, JLL said. Vacancy rates could fall to as low as 6.9
percent in the seasonally strong fourth quarter, when demand for space picks up before the holidays, JLL said. By year's end, net
absorption will reach, at minimum, 185 million square feet, up nearly 10 percent from a year ago, JLL said.
The anecdotes add fuel to the story. In the Lehigh Valley, there are no more 500,000-square-foot "big box" distribution centers
on the market, according to Terkanian, who oversees the region for CBRE. In Bethlehem, Pa., Zulily, a fast-growing e-tailer, leased
out all the space of an 800,000-square-foot distribution center, which was built as a speculative development, about six months
before construction was finished. Out west, Los Angeles has a 1.9-percent industrial vacancy rate, according to Newmark Grubb
Knight Frank, a real estate services firm. About 2.5 million square feet is under construction there.
California's "Inland Empire," where industrial rents are significantly cheaper than in and around the Los Angeles basin, has
been on a multiyear roll as the DC conduit between imports off-loaded at the Ports of Los Angeles and Long Beach and consumer
markets across the west. Ironically, third-quarter vacancy rates have ticked up to 5 percent from 4.8 percent in the prior quarter
and 4.6 percent in the year ago period, according to Newmark data. That could be because of a minor oversupply condition due to
the 12 million square feet under construction there.
Low interest rates, sharply declining oil prices, and a generally better economy have created a "potent cocktail" for industrial
demand, according to Jim Clewlow, chief investment officer of Centerpoint Properties, which specializes in developing transportation
and logistics projects. Should oil prices stabilize at current levels or fall further, that could trigger demand for more distribution
centers, Clewlow said. That's because higher oil prices generally encourage producers, distributors, and retailers to consolidate their
DC networks in an effort to reduce shipping costs and conserve fuel.
The industrial segment is demand-driven, and tenant demand is demonstrating consistent strength. Space needs were up by 23.9 million square
feet compared to the winter of 2013, and on par with summer 2014 levels, JLL said. In addition, 45 percent of the demand is for space under
500,000 square feet, a reflection of broad-based strength and the bullishness of smaller distributors, the firm said.
A VIRTUOUS CYCLE
When the real estate market turned down sharply starting in 2007, industrial construction nationwide virtually ceased. It stayed frozen for about
18 months. From 2010 to 2013, deliveries of new projects plumbed a 50-year low, according to JLL data.
However, as e-commerce growth and low interest rates began fueling economic activity, developers got busy and once-dormant markets started
perking up. They've continued to gain momentum. Total construction in the third quarter of 2014 rose 16.5 percent from the prior quarter and
54.2 percent from a year ago, according to JLL. In Atlanta, construction reached 12.4 million square feet by quarter's end, up 104 percent from
the end of the prior quarter, the firm said.
Still, there is plenty of catching up to do. New completions at the end of 2014 will only match 2003 levels, says Dain Fedora, JLL's research
manager, Americas industrial. Projected new completions hitting the market next year will only return the sector to 2005 levels, he adds. The
supply that went online in the third quarter, while being the strongest quarter to date, is still at levels below the long-term average, adds
CBRE.
The market, being what it is, will eventually seek its level. Supply will continue to increase, eventually bringing it into equilibrium with
demand. But that may not happen until well into 2016. "We still need that product," Terkanian says. Landlords, meanwhile—who three or four years
ago were handing out incentives left and right to entice prospective tenants and keep existing ones—are now in the catbird's seat. "In 24 months,
the pendulum has completely swung," Terkanian says.
Bigger markets like Los Angeles, Dallas, Chicago, and New Jersey/central Pennsylvania may find themselves with a supply overhang, according to
Tim Feemster, managing principal of Foremost Quality Logistics, a consulting company. However, tenant demand should remain sufficiently strong to
keep net absorption levels growing, Feemster adds.
Activity in 2015 will be influenced by how the holiday season pans out, Feemster says. Busy cash registers combined with a continued uptick
in the overall economy will embolden developers to increase their capital investments, he reckons.
In this environment, it is hardly a surprise to see rental rates increase. And that is unlikely to faze producers, distributors, and retailers
willing to pay a premium to be near transportation nodes and dense population centers. According to JLL, logistics costs—transportation,
inventory, and labor—account for about 80 percent of a user's operating budget. Real estate, by contrast, comprises just about 5 percent. Higher
rents are "a drop in the bucket" for companies keen on being where their customers are, Fedora says.
The number of container ships waiting outside U.S. East and Gulf Coast ports has swelled from just three vessels on Sunday to 54 on Thursday as a dockworker strike has swiftly halted bustling container traffic at some of the nation’s business facilities, according to analysis by Everstream Analytics.
As of Thursday morning, the two ports with the biggest traffic jams are Savannah (15 ships) and New York (14), followed by single-digit numbers at Mobile, Charleston, Houston, Philadelphia, Norfolk, Baltimore, and Miami, Everstream said.
The impact of that clogged flow of goods will depend on how long the strike lasts, analysts with Moody’s said. The firm’s Moody’s Analytics division estimates the strike will cause a daily hit to the U.S. economy of at least $500 million in the coming days. But that impact will jump to $2 billion per day if the strike persists for several weeks.
The immediate cost of the strike can be seen in rising surcharges and rerouting delays, which can be absorbed by most enterprise-scale companies but hit small and medium-sized businesses particularly hard, a report from Container xChange says.
“The timing of this strike is especially challenging as we are in our traditional peak season. While many pulled forward shipments earlier this year to mitigate risks, stockpiled inventories will only cushion businesses for so long. If the strike continues for an extended period, we could see significant strain on container availability and shipping schedules,” Christian Roeloffs, cofounder and CEO of Container xChange, said in a release.
“For small and medium-sized container traders, this could result in skyrocketing logistics costs and delays, making it harder to secure containers. The longer the disruption lasts, the more difficult it will be for these businesses to keep pace with market demands,” Roeloffs said.
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
National nonprofit Wreaths Across America (WAA) kicked off its 2024 season this week with a call for volunteers. The group, which honors U.S. military veterans through a range of civic outreach programs, is seeking trucking companies and professional drivers to help deliver wreaths to cemeteries across the country for its annual wreath-laying ceremony, December 14.
“Wreaths Across America relies on the transportation industry to move the mission. The Honor Fleet, composed of dedicated carriers, professional drivers, and other transportation partners, guarantees the delivery of millions of sponsored veterans’ wreaths to their destination each year,” Courtney George, WAA’s director of trucking and industry relations, said in a statement Tuesday. “Transportation partners benefit from driver retention and recruitment, employee engagement, positive brand exposure, and the opportunity to give back to their community’s veterans and military families.”
WAA delivers wreaths to more than 4,500 locations nationwide, and as of this week had added more than 20 loads to be delivered this season. The wreaths are donated by sponsors from across the country, delivered by truckers, and laid at the graves of veterans by WAA volunteers.
Wreaths Across America
Transportation companies interested in joining the Honor Fleet can visit the WAA website to find an open lane or contact the WAA transportation team at trucking@wreathsacrossamerica.org for more information.