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April 2 2018

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DEMAND FOR WAREHOUSE and distribution space is growing faster in high-cost port cities and major inland hubs than in secondary markets, despite accelerating rents, labor and land costs. "If that's where the demand is, that's where I want to be. Yields will be higher," Chris Caton, senior vice president of research at Prologis, told the 18th Annual TPM Confer- ence in Long Beach, California, on March 6. Seaport locations such as Los Angeles-Long Beach and New York-New Jersey and inland hubs like Chicago and Dallas are experi- Despite escalating costs, shippers are opting for warehouses and DCs closer to major ports By Bill Mongelluzzo Jersey are up 11.5 percent to $8.14. One important reason why proximity to distribution hubs and population centers is more import- ant than real estate prices is the in- creasing cost of transportation, said Michael Murphy, chief development officer at CenterPoint Properties. Until recently, transportation costs were 10 times the cost of real estate, but now it's more like 13 to 14 per- cent, he said. Increasing drayage costs and worsening driver shortages since the roll-out of the federal electronic logging device (ELD) mandate in December are forcing transportation prices higher. The April 1 enforce- ment of the ELD requirement is expected to accelerate this trend be- cause drivers no longer will be able to adjust their log books to make it appear they are adhering to federal hours-of-service requirements. With an aging driver force and the difficulty drayage companies have attracting young drivers, warehouse operators' ability to ensure access to sufficient truck capacity is more Location trumps price encing especially rapid demand for industrial development, because of a convergence of traditional import distribution activities and last-mile e-commerce fulfillment. Vacancy rates are low, rents are increasing steadily, and a shortage of ware- house workers and truck drivers are pushing labor costs higher at a faster pace than in secondary inland population centers. As a result, US industrial rents increased 9 percent last year, but rents increased 15 per- cent at locations close to ports. A Cushman & Wakefield analysis of 13 major seaport industrial real es- tate markets found that the seaport locations accounted for 28 percent of net absorption in the fourth quarter of 2017. The average vacancy rate was 3.5 percent, compared with 5.1 percent for the US market as a whole. Industrial real estate rental rates can be tracked on the JOC Ship- ping & Logistics Pricing Hub, which shows that rents in Los Angeles have risen 6.7 percent from the fourth quarter of 2016, to $9.60 per square foot, while rents in northern New JOC Guide to Warehousing and Industrial Real Estate Special Report 18 The Journal of Commerce | April 2 2018

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