Guy Jaquier, executive vice president and president of Europe and Asia for AMB Property Corp., calls supply chain economics the motivating force behind the San Francisco-based company's move into international development and ownership.

"Our customers--DHL, Deutsche Post, Federal Express--are the people who move the boxes around the world. If we want to serve those customers and build the facilities they need, it takes us around the globe," he explains.

According to Jaquier, AMB did not own any properties outside of the US at the start of the decade. By 2004, it had holdings in Mexico, France, the Netherlands, Singapore and Japan. The following year, the company moved into Germany and China. Today, it has more than 7.5 million sf of foreign properties in its portfolio and additional projects in development, including a million-sf distribution center in Shanghai.

According to Peter D. Linneman, a professor of real estate at the University of Pennsylvania's Wharton School of Business in Philadelphia and principal of Philadelphia-based Linneman Associates, while the economies of Asia's two giants, India and China, grew 8% and 9%, respectively, last year, they came nowhere near matching the strength of the US and Europe with regard to purchasing power parity. Furthermore, Linneman points out, much of the economic growth in emerging nations is a response to increasing US and European consumer demand.

At the same time, this is producing a growing middle class with money to buy the goods originally manufactured for export. "Throughout Latin America, you have export-driven growth, creating an expanding need for high-quality manufacturing and distribution facilities," notes Paul Reitz, vice president of global capital markets for Princeton, NJ-based NAI Global. In addition, he continues, the desire of the region's multiplying middle class for consumer goods and higher-quality homes and environments requires the construction of modern internal distribution networks.

The need for up-to-date distribution properties is ubiquitous, say most experts. ProLogis, one of the first US industrial property companies to recognize the real estate potential from global trade, made its first international buy, a maquiladora, in 1996 in Tijuana. But ProLogis senior vice president Silvano Solis, who heads the REIT's Mexican operations, says close to 90% of the company's recent acquisitions in that country have been distribution buildings and development sites, both near the border and in central Mexico. For example, in July the REIT paid $238 million for six industrial parks, totaling 3.5 million sf, in Mexico City and Guadalajara. The purchase also includes 140 acres, giving the firm enough land in Mexico to support some 7.5 million sf of new construction.

According to ProLogis, non-US projects represent some 70% of the company's development pipeline. While about 30% of its 404-million-sf portfolio encompasses foreign holdings today, the company estimates the figure will likely reach 40% before long.

Russ Blackwell, CEO of CalEast Global Logistics LLC of Columbus, OH, agrees that development rather than the acquisition of existing buildings provides the best format for investment in industrial real estate outside the US. CalEast, a fund created by the California Public Employees' Retirement System and Chicago-based LaSalle Investment Management, in July made its first foray overseas in Europe with a trio of deals. Two additional European transactions are expected by fall.

Logistics growth is only one factor pushing industrial investors to look globally. Historically low cap rates and the reluctance of owners to part with their properties also play a role by producing a shortage of viable investment options within the US.

Marc Brutten, chairman of Westcore Properties LLC in San Diego, estimates that the company will spend $200 million on US purchases this year compared to $350 million in 2005, largely because it's difficult to find properties that fit its traditional value-add strategy. At the same time, Westcore is making its first venture abroad, with expectations of spending close to $150 million in Switzerland by January.

As for Latin America, Reitz lists higher yields as the number one reason for investors' interest. "Ten years ago, US properties were trading at 10% caps," he relates. "Today it's rare to see anything above 7%. In Mexico, on the other hand, it's possible to find yields of 9% to 12%. You could be looking at yields of 13% to 14% in Brazil, 10% to 13% in Santiago and 10% to 14% in Argentina. These are for stabilized, occupied facilities, not speculative developments."

Higher yields compared to that of the US are also possible in Europe, observes Brutten, despite the Continent's generally high property costs and low cap rates. "It is expensive here," he acknowledges. "Class A properties sell for cap rates of 4.5% to 5.5% in central Geneva and Zurich. That being said, interest rates are the second lowest in the world, behind Japan, so there is still a positive spread of 200 to 300 basis points." Blackwell concedes European property prices appear high versus those of the average US market, but he points out they're not much different from those found in such hot spots as Northern New Jersey or Southern California. Overall development costs, on the other hand, are substantially above US norms due to time delays.

Supply chain globalization also affects investment within the US. Kevin Reid, chairman of Albuquerque-based Titan Industrial Development LLC, says his company was formed specifically to acquire properties near the Mexican border to take advantage of increased commercial traffic arising from the North American Free Trade Agreement.

The company was launched in 2005 with a portfolio of 2.5 million sf in six Texas and New Mexico locations. This spring, Titan and Dallas-based Macfarlan Capital Partners spent $37 million to purchase nine additional properties comprising 750,765 sf in the two states. According to Titan president Ron Mills, the business plan is to acquire $250 million to $320 million in assets annually.

AMB's Jaquier sees no end in sight to the demand for new logistics facilities outside the US because of the continued shift of manufacturing to lower-cost locations. "The supply chain tends to go where labor is cheaper for manufacturing, which means countries with less developed infrastructure," he notes. "You have to build infrastructure to get products to market. The markets outside the US are less mature, and there has not been the capital investment in distribution facilities because there previously hadn¹t been the need."

Though Jaquier believes opportunities remain within the US, particularly for state-of-the-art distribution centers around major ports and airports, he thinks there is greater potential outside our borders. "If you need 200,000 sf in Dallas today, you can hire a broker and he¹ll show you 20 spaces where you can move in tomorrow," he says. "But if you need 200,000 feet in Mexico City, South Korea or China, it doesn¹t exist." Jaquier predicts more large industrial real estate investors, both US and foreign based, will gradually globalize their portfolios, though he doesn't necessarily think they will aim for, or be able to achieve, the 50-50 split AMB has targeted.

Summing up the situation, he says, "Basically, you have the product market, which has become very global, and you have the capital markets, which have also become very global. That means the advantage goes to real estate companies with global capabilities."