The markets that appear to be benefiting most are located in the center of the country, away from the land-constrained port markets. These include Memphis, Kansas City, Pittsburgh, Las Vegas, South Central PA, Dallas, Indianapolis and Nashville, all of which experienced positive warehouse net absorption in the first half of 2008.

According to Torto Wheaton vice president and managing economist Laura Stone Mortimer, two primary factors underlie the continuing demand for larger warehouses. First, she says, rising transportation costs are prompting manufacturers and importers to rethink their supply chains to gain more efficiency and long-term sustainability from their distribution networks. Their tactics include shifting to rail or shipping to East Coast ports to reduce truck use, consolidating warehouses, pooling equipment and loads and insisting on full containers and truckloads. In addition, she says, some smaller manufacturers and distributors of lower-valued goods are increasing US production or sourcing to avoid the high costs of shipping from Asia.

As examples of how businesses are adjusting their supply chains, Stone Mortimer points to Wal-Mart's recent decision to halt construction of all new distribution centers and Ikea's shift of some furniture production from Asia to the US. She notes that Kimberly-Clark has reduced the number of manufacturing and regional distribution centers from 70 to nine over the past four years, with the remaining facilities in more central locations that allow the company to reach 90% of the North American population in eight hours.

While the Torto Wheaton economist believes manufacture of smaller, lower-value goods that are easier and less costly to ship probably will not move back to the US, she says we may start to see a trend toward domestic production of bulkier goods that don't travel well in containers or are already being partially manufactured in the US. She adds that rising wage and internal transportation costs in China might push activities such as labeling and tagging back to the US as well.