SANTA ANA, CA-The US logistics market turned in a strong performance during the first half of this year 32.7 million square feet of absorption, but whether it can continue that pace remains to be seen, according to a new report from locally based Grubb & Ellis Co. The report points out that demand for logistics space was positive in 21 US markets, with vacancies increasing in 10 markets.
The report was authored by Tim Feemster and Rene Circ and is available for download at the Grubb & Ellis web site. Feemster is a Grubb & Ellis SVP and director of global logistics; Circ is a vice president and national director of industrial research. Their report shows that the Inland Empire of Southern California topped all markets with 11.2 million square feet of net absorption, followed by Dallas (4.5 million), Atlanta (4.0 million), Chicago (2.6 million), Northern New Jersey (2.6 million) and Central Pennsylvania (2.2 million). Those top six markets accounted for 85% of the total net absorption.
"Southern California’s logistics market is the largest and most dynamic market in the country," notes the report, which points out that the two largest US ports, Los Angeles and Long Beach, are located right next to each other and in total account for approximately 35% of total container water traffic coming in and out of the country. The report also notes that speculative construction is now under way in the Inland Empire market, which is primarily driven by the ports.
Grubb & Ellis outlines the logistics picture against the backdrop of the US economy, which, as it says in the report, "began 2011 on a hopeful note" with real GDP growing 3.2% in the fourth quarter of 2010 and 4% growth expected in 2011. That changed as the year went on, however, and rising oil prices led to higher prices for gasoline and diesel fuel. "For consumers, higher gas prices act like a tax, reducing spending power and dragging down the economy," the report explains. "When it comes to logistics, increases in diesel prices cause transportation costs to rise, especially for trucking, and disrupt supply chains. Previously optimized models may no longer be optimal, as transportation costs account for half of total logistics costs."
In its outlook for the industry, the report says that "Economic fundamentals are in place for accelerated growth in the second half of 2011," pointing out that households have reduced their debt loads by approximately $1.2 trillion over the last three years, corporate profits remain high, oil prices have retreated and "Even the declining US dollar should help, making US exports cheaper and reducing the trade deficit."
Even with these postive forces at work, however, "It is difficult to expect a great second half of 2011," the report states. It cites an inventory-to-sales ratio that is back within the 2004 to 2007 range, meaning that "inventories are more likely to be a drag on the economy," and it lists a number of other factors that likely will work against a super second half. Among these are state governments shedding employees and contributing to the high unemployment, an ISM manufacturing index that retreated to 50.9 in July, and a decline in new orders.
"Much of the immediate future hinges on business and consumer confidence," the report says, "and confidence will require a boost from the Fed, which is already trying, and Congress, which has not been able to deliver any lately."
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