The Changing World of Trade

THE Changing
World of Trade
A Cushman & Wakefield Research Publication

1 GLOBAL ECONOMIC OVERVIEW
2

E-COMMERCE: NO. 1 GAME CHANGER

7

GLOBAL TRANSPORTATION

15 REAL ESTATE IMPACTS
28 CONCLUSION: WINNING REAL ESTATE STRATEGIES

2013

the Changing
World of Trade

Global Economic
overview

E-COMMERCE

Global
transportation

Changing World of Trade
Navigating New Channels to Success
As technology, demographics and infrastructure continue to
accelerate the speed and efficiency with which goods are produced
and moved among world markets—global supply chain strategies
are being revisited and new models are emerging.
If global trade continues to grow by an average of 9.5% per year for
the next 10 years, about $2.7 trillion in new goods will be added per
year to the global pipeline. By 2021, an astounding $45 trillion in
goods could be crisscrossing our planet every year. That compares
to $6.5 trillion in 2001.
As Cushman & Wakefield’s White Paper on the Changing World of
Trade explores, technology and demographics are dramatically
altering global labor and consumer landscapes – which is driving
change across commercial estate sectors, including warehouse and
distribution, manufacturing and retail.
Rising wages in some Asian countries, increasing transportation costs
and advanced automation have some manufacturers rethinking their
business models and moving all or parts of their operations back to
North America or Eastern Europe or emerging new markets.
As e-commerce takes hold, retail is undergoing a revolution – and
brand new real estate strategies are emerging. Omnichanneling

REAL ESTATE
IMPACTS

CONCLUSION

allows shoppers to purchase virtually anything at anytime from
anywhere. Some experts estimate that up to 25% of all retail sales in
both the US and UK will take place through online channels by 2020.
Retailers and mall developers are responding with futuristic store
formats and sophisticated delivery systems including highly
automated distribution centers.
Strong economic growth coupled with rising incomes have made
Brazil and China dominant players on the global scene. With
European and American brands expanding their presence in these
markets and cross-border retail on fire around the world, there is a
growing urgency to accommodate changing distribution networks.
Major markets around the world are positioning themselves to
capitalize on trade opportunities by investing heavily in
infrastructure improvements to ports, airports, highways, railways,
industrial parks and intermodal hubs. Market leaders include
Toronto,Vancouver, Chicago, Miami, Berlin, Moscow, Upper Silesia,
Shanghai and Hong Kong, to name a few. Meanwhile, governments
are focused on negotiating new trade agreements and easing foreign
direct investment regulations.
Winning strategies in our Changing World of Trade will demand
flexibility and diversity, collaboration, automation, technology -- and
a keen balance of scale and scope, most likely through consolidation
and vertical integration.

2

the Changing
World of Trade

Global Economic
overview

E-COMMERCE

Global
transportation

REAL ESTATE
IMPACTS

CONCLUSION

GLobal Economic
overview

The Trajectory of Global Trade
Global trade has been increasing at an average rate of 9.5% per year for
the past 63 years.The latest surge in growth began in 2002 on the heels
of China joining the World Trade Organization in 2001 when exports
were at a then-record high of $6.5 trillion. Since then, global trade has
nearly tripled. In 2010 and 2011, even as economies struggled to
recover from the global recession, world exports surged by almost 21%
each year, jumping from $12.5 trillion in 2009 to $18.3 trillion.
If global trade continues to grow as some expect by an average of
9.5% per year for the next 10 years, it would add about $2.7 trillion
per year in new goods to the global pipeline. By 2021, an astounding
$45 trillion in goods would be moving around the world. Even at half
of this pace, exports would reach nearly $30 trillion in 2021.
WorLD GOOD EXPORTS (1948-2012)
20,000
18,000
16,000

Billions of US Dollars

14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012

SOURCE: World Trade Organization

$2.7 Trillion

9.5%
If global trade continues to grow by an average of 9.5%
per year for the next decade, $2.7 trillion in new goods
would be added to the global pipeline per year.
Turning Point: 2014
For global trade to sustain high growth rates, the global economy
must first recover. It was on the verge of taking off after two years of
sluggish expansion following the 2007-2009 recession when the U.S.
and European sovereign debt crises suddenly slammed the brakes on
growth. With 2013 growth projections in the U.S., euro zone and
Asia Pacific still falling short of the recovery pace set in 2010 and
materially slower than those seen during the 2002-2007 period,
growth remains constrained, although green shoots are emerging in
countries and markets around the world.
As governments work to resolve their debt issues, consumers and
businesses will continue to gain confidence and act on significant
pent-up demand. Spending and hiring will gain traction. Reinvigorated
demand will feed into the global manufacturing system, driving
healthy output in many mature and emerging markets, and stimulate
the flow of goods around the globe. The result will be stronger
growth in global trade in 2014 – and a projected return to that
long-term growth trend of roughly 9.5% per year.

1

the Changing
World of Trade

Global Economic
overview

Global
transportation

E-COMMERCE

REAL ESTATE
IMPACTS

CONCLUSION

E-COMMERCE:
No. 1 Game Changer

Omni-Channel:
The Future of Retail
Retail today is undergoing seismic change, as it becomes more
global, urban and specialized due to the rapid rise of online
shopping, mobile technology and changes in consumer spending
patterns.
These trends are driving a retail revolution that has made the
logistics of delivering goods to customers a top priority. Omnichannel requirements are putting new inventory, location,
transportation and space cost-control pressure on retailers and
shippers at a time when they are expanding into new continents and
adapting to the challenges of retailing in increasingly dense cities. In
addition, because of the unique requirements of each shopping
channel and changing consumer demands, retailers will be expected
to constantly adjust their strategies, optimizing costs and service
levels within the integrated cross-channel experience.

As more consumers shop through multiple channels, retailers are
taking action in greater numbers to integrate their online and
physical store presence. Consumers are comparing products and
prices online at home or price shopping and comparing variants in a
physical store. While in the store, they’re using their mobile phone
or tablets to compare selected goods with other store availabilities.
Return strategies must offer maximum ease and flexibility, allowing
consumers able to use both in-store delivery and parcel post if they
are dissatisfied with a purchase.
In some retail sectors, experts believe that up to three-quarters of
all transactions will be completed via multiple channels before the
end of the decade. For the customer, the expectation is that the
process – inventory, price and service level – will be one stable,
consistent experience.

GLOBAL E-COMMERCE GROWTH PROJECTIONS: COMPOUND ANNUAL GROWTH RATE 2011-2016F
70%
60%
50%
40%
30%
20%
10%

11.0%

11.2%

25.4%

11.4%

22.7%

24.7%

57.3%

UK

0%

US - Total

US - Mobile

Japan

Brazil

China

India

SOURCE: Cushman & Wakefield, Forrester Research

2

the Changing
World of Trade

Global Economic
overview

E-COMMERCE

Global
transportation

KEYS TO ON-LINE SUCCESS
E-commerce retail leaders identify the following as being critical
success factors:
1. Scalability: Ability to leverage
inventory to offer a wider range of products
and services “cross channels” to a larger
market (multi-country, multi-consumer).
2. echnology: Ability to manage online
T
traffic, the payment and processing of orders
and the entire e-fulfillment supply chain, which
includes interfacing with e-fulfillment partners.
This is a significant growth industry in the
technology space.
3. upply Chain: Understanding that the
S
supply chain is a critical part of the financially
driven business model and not the other way
around. A cost-effective supply chain should be
integrally linked to the cash-to-cash order cycle.
4. ustomer Experience: The customer
C
must receive what was ordered when
promised. Increasingly, customers will expect
purchases to be delivered the next day or
same day for free and, if needed, returned for
no shipping or restocking cost.

REAL ESTATE
IMPACTS

CONCLUSION

E-Commerce 2.0: Combining
Online and Physical Worlds
In the first phase of e-commerce – let’s call it e-commerce 1.0 –
retailers generally created separate and dedicated business channels
for e-commerce and physical retail stores. Retailers who mastered
this phase are now pushing into a business model that combines
online and physical retail worlds. In this model, the customer can buy
anywhere, fulfill anywhere, return anywhere. Major consumer
expectations of “e-commerce 2.0” include:
• he physical and online buying experience is seamlessly merged
T
into a single branded interface.
• he same items are available both online and in a store. Inventory
T
allocation between the physical stores and the e-commerce
channel is postponed for as late as possible.
• f a store is out of an item, it can be shipped directly to a
I
customer through the e-commerce channel or to any store for
later customer pickup.
• nventory location information is made easily available to the
I
customer to support the decision on where to purchase a
product.
• tems can be physically handled in the store, but easily bought
I
online for later home delivery.
• oods can be returned online or to any store regardless of
G
where they were purchased originally.

3

the Changing
World of Trade

A Cushman Wakefield Research Publication
Global Economic
overview

Global
transportation

E-COMMERCE

U.S. E-Commerce Sales as Percent
of Total Retail Sales

CONCLUSION

Shanghai: Perfectly Suited
to E-Commerce

6.0%

In China, several companies have been making home delivery
their core business. The Shanghai region has the tenth largest
population density in the world with over 16,500 people per
square mile – more than double that of typical cities in
Western Europe. Population density can make a dramatic
difference to the cost of home delivery since more deliveries
can be made per mile driven.

4.0%

5.4%

4.8%

4.5%

4.1%

3.6%

3.6%

3.1%

2.6%

2.2%

1.9%

1.6%

1.2%

1.0%

0.6%

2.0%

0.0%

REAL ESTATE
IMPACTS

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

SOURCE: U.S. Census Bureau, Cushman Wakefield Research. 4Q Sales

E-Commerce 2.0: Integrated
Supply Chain Networks
In the e-commerce 1.0 model, retailers typically use one of the
following models:
• TORE DISTRIBUTED GOODS Items are picked, packed
S
and shipped from individual retail stores that are closest to the
customer. Although this can work well when shipment volumes
are relatively low, it tends to be the least efficient way to ship
items direct to the consumer when volumes increase due to the
high cost of retail space and store labor. There is no major impact
to distribution centers in this model.
•
COMBINATION CENTERS Store and direct-to-consumer
orders are fulfilled out of the same building. At midrange
shipment volumes, this supply chain setup can work well if the
direct-to-consumer orders can be processed in the same way
as store-replenishment orders. Online transactions tend to be
characterized by fewer items per order, which typically increases
the overall labor required within the distribution center. The
facility needs to be designed to accommodate the additional
inventory, extra headcount and seasonal peaks.
• EDICATED DISTRIBUTION CENTERS At high shipment
D
volumes, many companies see the advantage to developing
e-commerce-specific distribution centers. By placing locations
closer to their customer base as well as to the hubs for dominant
parcel networks, retailers are able to reduce shipping costs and
decrease lead times. Automated order processing technology
specifically designed for e-commerce also supports increased
efficiency.

In Shanghai, for example, it’s possible for a delivery van to
have all of its customers in one high-rise building. Since only
one person out of 23 owns a car in Shanghai, having goods
delivered at home is appealing to those with the disposable
income to afford it. Over 65% of the people in Shanghai have
access to the internet and this number includes almost 100%
of the people who are likely to use home delivery services.
Not surprisingly, many of the top retailers in Shanghai offer
home delivery.
Did you know? China online shopping reached 1,304 billion
Yuan in 2012 and grew by 66.2% over last year. It accounts for
6.2% of the total retail sales of consumer goods. B2C
accounted for 29.7% and it expected to increase faster in the
future. China online shopping market will keep a rapid growth
rate and its GMV (Gross Merchandise Volume) is expected to
exceed 3,000 billion Yuan in 2015 or 2016.
MARKET SHARE OF CHINA
b2C sHopping websites in 2012
Vanci, 1.2%

Vipshop, 1.4%
Yihaodian, 1.2% Gome,
1.4%

Dangdang, 1.9%

Amazon
China, 2.7%

Others, 3.7%
Tencent B2C, 4.7%

Suning, 5.5%
Tmall, 56.7%

360buy, 19.6%

SOURCE: iResearch. By GMV. The data is based on the financial
results published by enterprises, interviews with experts and iResearch
statistical model.

4

the Changing
World of Trade

Global Economic
overview

Global
transportation

E-COMMERCE

REAL ESTATE
IMPACTS

CONCLUSION

CLIck-and-CollECT Drives
NEw demands
A recent report by Morgan Stanley has estimated that around
12% of all retail sales in the UK will be from e-commerce
sources by 2016. To accommodate this rapid change, some
stores will become small-scale click-and-collect operations,
where the consumer orders product online and then collects
merchandise from the relevant store, while other stores will
rely more on technology to create an online showroom
presence.

In an e-commerce 2.0 supply chain, all three models may run
simultaneously. This allows orders to be processed and fulfilled as
best fits the customer’s needs: at the store or at the closest
distribution center. Localized inventory stock-outs will be hidden
since products can be shipped from any location or sent to any store
for customer pickup.
As stated earlier, retail physical and online operations will increasingly
be seen as one business rather than separate entities with separate
management. The concurrent optimization of multiple channels will
require a flexible network of smaller urban locations that fill parcel
orders delivered direct to customer homes within a day and large
distribution centers that replenish both stores and in-market
distribution centers. Multiple in-market distribution centers will be
smaller and run fleets of trucks into neighborhoods, perhaps twice a
day, for same-day and next-day delivery to households.

Ecommerce penetration of retail sales
(2014-2016 forecasts)
20.00
18.00
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00

2014
2015

Spain

Italy

Mexico

Chile

Argentina

Brazil

Russia

France

China

Germany

Australia

UK

Japan

US

South Korea

2016

Whatever route is taken, retailers are hastening to refine and
adapt their supply chain and distribution operations in order
to meet changing expectations. Fulfillment and seamless
logistics are crucial in the omni-channel world. According to
the BCSC, at least 25% of logistics space secured by retailers
in the UK last year was directly related to online business.
Most retail supply chains were built to supply their high
streets and not the growing online market. To meet new
demands, supply chains must be more flexible and responsive,
and distribution centers equipped with the latest advanced
technology. An example of this is the emergence of what are
known as “dark stores” within the food retail sector where
facilities are fitted out like a standard store but are only
operated in order to fulfil online orders.
The successful integration of the click-and-collect model can
be seen with UK retailer Argos, which began as a catalogue
merchant with a high-street presence. This business model
allowed Argos to grow seamlessly into online operations and
expand into click-and-collect, and Argos became a pioneer in
this area. Today, online sales account for 43% of Argos’
business, and it is well positioned as an early adopter to
benefit from a rise in click-and-collect options for consumers.
Additionally, on the back of its strong beginnings as a
catalogue-only retailer, Argos has the distribution network
and capacity to potentially serve as a collection point for
other online-only retailers, such as Amazon, that may wish to
utilize the click-and-collect method via Argos going forward.
At a time when large-scale online aggregators are gaining an
increasing share of the sector, high-street businesses such as
Argos may be just ahead of the pack in the changing retail
market.

Source: Morgan Stanley

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the Changing
World of Trade

Global Economic
overview

E-COMMERCE

Global
transportation

REAL ESTATE
IMPACTS

CONCLUSION

RAMPING UP EFFICIENT DISTRIBUTION
As we enter the next phase of e-commerce, customer demand is
playing a larger role in physical site selection, as goods must arrive on an
increasingly quick turnaround. Multiple, well-placed distribution centers
minimize the time and distance spent on the final leg of delivery.
To accommodate the changing landscape, many bricks-and-mortar
retailers are setting up dual operations backed by mega-distribution
facilities that support both online and in-store inventory. As well,
leading e-commerce companies are implementing labor-intensive
picking and packing strategies to fill online orders.
It is not unusual for cutting-edge direct-order fulfillment distribution
centers to cost three times as much to build and require three times
as many employees to operate as the traditional warehouse.
Locations must be close to an affordable labor force and have access
to rail, highways and air transportation. Online sellers are targeting
large population centers near FedEx or UPS hubs that have an
abundant seasonal workforce.

what does the future look like?
More, smaller distribution centers that are closer to markets; multi-stop, truck-store replenishment that runs to
stores two times a day; and more remote distribution centers with more safe stock replenishing territory centers.
Automated Case Piece
Handling Facilities Around
Mega Centers

Mega Centers

Replenishment (Flow Through)
Automated DC in proximity
to Population centers

Non-Fossil Fuel
Powered Store
Delivery Vehicles

Manufacturers/Ports

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the Changing
World of Trade

Global Economic
overview

Global
transportation

E-COMMERCE

REAL ESTATE
IMPACTS

CONCLUSION

GLOBAL
TRANSPORTATION
Today’s pressure paving way
for bright future
Transportation often represents a large component of total supply
chain cost and total operating costs. The growing global economy has
put ever-greater pressure on scarce resources, and forecasting fuel
rates has never been more difficult for the transportation industry.
Without a crystal ball, the best anyone can do is “weigh” the
fundamentals of global supply and demand. For example, if demand
grows faster than production capacity, then surplus production
capacity – the world’s buffer against supply shortfalls – will fall and
prices rise. Conversely, if production capacity grows faster than
demand, we would expect some easing in price volatility, though not
necessarily price levels.

While the transportation industry remains under significant, perhaps
unsustainable pressure, the pain today may give way to new
prosperity tomorrow. As production and manufacturing become
more local to meet growing customer demand for faster delivery,
the average distance transported goods move will continue to
shorten. Emerging economies, as well, may find that regionalization,
or establishing locations in multiple places closer to local markets,
may be the way to go to meet escalating demand while controlling
costs and remaining competitive.

Vessel Evolution: Big Gets Massive
Triple E

2013

18,000 TEUs

New Panamax

2006

15,500 TEUs

Post Panamax Plus

1997
8,100 TEUs

Post Panamax

1996
7,100 TEUs

Accommodating the latest generation of large container ships is key
to a port’s competitiveness in the changing world of global trade. In
1997, shipping lines could handle vessels with a capacity of 8,000
TEUs. In 2006, the biggest container ship doubled in size to nearly
16,000 TEUs – too massive to pass through the recently expanded
Panama Canal. By 2013, ships were nearly five times as big as the
first post-Panamax vessels, with an 18,000 TEU capacity.
The new ultra-large container vessels will be too deep for any port
in the Americas or to cross the Panama Canal, but will be able to
transit the Suez Canal when sailing between Europe and Asia.
Maersk Line, the world’s biggest container shipping company, will
stop plying through the Panama Canal to move goods from Asia to
the U.S. East Coast. It will send vessels through the Suez Canal that
can carry as many as 9,000 20-foot boxes at a time, instead of using
two 4,500-box-vessels through the Panama Canal.

7

the Changing
World of Trade

Global Economic
overview

E-COMMERCE

Global
transportation

AMERICAS: INTERMODAL
backbone
Trucking, which remains by far the most common way to move
goods throughout the Americas, is faced with a growing shortage of
drivers, stricter regulations and increased fuel prices. As demand
increases, yield management will remain top of mind for trucking
company leadership. Though hurt by the recession and subsequent
slow recovery, the industry is poised for significant growth as
pent-up demand is steadily acted upon and consumers exert
increasing pressure on companies for faster delivery.
In recent years, the perspective on transportation has shifted from
an emphasis on each of the four modes – air, rail, marine and road
– to a horizontal and holistic system-wide view, with freight moving
end-to-end through increasingly seamless connections. Intermodal

REAL ESTATE
IMPACTS

CONCLUSION

systems have become the backbone of the rail freight industry, due
primarily to fuel efficiency (rail is four times more efficient than
truck) and investments made by railroad companies to improve
network systems. Rail is the only viable alternative to trucking, as
barge transport is not feasible and airfreight is too costly for most
companies. Trains also move year-round in almost every type of
weather and, domestically, offer the lowest-cost-per-mile.
To take advantage of holistic systems, companies are investing heavily
in intermodal parks that link several modes of transportation and
integrate them with seamless connections. Not only has this
increased intermodal volume, but it has also led to greater
integration across transportation modes, keeping costs low.
According to the Association of American Railroads, seven Class I
railroads presently serve the United States, with combined revenues
of more than $65 billion, and some $13 billion was invested in
railroad infrastructure in 2012 to support its continued growth.

FREIGHT RAILROADS IN THE UNITED STATES

Source: National Rail Freight Infrastructure Capacity and Investment Study prepared for the Association of American Railroads by Cambridge Systematics.

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the Changing
World of Trade

Global Economic
overview

Global
transportation

E-COMMERCE

REAL ESTATE
IMPACTS

CONCLUSION

TOP 25 WORLD CONTAINER PORTS
Shanghai, China

32.5

Singapore, Singapore

31.6

Hong Kong, China

23.1

Shenzhen, China

22.9

Busan, South Korea

17.0

Ningbo-Zhoushan, China

16.8

Guangzhou Harbor, China

14.7

Qingdao, China

14.5

Jebel Ali, Dubai, United Arab Emirates

13.3

Tianjin, China

12.3

Rotterdam, Netherlands

11.9

Port Kelang, Malaysia

10.0

Kaohsiung, Taiwan, China

9.8

Hamburg, Germany

8.9

Antwerp, Belgium

8.6

Los Angeles, U.S.A.

8.1

Dalian, China

8.1

Tanjung Pelepas, Malaysia
Keihin Ports, Japan*

2012 TEUs (in Millions)

7.7
7.6

Tanjung Priok, Indonesia

7.2

Xiamen, China

7.2

Bremen/Bremerhaven, Germany

6.1

Long Beach, U.S.A.

6.0

Laem Chabang, Thailand*

5.7

New York-New Jersey, U.S.A.

5.5
0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

SOURCE: Port Authorities Official Websites
*2011 TEUs (in Millions)

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the Changing
World of Trade

Global Economic
overview

E-COMMERCE

Global
transportation

CANADA TARGETS TRANSPORTATION
Canada’s geographical scale and relatively small, spread-out
population has always been a challenge for business. To help expedite
transportation, the federal government is focused on integrating
transportation modes through increasingly seamless connections. It
committed over $47 billion to improve and integrate infrastructure
systems within 10 years, and a number of large projects are already
underway. These include:
• he construction of a road, rail and utility corridor at the Port of
T
Prince Rupert to boost Canada’s trade capacity and ability to
export goods to Asia-Pacific markets.
• number of major infrastructure projects to support the
A
Atlantic Gateway and Trade Corridor, such as an advanced
modular fabrication and multimodal transshipment facility being
built at Port of Belledune, which will expedite shipping operations
on the eastern seaboard. As well, route improvements are being
made to the trade corridor connecting Atlantic Canada and the
New England region.
• fter many years of intense lobbying, a $2.2-billlion bridge
A
between Windsor and Detroit will be built to replace the existing
84-year-old Ambassador Bridge. Construction on the bridge,
expected to be completed by 2020, is expected to create 12,000
direct jobs and as many as 31,000 indirect new jobs. Canada will
pay Michigan’s share of the construction, $556 million, recouping
the outlay through future toll revenue. The Detroit-Windsor
border — encompassing the bridge, a tunnel and ferries — is the
busiest in North America and carries a quarter of all U.S. trade
with Canada, which reached $120 billion in 2012.

REAL ESTATE
IMPACTS

CONCLUSION

68

Number of hours the Port of Prince Rupert
is closer to Shanghai than Los Angeles. This
port is closer to key Asian markets by up to
three days, including 36 hours closer to China’s
largest city than Vancouver.

South America: facing many
challenges
In general, South America transportation systems are substandard
and in need of improvement. Unlike the U.S. or Europe, rail and
waterway transportation – modes known for their ability to cover
long distances economically – are of limited use in the region, with
trucking being the most commonly used mode. This has driven up
costs and undermined trade activity between the main economies
of the Pacific and Atlantic coasts.
In addition to poor infrastructure, bureaucracy in most South
American countries makes intra-regional cargo transportation even
more difficult, increasing shipping costs and time. Most of the cargo
that moves between Brazil and other countries is carried by ships,
with trucks coming in second, as shown in the following chart.

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Global Economic
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Global
transportation

E-COMMERCE

Cargo Shipments from Brazil to other South
American Countries
15%
2%

Ocean
River
Air
Road

22%

58%

Rail
Other *

0.1%

3%

*Pipelines, mail and proprietary

SOURCE: MDIC/BR.

South America is actively working on easing regional trade barriers,
along with physical barriers caused by years of mismatched
infrastructures. Formed in 2000, the Initiative for the Integration of the
Regional Infrastructure of South America (IIRSA), aims to integrate
logistics through new transportation infrastructure, as well as energy
and telecommunications projects.Trade between Brazil – the region’s
main hub – and other regional nations soared by about 73% between
2002 and 2005, underscoring the urgency to make improvements.
Although railways are considered an efficient means of transport and
constitute an important link to Brazil’s ports, only 20% of domestic
cargo is hauled by rail. While Brazil has the tenth largest railway
network in the world, it is still considered a complement to trucking.
According to the National Association of Cargo Transport and
Logistics, in 2000 about 60.5% of cargo in Brazil was transported over
roads and highways, which have been undergoing steady improvement
programs for the last 10 years.

Brazil’s Substandard Port System
Brazil has 34 public and 42 private ports. About 90% of the export
cargo, accounting for 13% of the total cargo handled in Brazil, is shipped
by sea due to the mode’s lower cost and reduced environmental
impact.The largest and most important port is the Port of Santos,
which handled 71.9 million tons of cargo shipped abroad in 2012.
According to the World Economic Forum, the port system in Brazil is
among the worst in the world, ranked 135th on a list of 144 countries
in terms of the quality of its ports.This is primarily due to high costs,

REAL ESTATE
IMPACTS

CONCLUSION

inefficiency and bureaucracy. Operations in the Port of Suape in
Pernambuco cost five times as much as they would in Cartagena,
Colombia, and three times as much as similar services in Hamburg,
Germany.The time it takes to clear cargo is also very long – about 5
days, which is more than the time it takes in China (3), the Ivory Coast
(2), Germany (2), Chile (1) and Singapore (1). Only 0.3% of the cargo in
Brazil is shipped by air, which is normally reserved for small-volume/
high-value cargo and associated primarily with passenger transport.
Brazil’s substandard transportation infrastructure is by far its biggest
hurdle to developing foreign trade, and a strong barrier to economic
growth.The cost to ship goods is prohibitively high due to poor or
inadequate infrastructure that does not cover the entire nation, and a
system that depends heavily on overland transportation by truck.
In order to strengthen domestic output and development, a National
Transportation Logistics Plan was formed with the Ministry of
Transportation to implement long-term multi-modal projects, with
specific goals for each mode. By September 2012, about 38.5% of the
logistics goals under the plan had been completed.The port system is
also earmarked for a complete overhaul, which, among other initiatives,
would allow private ports to compete with those owned by the
government.The winning bidder will be the party offering the lowest
combined rates for the best services, not the company willing to pay
more for the right to operate a terminal. Fair competition is expected
to result in increased investment, improved port capacity and efficiency
and significantly reduced costs.
VALUES IN US$ PER TON OF SOYBEAN

Production cost of soybean in Brazil is
similar to the US, but Americans spend much
less with transportation – and are more
profitable.

brazil
Price in the port:
Shipping from farm
to port:
Production costs:

440
128
(highway)*

Net income for
the producer:

230**
82

U.S.
Price in the port:
440
Shipping from farm
38
(highway and waterway)*
to port:
Production costs:
197**
Net income for
the producer:

205

*Distance more than 2.000 km, from Sorriso (MT) to Port of Santos (Brazil) and
from Iowa to New Orleans (U.S.) **Excluding costs with land

SOURCE: Cepa / Esalq - USP

11

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Global Economic
overview

E-COMMERCE

Global
transportation

EUROPE: WESTern EASTern
POLARIZATION
Transport infrastructure within Europe is among the most
advanced in the world, with good quality arterial roads and an
expanding high-speed rail network throughout the region. However,
although improving, there is a clear polarization in infrastructure
quality between Western and Eastern Europe. In terms of logistics
and distribution, in 2010, 75% of all goods transported within the
EU-27 were moved via road transport, with rail accounting for the
movement of approximately 17% of all goods. Rail transport
accounts for a fairly low percentage, for example, in the UK, a rail
hub is seen as useful to have but ultimately not business critical at
the current time. The three largest sea ports within the EU are
Antwerp in Belgium, Rotterdam in the Netherlands and Hamburg
in Germany, and these three ports dominate the region in terms of
the amount of cargo and containers that are transported through
these ports.
Currently, within the EU there are 40,451 miles (65,100 kilometers) of
motorways, 68,662 miles (110,500 kilometers) of electrified railway
line and 26,533 miles (42,700 kilometers) of navigable inland waterways.
Going forward, the key issues facing transport and logistics distribution
will consist of infrastructure quality and provision (for example, railway
gauge differences between Russia and the rest of Europe), as well as
concerns of congestion and emissions.
The Trans European Networks (TEN-T) were initially devised by the
EU at the Maastricht Treaty in 1992, with the aim of improving social
and economic cohesion throughout the region.The TEN-T network
was established to promote the multimodal functions of land, sea and
air transport.The EU is currently revising the policy with the intention
of creating a more multimodal ”core network,” linking major cities and
bringing together the Western and Eastern parts of Europe.
As transport infrastructure is currently unevenly developed,
countries within Central and Eastern Europe will require significant
upgrades particularly in the quality of the arterial road network but
also in the provision of high-speed rail networks. These schemes are
funded by several financial instruments, namely the EU Cohesion
Fund and the European Regional Development Fund (ERDF).
Traffic congestion affects both road and air traffic within Europe and
is estimated by the EU to cost Europe around 1% of its annual GDP.
However, with both freight and passenger transport set only to
increase, new infrastructure will need to meet future demand and
offset the major challenges that lie ahead.
In addition, concerns regarding the price and the availability of oil are
growing within Europe, particularly as supplies are expected to
become increasingly scarce. Forecasts show the price of oil more
than doubling by 2050 from the 2005 level of $59 a barrel.

REAL ESTATE
IMPACTS

CONCLUSION

Furthermore, in order to meet emissions regulations, the EU needs to
achieve a 60% cut in transport sector emissions by 2050, compared
with 1990 levels.With road transport accounting for 28% of the CO2
emissions, the EU is also working on new legislation to lower limits for
carbon emissions from car transport as well as promote fuel efficiency
and the use of alternative fuels. Currently, about ten large retailers are
utilizing electric vehicles to deliver goods across London, and
companies such as DHL and FedEx are increasing the amount of
electric vehicle trials in a number of cities across Europe.
European Modal Split
Latvia
Estonia
Romania
Switzerland
Austria
Lithuania
Sweden
Netherlands
Germany
Bulgaria
Belgium
Croatia
Slovakia
Finland
Hungary
EU-27
Czech Republic
Poland
France
Slovenia
FYR of Macedonia
Norway
Denmark
United Kingdom
Italy
Luxembourg
Portugal
Turkey
Spain
Greece
Ireland
0%
Roads

20%
Railways

40%

60%

80%

100%

Inland water-ways

Source: Eurostat 2012

12

the Changing
World of Trade

Global Economic
overview

E-COMMERCE

Global
transportation

REAL ESTATE
IMPACTS

CONCLUSION

momentum and meet the consumption needs of a rising middle class.
Plans to connect the Indonesian islands of Sumatra and Java at a cost
of nearly $11 billion were finalized last year. The Indonesian Airport
Authority is swiftly expanding the capacity of major airports in the
country to aid trade and logistics industry and simultaneously
improve the connectivity between the islands. Indonesia Port
Corporation also announced it would invest $2.5 billion in starting
the development of Kalibaru port. PT Pelabuhan Indonesia is
coordinating with China Merchant Holdings to construct a new
container and iron-ore shipment facility in the island of Batam with a
nearly $2-billion investment.

ASIA: Massive infrastructure
investment underway
Transportation has become more dynamic in Asia during the last
decade. Rapid urbanization in most Asian economies is driving up the
volume of freight and passenger transport, and several countries are
scaling up their infrastructure to meet growing demands.

China, the most populous and the largest economy in the region,

took the lead with the launch of several new high-speed railway
corridors, as well as announcing plans to expedite the development of
a comprehensive transportation system to boost the economy. It has
plans to build a large-scale network of railways and expressways, and
develop distribution centers, ports and regional hubs and provide
easier access to all towns and rural regions in the country by 2015.

India has already witnessed the shifting of manufacturing activity
from large metropolitan areas to smaller cities with the development
of an interstate highway system in the last decade. It announced plans
to improve the transportation network and develop logistics and
manufacturing hubs as a part of its five-year commitment (20122017) to invest $1 trillion in infrastructure. The Delhi-Mumbai
Industrial Corridor (DMIC) that is currently under development
with an investment totaling to US$ 90 billion is adding several
high-capacity transportation links (roads, rail, port and air
connectivity) and logistics facilities to boost industrial/manufacturing
activity and growth.
A similar corridor between Mumbai and Bengaluru has been
proposed recently. Further initiatives to boost the intra-city
connectivity include development, expansion and modernization of
airports in several tier II and III cities, development of private ports
and improving road and rail connectivity across the country.

Indonesia also unveiled plans last year to invest nearly $110 billion
in overhauling its transport system, improve the inter-island
connectivity and upgrade the logistics system to sustain growth

In Vietnam, despite an average annual growth rate of 18% in trade
volume over the last 15 years, the logistics sector is still in its nascent
stages. The government has started to focus on reducing transport
costs, increasing access to ports and developing port infrastructure.
In the short term, it is encouraging Public-Private Partnership (PPP)
models and reducing trade barriers.

Thailand recently rolled out an investment program worth nearly
$75 billion to enhance connectivity with ASEAN neighbors, boost
ocean trade, lower transportation costs and reduce the existing
bottlenecks. It has plans to develop and strengthen the trade
corridors linking Cambodia,Vietnam, Laos, Myanmar and China.

The Philippines has recently laid out plans to invest approximately

$4 billion in inland transportation and port infrastructure to
strengthen supply chains between intermediate and terminal markets
in the island archipelago and increase trade with neighboring
countries such as Indonesia, Malaysia and Vietnam. Hong Kong and
Singapore are investing heavily in high value-added logistics to
reinforce their position as regional logistic hubs.

Singapore and Malaysia have recently agreed to build a high-speed

rail system connecting Kuala Lumpur with Singapore to improve
connectivity, enhance business linkages and cross-border trade. These
two countries are also exploring rapid transit links between
Singapore and the Malaysian city of Johor Bahru, and a possible third
cross-border road link. These links could accelerate commercial
development in the Malaysian state of Iskandar. Temasek Holdings Pte.
Ltd., Singapore’s state investment company, has already unveiled a
joint venture with Malaysia’s Khazanah Nasional Bhd. on two retail
and residential projects.
Port expansion plans in Australia have been hit by a slowdown in
trade and exports. However, the billion-dollar upgrade and
modernization of the east coast interstate railway network presents
an upside growth factor for the rail freight sector.

13

the Changing
World of Trade

Global Economic
overview

Global
transportation

E-COMMERCE

REAL ESTATE
IMPACTS

CONCLUSION

Intra Asian Air Cargo
7
6

4
3
2

4.5

4.6

5.5

5.7

6.0

6.2

5.9

5.3

6.1

6.0

1
4.0

Tonnes (in millions)

5

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0

Source: Boeing World Air Cargo Forecast 2012-2013

South Korea started construction of an international seaport at
Saemangeum last year with a $200-million investment to facilitate
trade and manufacturing growth in automobiles, industrial materials
and reusable energy sectors. Taiwan relaxed its trade barriers again in
2012 by opening up its market to Chinese investors, allowing them
to invest heavily in several business categories in manufacturing,
public infrastructure and service sectors. Nearly all Asian economies
are keen on removing regulatory barriers to attract foreign
investments and facilitate trade flows to keep the economic growth
intact.
Growth in ASEAN and other emerging markets is partly benefiting
from a shift of some industrial and manufacturing facilities,
particularly shoes, clothes and electronic equipment, away from
China and, hence, the need for improved infrastructure. These
markets present numerous high-yield investment opportunities, and
with export growth in the double digits, they are highly attractive.
Infrastructure investments are being made on a large scale to create
a competitive landscape and drive sustainable growth.

Intra-Asian air cargo takes off
Most Asian countries are separated either by ocean or large land
distances. The growing sophistication of supply chains, rapid growth
in e-commerce, rising fuel costs and minimal ground and ocean
transport alternatives in the region have made air cargo an essential
element in the overall trade. The intra-Asia air cargo market
accounts for nearly 15% of the world market and is growing at an
annual rate of 6.3% (as of 2012, source: Boeing). It is largely
concentrated in Mainland China, Japan, Singapore, Hong Kong, South
Korea and Taiwan so far; however, ASEAN markets are catching up
quickly in parallel with their economic development.
Trade agreements, economic growth and currency exchange rates
have largely contributed to growth in this sector in the last decade.
Growing links between low-cost manufacturing facilities (in the
region) and global production chains, and the rise of domestic
markets backed by growing consumption levels, are driving trade
among regional economies and, subsequently, the demand for air
cargo. Lighter and higher value goods are increasingly replacing bulk
shipments and the airlines are using hub-and-spoke models to
maximize efficiency across the region. Rising per capita incomes and
consumption levels and the migration of low-cost manufacturing to
emerging economies such as Indonesia,Vietnam, Philippines, Thailand,
Myanmar and Cambodia have the potential to radically accelerate
intra-regional trade flows in the near future, thus further increasing
the demand for air cargo.

14

the Changing
World of Trade

Global Economic
overview

Global
transportation

E-COMMERCE

REAL ESTATE
IMPACTS

CONCLUSION

REAL ESTATE
IMPACTS
AMERICAS
DEMAND DRIVERS
Global supply chain strategies are undergoing revolutionary change.
Linking worldwide networks of sourcing, manufacturing and
consumption, supply chains today are longer and more complex.
To meet demands being driven by e-commerce, technology and
transportation costs, companies are actively streamlining their
fulfillment processes – maximizing efficiencies in inventory, service
time and delivery – which is driving demand for high-quality
space. Moreover, with companies sitting on large amounts of
cash and capital and with pent-up consumer demand building, the
manufacturing sector is steadily expanding and preparing for the next
significant growth cycle.
The rise of regionalization to support e-commerce is a leading
demand driver that will increasingly influence real estate decisions

and markets. One of the biggest challenges facing industrial space
users across the Americas is the shortage of quality space, as
technological advances have rendered many facilities obsolete. Land
constraints and functional obsolescence is spurring more
redevelopment and retrofitting of existing facilities, and the top
markets will command a premium for these types of projects.
From a real estate perspective, Mexico is well positioned to benefit
in this changing landscape, as the country offers low-wage labor and
direct access to the U.S. market. Mexico City, states bordering the
U.S., and the central states or Bajio region are all experiencing
significant growth. In Canada, a revived U.S. housing sector has
rejuvenated the lumber industry in British Columbia, a pick-up in U.S.
vehicle purchases has benefited the auto sector in southern Ontario
and many other industries and business are positioning for growth
based on clear signs of U.S. recovery. Additionally, an increase in trade
between the U.S. and South America is driving growth, particularly in
the Brazilian logistics market.

North American Top Container Ports (2012 Total TEUs)
Los Angeles
Long Beach
New York/NJ
Savannah, GA
Port of Vancouver (BC)
Oakland, CA
Virginia
Houston
Seattle

TEUs (in Millions)

Tacoma
0

1

2

3

4

5

6

7

8

9

Source: Port Authorities Official Websites

15

the Changing
World of Trade

Global Economic
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E-COMMERCE

Global
transportation

Americas Port Locations: Heating Up
Demand for industrial space is strong around Americas ports,
particularly in Southern California, Philadelphia and New York-New
Jersey. But it is also growing at other ports – in some cases, quite
quickly. Prince Rupert Port in British Columbia, for example, has
been steadily eating into the market share of the ports of Los
Angeles and Long Beach, North America’s largest container complex.
Prince Rupert, which opened its Fairview Container Terminal in
October 2007, handled about 550,000 TEUs in 2012. About twothirds of that container traffic moved to or from the U.S. Midwest
and Midsouth, which are prime markets for the Southern California
ports. Prince Rupert’s impact has been greatest in Chicago, Memphis
and Toronto, all of which are well connected to the Canadian rail
networks and have long track records for receiving such freight.
With wages in China rising, manufacturing is shifting to South East
Asia and the Indian subcontinent, which is driving more business to
U.S. East Coast ports. Additionally, since two-thirds of the U.S.
population resides east of the Mississippi River, after the Panama
Canal expansion is completed in 2015, many of the products
traditionally transported to the West Coast may be left on vessels to
make the journey all the way to eastern ports. Growing demand for
industrial real estate in southeastern U.S and Gulf Coast port
locations has been further propelled by land that is relatively more
affordable and abundant in cities like Savannah or Charleston
compared to that in Los Angeles and Long Beach.
In preparation for the updated Panama Canal, four East Coast ports
are deepening their harbors in order to handle post-Panamax ships:
Baltimore (2013), Miami (2014), New York (2015) and Norfolk
(ready). East Coast and Gulf Coast port traffic will be further
bolstered by new manufacturing operations from Airbus (Mobile, AL),
Boeing (Charleston, SC), and Caterpillar (Athens, GA), and a new
commitment from Disney to use the port of Jacksonville exclusively
for all imports bound to the Magic Kingdom.
As global supply chains are reconsidered and U.S. manufacturing grows in
the right-to-work states (states that do not force people to pay union
dues as a condition of employment) in the Southeast, Midwest and Gulf
Coast, continued port volume growth is anticipated.

Rise of the Inland Port
The pressure for greater transportation efficiency has spurred the
development of intermodal facilities, and inland ports are becoming a
critical part of supply chain dynamics. The major inland logistic hubs
of Chicago, Columbus, Dallas/Fort Worth and Atlanta have benefitted
the most from increased international container volume specifically
from Asia. This has allowed them to experience the largest increase
in demand for industrial space. Dallas is especially well positioned
with two major multimodal transportation centers.

REAL ESTATE
IMPACTS

CONCLUSION

Several secondary markets such as Kansas City and Winnipeg have
also experienced improved market fundamentals thanks to large
investments in intermodal capacity to accommodate freight
movement via several modes of transportation. After many years of
planning and stalled progress due to the recession, the BNSF
Railway’s Intermodal facility in the south Kansas City area will be
operational this year. The 440-acre site, which will be capable of
handling more than 500,000 container units a year, has triggered
significant growth in the industrial real estate market. As well,
Winnipeg’s CentrePort Canada, a new 20,000-acre inland port and
trade area, seeks to leverage the city’s geographic location on
north-south and east-west trade routes by acting as a multimodal
hub (road, rail, air) for international transportation, manufacturing,
distribution and warehousing activities. As a result, several privately
owned industrial parks are being developed at the location.
SELECTED PORT TO HUB TO MARKET CONNECTIONS
Seattle

Chicago

New York
Columbus

Oakland

Kansas City
Norfolk
Memphis

Los Angeles/
Long Beach

Dallas
Ft. Worth

Atlanta
Savannah/
Charleston

Houston

Other markets widely recognized as full-fledged inland ports are Houston,
St. Louis, Memphis, Inland Empire, Charlotte, Prince George, Edmonton,
Regina, Calgary (under development), Montreal and Quebec City.
The rise of inland ports has been largely driven by retailers such as
Walmart and Home Depot, which were among the first and largest
users of such ports. At CenterPoint Intermodal Center in Joliet, IL,
the largest master-planned inland port in North America, Walmart
occupies 3.4 million square feet and is the largest tenant. CIC-Joliet,
on more than 6,500 acres just 30 miles southwest of downtown
Chicago, is strategically positioned at the epicenter of the region’s
immense transportation infrastructure. Home Depot is another
CIC-Joliet tenant, with a 1.6-millon-square-foot build-to-suit.
In addition to existing inland ports, a number of new locations are
under development such as the 4,000-acre Florida Inland Port in
St. Lucie, which is being engineered specifically in preparation for the
Panama Canal expansion, and the 580-acre Port Arizona in
Casa Grande, which will become the first inland port to serve the top
two ports in the U.S. — the ports of Los Angeles and Long Beach.

16

the Changing
World of Trade

Global Economic
overview

E-COMMERCE

Global
transportation

Changing Supply Drivers
Stronger Links: High-Tech Big boxes support
Efficient shipping
Part of the just-in-time delivery equation rests with big-box
warehouse space that is large enough to store and re-pack various
products, and is easily accessed by both rail and truck. As companies
shift their supply chains from a centralized sourcing and
manufacturing model to a more regionalized approach, they are
finding their networks may need new facilities such as freight-pooling
hubs or mixing centers in order to aggregate shipments and move
them as full containers or truckloads. An increase in intermodal
transportation has led to the construction of intermodal hubs that
serve as both transfer points and logistics hubs, and offer valueadded services such as kitting, a process that groups, packages and
supplies separate but related items as one unit, thereby reducing
handling and logistics.

REAL ESTATE
IMPACTS

CONCLUSION

Such supply chain shifts are redefining warehouse/distribution
buildings. Direct-to-consumer sales require retailers to consolidate
online and store-based fulfillment operations under one roof, which
is spiking the demand for high-tech, big-box facilities. Today’s most
advanced distribution facilities offer clearances of about 35 feet,
energy-efficient lighting and green building materials. E-commerce
providers are harnessing radio frequency identification systems
(RFID) that allow machines to store and retrieve goods in the
warehouse on the basis of the label number assigned on the package.
To support its rapidly growing global distribution network,
Amazon.com acquired Kiva Systems, Inc. for $775 million in 2012, a
material handling company known for its advanced warehouse
fulfillment systems. The acquisition is just part of its continued
investment in cutting-edge facilities and operations that support a
booming business expected to reach $100 billion in sales by 2015.

17

the Changing
World of Trade

Global Economic
overview

Global
transportation

E-COMMERCE

REAL ESTATE
IMPACTS

CONCLUSION

In Canada, as well, e-commerce is behind the growing demand for
bigger, more efficient warehouses in strategic locations.Third-party
logistic companies are also being used to manage shipping in markets
that don’t justify a full-sized distribution facility. Bigger in Canada
generally falls within the 500,000 to 800,000-square-foot range, with
some exceptions.Target recently completed a 1.3-million square foot
distribution facility in Milton (part of the Greater Toronto Area) – one
of three such facilities the giant retailer will use to service its new
Canadian locations.

Distribution Centers: BIG GETS Mega
The need to improve supply chain fuel efficiency is behind the rise of the
new mega development. Operators need space that is large enough to
consolidate shipments for easier transportation to regional distribution
centers as full containers or truckloads, since less-than-full container or
truckloads can cost four-to-five times more to move than full loads.
The trend towards more efficient distribution centers has resulted in a
shortage of class A speculative warehouse space of over 500,000 square
feet in major logistics hubs.These giant distribution centers allow
companies to experiment with different fulfillment strategies and
respond to the demands of high-turnover online retailing.
In the U.S., more buildings over a million square feet were leased in
2012 than from 2009 through 2011 combined.Tenants include retailers
like Amazon.com, Home Depot and PetSmart and manufacturers like
Owens Corning and General Electric.The trend towards this mega-size
distribution center is so prevalent in some markets, particularly the
Inland Empire market in Southern California and the PA I-81/I-78
Distribution Corridor market on the East Coast, that some buildings
are even being developed on a speculative basis.
Number of BuildingS over 400,000 SF in the U.S.
1200
1000
800

Adequate trailer parking is critical in order to create a large enough
staging area for the efficient movement of trailers in and out of
facilities. Clear height has reached 35 feet in some cases to allow for
additional racking and maximize pallet capacity. Greater vertical
capacity creates a reduced footprint, which translates into major
savings in gross occupancy costs for larger companies over the term
of the lease. Developers are also becoming more strategic. For
example, the zoning of land parcels can be upgraded to sell off units
at higher prices for other commercial use, allowing developers to
lower the cost base of the remaining land where a distribution
facility will be constructed. This results in a more competitive rental
structure for the tenant.

World-class
specifications

Today, multi-tenant warehouses built by
international developers such as Prologis and CPA
offer world-class specifications.
In Mexico, class A first-generation industrial inventory grew from
virtually zero in 1994 (just after the signing of North America Free
Trade Agreement) to over 300 million square feet in 2012, and
industrial parks are often industry specific, with companies
representing automotive, aerospace or electronics. Industrial markets
were once dominated by single tenants in owner-occupied buildings.
Today, multi-tenant warehouses built by international developers
such as Prologis and CPA offer world-class specifications.

600

1,047

1,036

834

0

677

200

640

400

1963-1972 1973-1982 1983-1992 1993-2002 2003-2013

Source: Cushman Wakefield Research

18

the Changing
World of Trade

Global Economic
overview

E-COMMERCE

Global
transportation

Most Dynamic Regional
Markets
Miami: International Trade Will Drive Strong
Growth
International trade will continue to positively impact the industrial
sector as trade agreements with Central and South America and Asia
are executed. The increase in trade between the U.S. and South
America – Brazil is one of the U.S.’s largest trading partners – is
driving recent growth in the Miami market. Additionally, the
expansion of the Panama Canal could be a game changer for South
Florida industrial real estate. Miami, which handles more traffic from
Asia than any other Florida port, still gets 54% of its trade from Latin
America and the Caribbean compared to 18% from China. Florida’s
location is unique in the U.S. because of its position for east-west and
north-south trade. The Port of Miami will also be able to handle the
post-Panamax ships – a huge advantage that will drive demand for
modern, institutional-quality buildings able to handle the newest
containers and trucks. Due to the limited supply of industrial-zoned
land in the area, land and warehouse prices are expected to rise
significantly and rents grow by at least 13% in the next four years.
Increased trade will also lead to the expansion of ancillary businesses
such as customs brokers, freight forwarders and logistics firms, all of
which will also need additional warehouse and office space in Miami.

Chicago: Major Inland Hub
The Chicago metropolitan area continues to attract tenants thanks
to its superior transportation infrastructure. The market is home to
more than 20 intermodal parks that serve as the Midwest hub for
manufacturing and distribution. As inland ports increasingly become a
critical part of supply chain dynamics, Chicago’s distribution network
will remain a key attraction in the location-selection process.

REAL ESTATE
IMPACTS

CONCLUSION

Development activity has been modest in recent years, focused
mainly on facilities in the 300,000- to 700,000-square-foot range to
satisfy big-box distribution needs. Acquisition and consolidation
activity continues to drive occupancy decisions as companies seek
greater efficiencies and location advantages. Despite the slow
recovery after the recession, the GTA’s industrial real estate vacancy
rate is only 6.2% – a testament to prudent development strategies
and an overall healthy market poised for growth.

VANCOUVER: Mini Boom
Spurred on by factors such as the growing U.S. demand for British
Columbia lumber,Vancouver’s industrial real estate market is
undergoing a mini boom. Demand for industrial space gained
significant momentum in the latter half of 2012, with absorption
averaging 1.3 million square feet per quarter, up over 83% from the
first half of the year. In this robust market, demand is also coming
from reconstruction projects arising from widespread damage
inflicted on Japan by the 2011 earthquake and tsunami and on the
U.S. Northeast in 2012 by Hurricane Sandy.

Mid-sized Mexican cities reap benefits
Trade expansion has given a major boost to commercial real estate
in a growing number of regions. The Mexican cities that had a head
start or small original advantage have seen their trade relevance
snowball, as evidenced by Monterrey, which was transformed by
NAFTA trade into the country’s second largest urban-economy
(after Mexico City). Cities with good transport connections and a
well-trained labor market are reaping the largest benefits, such as a
string of mid-sized cities in the State of Guanajuato – Silao, Irapuato,
Salamanca, Celaya and Leon – which, together with Queretaro and
San Luis Potosí, form the backbone of the Bajio.

BRAZIL: STRONG GROWTH OUTSIDE RIO-SAO PAULO

This market is home to more than 500 million square feet of
manufacturing space, the largest concentration in the country and
more than double that of Greater Los Angeles. We expect
construction levels to remain healthy in this market in the coming
years as the demand for high-quality industrial space continues.

Industrial demand is at its peak in Brazil, driven by higher income and
expanded consumer consumption. Industrial warehouse park (or
condominiums) construction is booming. Although facing challenges
such as a poor highway infrastructure and a scarcity of suitable sites,
either due to accessibility or document and permit problems, the
real estate landscape shows tremendous potential.

Greater Toronto Area: Poised for growth

Most of the new industrial park construction has taken place on the
Rio-Sao Paulo axis due to its proximity to large consumer centers,
but an increase in public and private infrastructure investment is
creating new markets such as the city of Tres Lagoas in Mato Grosso
do Sul. Companies such as Petrobras,Votorantim, Fibria and Eldorado
are investing heavily in developing industrial plants to manufacture
cellulose, fertilizers and steel, and this activity should attract
hundreds of suppliers to the area.

The Greater Toronto Area’s industrial market is one of the largest in
North America with about 790 million square feet of inventory. In
healthy economic times, it is not unusual to see annual growth in the
10-to 12-million-square-foot range. 2012 saw modest growth and a
pick-up in demand momentum by year end. In the past few years,
significant demand has been generated by tenants seeking megadistribution centers, particularly as U.S. retail giants such as Target
enter the Canadian market.

19

the Changing
World of Trade

Global Economic
overview

Global
transportation

E-COMMERCE

REAL ESTATE
IMPACTS

CONCLUSION

NORTH AMERICA: RESHORING WHEN IT MAKES SENSE
Caterpillar, Nissan, NCR,Yamaha, Ford and Electrolux. In addition,
GE, Ford Motor Company, Master Lock and General Motors have
also bought into the reshoring value proposition.

It’s true that some manufacturing is coming back to North
America. From 1998 until 2010, the U.S. experienced a 35% drop
in total manufacturing jobs. Since the end of 2010, the sector has
grown by 4%. Why? When China joined the WTO in 2001, its
average manufacturing wage was $0.58 per hour. Between 2005
and 2011, Chinese wages rose each year by an average 19%, and
The Boston Consulting Group forecasts increases of 18% each
year through 2015.

Increasingly, location selection is all about being able to better
serve and reach customers as quickly as possible. One of the
major reasons why manufacturers choose to reshore to North
America is to achieve lower transportation costs. When
transportation, duties, supply chain risks, industrial real estate,
speed to market and other variables are fully accounted for,
reshoring may increasingly make good business sense.

In 2005, U.S. manufacturing wages were almost 25 times that of
China. Today, that wage gap multiplier is under 10 and will likely be
under five by 2015. Mexico’s cost of labor is beginning to mirror
that of China’s. Reshoring is likely to gain traction as the “total
landed cost gap” of offshore manufacturing narrows, and labor
costs become more globally balanced. High oil prices, the
natural-gas boom in the U.S., increased risks associated with
natural disasters and economic instability in emerging markets are
other factors that support reshoring. As well, U.S. manufacturers
are leaders in lean manufacturing and automation, making
U.S.-based factories less labor intensive and more cost effective.

ANNUAL CHANGE IN MANUFACTURING WAGES (IN US $)
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%

While the reshoring movement is still young, companies are at
the very least examining their production options more closely. A
project that five years ago would have considered only China due
to labor-cost advantages may now look at Mexico, Canada or the
southeastern U.S. Large companies that have announced plans to
reshore portions of their manufacturing to the U.S. include

-5.0%
-10.0%
-15.0%
2004

2005

2006
U.S

2007
Mexico

2008

2009

2010

2011

China

Source: U.S. and Mexico hourly wages per Bureau of Labor Statistics. China
annual wages per Chinese National Statistics Bureau

ANNUAL Wage Comparisons (in US $ before benefits)
$200,000
$180,000
$160,000
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$0
Tokyo*

San
New York*
Los
Francisco*
Angeles*

Chicago*

Sydney*

London*

Dallas*

Machine Operator

Hong
Kong*

Taipei*

Beijing

San Paulo

Mexico
City

Buenos
Aires

New Delhi

Manager

*Cities chosen based on Top 10 for Industrial Investment, Winning Cities, published by CW in 2012
Source: Economic Research Institute (ERI) 4Q 2012 data.

20

the Changing
World of Trade

Global Economic
overview

E-COMMERCE

Global
transportation

EUROPE
Demand Drivers
With the prolonged euro zone uncertainty taking a toll on business
confidence, market activity within the European logistics sector has
been mixed. Many occupiers have been adopting a “wait-and-see”
attitude before making any strategic real estate decisions, which has
led to a slowing in demand.
However, locations such as Moscow, Warsaw and Berlin have recently
seen encouraging levels of activity as logistics operators take
advantage of positive economic growth in parts of Central and
Eastern Europe (CEE), combined with the improving transportation
networks. The Polish and Russian economies in particular have
performed well in contrast to the majority of Europe since around
2011, with demand for well-located, high-quality space remaining
strong in both Warsaw and Moscow.
The picture across others parts of Central and Eastern Europe is less
certain, with countries such as Bulgaria and Romania witnessing
much more subdued occupier demand. This pattern is similar across
Southern Europe: Spain and Portugal have been particularly affected
by the euro zone debt crisis, and overall logistics activity in the
region has been slow. In the rest of Western Europe, tenant interest
has been more stable with the focus on modern space in the best
locations, although transactions take longer to conclude due to the
cautious outlook of many occupiers.

Retailers shine Spotlight on Prime Space
Cost-reduction strategies and the focus on achieving greater
operational efficiencies have put the demand spotlight on prime
space, with secondary units left largely ignored by tenants. This trend
runs parallel with developments in the logistics sector where supply
chains have become increasingly flexible in order to accommodate
fluctuating consumer demand.

REAL ESTATE
IMPACTS

CONCLUSION

Not surprisingly, large-scale retailers have become the main drivers
of logistics redevelopment and expansion. These operators need to
move vast volumes of goods at a fast rate, which has resulted in the
growth of progressively larger distribution centers built to the
highest specifications and located in the most suitable locations. As a
spin-off to this growing trend, we are also seeing the emergence of
smaller units located closer to the consumer, away from the principal
distribution hubs in a variant to the traditional hub-and-spoke model.
Beyond retailers, 3PL operators have seen a significant expansion in
the amount of outsourced contracts in the logistics sector, becoming
an increasingly important occupier group in Europe. The rise of 3PL
companies is largely attributed to the need to provide distribution
and warehousing services to smaller companies. Many of these
include manufacturers and retailers whose current strategy or scale
makes outsourcing such services the most cost effective or suitable
route.
It is estimated by the BCSC that approximately 25% of leased
logistics space for retailers was purely for e-commerce-related
activities. Furthermore, the “click-and-collect” option, where
customers can order on the internet and collect their purchases
from designated locations such as an existing store, are emerging in
many areas, notably France and the UK.

Changing Supply DRIVERS
Quality Space in short supply
Although the logistics sector is generally perceived to be less volatile
than other property groups, the amount of good quality space
throughout Europe has continued to decline. Therefore, the market is
characterized by a high level of demand for well-located, high-quality
space, contrasting with secondary space, which is becoming
increasingly obsolete. As a result, there is a growing scarcity of
modern space in most markets throughout Europe. Although this has
placed marginal pressure on rents in some areas, it has also given rise
to the re-emergence of build-to-suit developments, particularly with
space that requires a high degree of automation and technology.
The lack of availability within the sector is attributed mainly to
limited speculative construction in a market where confidence has
yet to be restored. Moreover, with speculative development having
largely ground to a halt across European markets – with a few
notable exceptions such as Moscow – the availability of high-quality
space is restricted in many of the key logistics hubs. For example,
the UK market is currently characterised by extreme scarcity in
terms of high quality space. Therefore, it is anticipated that the
preference for space via the build-to-suit or pre-let route will remain
the norm – at least until economic recovery takes a stronger hold.

21

the Changing
World of Trade

Global Economic
overview

E-COMMERCE

Global
transportation

Pent-Up Demand and New Strategies
Looking forward, a slow increase in activity is forecast as the
economic outlook becomes steadily more positive. There will remain
a degree of pent-up demand, although relief will be subject to
occupiers finding suitable quality stock in what is expected to remain
a pre-let and build-to-suit market.
Corporate strategy will also drive the location of new facilities. For
example, retailers may choose to operate a large centralized hub
with satellite depots in order to serve more remote locations.
Furthermore, when considering the central hub, occupiers will have
to determine whether it will be more cost effective given the lack of
available high-quality buildings to become an owner-occupier or
undertake a long leasehold.
In parts of Southern Europe, tenants are also re-gearing leases but
on flexible terms in order to reduce rents. These tenants may look
to renew for three years if they’re two years from expiry in return
for a lower rent. Alternatively, the occupier may choose to outsource
these operations to a 3PL; therefore, how will the 3PL decide on the
correct location for its warehousing? Will it implement the
traditional hub-and-spoke, a series of small satellite depots or share
the facilities of other 3PL operators? These location choices depend
on many factors, but in our view, the requirement of high-quality,
well-located space will remain the principal driving factor for virtually
all occupiers over the coming years.

REAL ESTATE
IMPACTS

CONCLUSION

Most Dynamic Regional
Markets
Upper Silesia: Poland’s Top Performer
The majority of Upper Silesia, situated in southern Poland, has
historically been a major industrial center, with mining and the iron
and steel industries serving as important constituents of the local
economy. Out of these industries have grown significant Polish cities
such as Katowice, Gliwice and Chorzow.
The region possesses a modern road network and is home to a
number of manufacturers, most notably from the automotive
industry. Over the past few years, Upper Silesia has seen
development from both manufacturing and warehousing sectors as a
result of its favorable location within Poland and Central and Eastern
Europe. Indeed, Upper Silesia is currently the top-performing regional
warehouse market within Poland.

Moscow: Location Strength
Home to over 10 million people, the Moscow region is at the centre
of the logistics sector within Russia due to its large population and
excellent transportation links. Additionally, it is an important strategic
location for those operators looking to expand further eastwards
into Russia.
The Russian economy has performed consistently well over the past
couple of years, and this has helped to maintain solid occupier
demand for industrial space, particularly throughout the Moscow
region. In response to sustained demand, both speculative and
build-to-suit development is expected to rise, which should help to
alleviate the lack of good-quality supply. Demand is largely being
driven by retail operators and industrial companies, with retailers in
particular looking for larger, multi-modal facilities.

Berlin: Heart of Europe
Located in the heart of Europe, Berlin has become an increasingly
important logistics market in both Germany and in the wider
European market. Berlin serves as a key east-west corridor from
Amsterdam and the Rhine-Ruhr region towards Warsaw and
Moscow in the east. Furthermore, the city is relatively close to the
Port of Hamburg, the third busiest sea port in Europe, and is situated
near the mouth of the River Elbe on the North Sea.
As a result of Berlin’s prime location, occupier demand for logistics and
warehousing space has risen over the past few years.These demand
levels are expected to hold firm over the next year or so as logistics
operators in Europe look increasingly eastwards in search of growth.

22

the Changing
World of Trade

Global Economic
overview

E-COMMERCE

Global
transportation

REAL ESTATE
IMPACTS

CONCLUSION

In Shanghai, which is one of the key logistics and warehousing
markets in the region, demand has once again exceeded supply.
Despite annual rental and capital-value growth of about 10% to12%
over the last two to three years, and a slowdown in exports, tenant
interest remains strong.
Australian cities such as Perth and Brisbane, which depend on mining,
have benefited from China’s demand for iron and steel. However,
with slowing Chinese demand, the economy and industrial markets
have felt the impact. Leasing activity remains moderate in Melbourne
and Sydney.

E-COMMERCE GIVES RISE TO NEW STRATEGIES
ACROSS ASIA

ASIA PACIFIC
DEMAND DRIVERS
Despite continued global economic challenges and the related
manufacturing slowdown in China and other major Asian economies,
industrial, warehousing and logistics market activity has remained
generally steady and is gaining momentum. Moderate demand from
large-scale industrial players and traditional manufacturers was offset
by the growing demand from retailers and logistics and warehouse
service providers.
In 2012, for example, U.S.-based retailer Walmart entered the
growing Chinese online retail industry through the purchase of a
majority stake in Yihaodian, a Shanghai-based e-retailer, and
Sumitomo Corporation of Japan launched operations in China and
Indonesia. Transportation and logistics service provider MNX moved
to South Korea to capture growing opportunities in the life sciences
sector and Australian freight firm Toll Group started augmenting
warehousing facilities in the second half of 2012.

Rapid growth in online trading and mobile technologies has spurred
e-commerce sales all across Asian countries. With companies
increasing their online presence across the region either to test local
markets or complement existing stores, same-day order fulfillment
has made it necessary to locate distribution centers close to
consumers. This has redefined the way logistics and local strategies
are applied to gain maximum advantage in tier I and tier II markets in
China and India.
With internet penetration still far below that of advanced economies
(above 70% in Japan and Korea), there is a wider opportunity for
growth in e-commerce and logistics in most Asian markets. The shift
to inland manufacturing bases and increasing investments in
transport infrastructure, along with more efficient supply chain
strategies and sophisticated logistic networks, are likely to push the
warehouse/big box space demand significantly upwards in key
regional hubs such as Chongqing, Chengdu and Wuhan in China. In
India, primary hubs such as New Delhi, Mumbai, Chennai and Nagpur
dominate the market, while emerging regional hubs such as Ludhiana,
Ahmedabad and Kanpur continue to grow at a rapid rate.

Strong domestic consumption throughout the region has fueled the
growth of 3PLs and warehousing demand in regional hubs such as
Singapore, Hong Kong, Manila and Shanghai. Even though demand for
industrial and warehouse space in Hong Kong has remained relatively
stable, supply has become extremely limited due to industrial
revitalization and redevelopment.
While leasing activity from 3PL companies has been largely driven by
retailers, including e-commerce businesses, nontraditional occupiers
such as data centers and self-storage operators are also active.
Demand from contract logistics companies and manufacturers
remains robust in countries such as Indonesia, Cambodia and
Vietnam. However, market activity has slowed in Thailand and
Malaysia due to rising capital values and operational costs.

23

the Changing
World of Trade

Global Economic
overview

Global
transportation

E-COMMERCE

CONCLUSION

NEW OPPORTUNITIES IN LOW-COST LOCATIONS

B2C E-COMMERCE SHARE IN ASIA-PACIFIC, 2010-2012

REAL ESTATE
IMPACTS

2010

2011

2012

Japan

50.6%

44.4%

37.7%

China**

14.1%

21.8%

31.7%

Australia

14.2%

12.7%

10.6%

South Korea

7.3%

7.0%

6.2%

India

3.5%

3.9%

4.1%

Indonesia

1.4%

1.7%

1.9%

Others

8.8%

8.6%

7.8%

* Includes travel, event tickets and digital downloads
** Excludes Hong Kong
Source: eMarketer, July 2012

INTRA-REGIONAL GROWTH ALTERS TRADE
NETWORKS
The growing complexity and integration of intra-regional trade
channels have boosted demand for industrial space across most
regional hubs. Emerging markets such as Vietnam, the Philippines,
Myanmar and Indonesia have moved up the value chain with a solid
economic performance and changes in manufacturing supply chains
over the last couple of years, thus creating new trade networks both
within and outside the region.

According to the WTO, intra-Asia trade is
expected to grow at an annual rate of 10%, which
is significantly higher than the 6% forecast for
Asia’s trade with the rest of the world.
Continued growth in China and India has not only strengthened the
existing trade networks, but also opened up new opportunities to
reshape existing routes. According to the WTO, intra-Asia trade is
expected to grow at an annual rate of 10%, which is significantly
higher than the 6% forecast for Asia’s trade with the rest of the
world. Sustained growth in intra-regional trade will continue to
reshape the regional trade landscape, opening new opportunities for
business expansion and relocation across various markets, which
bodes well for logistics and 3PL companies.

Rapid growth in ASEAN (Association of Southeast Asian Nations)
countries is largely related to companies trying to grab new, large
cost-effective opportunities to increase their penetration in the regional
market and raise their market share. Dachser (U.S.) has been rapidly
expanding in China and also entered the Vietnamese market and Malaysia,
a strategic location in terms of international and intra-Asian freight
services.As companies try to reorganize their supply chains and
operations into regional hubs to gain an edge in scale and cost
competitiveness, the centre of gravity of several industries is moving south.
Growing costs in China add another dimension to this migration.
Low-skill manufacturing jobs in the clothing industry are quickly moving
to Bangladesh, Cambodia, India and Pakistan. Retail and low-cost
technology manufacturing is relocating to Vietnam and Thailand. Growth
in specialized functions in these markets has already altered some of
the trade routes within the region. Further growth and integration of
these markets point towards more efficient and flexible supply chains
across industries.

NEW TRADE LINKS AND BUDDING MIDDLE CLASS
Growing trade links within the region, supported by increased
consumption from a budding middle class, have helped several
Southeast Asian economies withstand recent external global pressures.
In spite of lower-than-average returns from financial markets and
historically low interest rates in these economies, ongoing investments
in infrastructure, machinery, plant equipment and technology have
showed positive signs of renewed growth.
According to the Centre for Economics and Business Research in
London, investments in Indonesia,Vietnam and Malaysia are expected
to grow at annual rate of 7% to 9% through 2014. Government
investments in infrastructure have also been growing in Indonesia and
Vietnam to encourage large-scale FDI activity. A low interest-rate
environment is likely to continue into 2013 and that could also
stimulate the regional domestic demand and investments.

FOREIGN DIRECT INVESTMENT OPENS DOORS
China outshone the United States as the biggest recipient of global
foreign direct investments in the first half of 2012 (source: UNCTAD).
Major Asian economies such as Hong Kong, Singapore, Japan and Korea
accounted for nearly 85% of this activity. Investments in India, as of the
third quarter of 2012, declined to $14.8 billion, indicating a 27% drop
on an annual basis.The impact of liberalized investment regulations
introduced in 2012 to the retail, power and aviation sectors have yet
to materialize.
Sustained economic growth, an expanding manufacturing base and
strong domestic consumption are some of the key drivers behind

24

the Changing
World of Trade

Global Economic
overview

E-COMMERCE

Global
transportation

rapid growth in foreign investments in Southeast Asian markets such
as Vietnam, Philippines and Indonesia. At around 8%, ASEAN’s share in
global FDI inflows was almost equal to China’s in 2012. Large-scale
availability of low-cost opportunities, an abundance of natural
resources, infrastructure growth and efforts to promote industrial
sector and manufacturing growth could radically alter supply chains
and trade networks in these markets over the next few years.

Changing Supply drivers
Changing dynamics drains Quality Supply
Asian economies are more integrated and interconnected than ever
before. The rising middle class with its dramatically increasing
consumer appetite has posed a major challenge to logistics
companies and manufacturers, which are scrambling to expand or
reshape trade routes and add new links to supply chains.
The related explosion of e-commerce in China and India is causing
the supply of high-quality logistics and warehousing space to fall
short in prime locations of major markets including Shanghai, Beijing,
Guangzhou, Mumbai and New Delhi. High capital values, intense
competition, scarcity of land and regulatory measures restrict the
supply in core areas of Shanghai, where tenants are mandated to
locate in peripheral areas.
Other major Chinese markets such as Guangzhou, Shenzhen, Tianjin
and Qingdao are also seeing a growing scarcity of modern space and
steady increase in costs. As a result, foreign manufacturers and
large-scale e-commerce logistics companies are exploring options
such as relocating part of their operations to low-cost markets,
built-to-suit construction, redevelopment of old industrial properties
and self-managing opportunities.

REAL ESTATE
IMPACTS

CONCLUSION

Asia’s Exploding
Middle Class
Sustained economic growth, rapid urbanization and strong
service-sector growth in the last decade have created a
burgeoning middle class across major Asian economies such
as China, India, Indonesia, Philippines and Vietnam. This
emerging class, defined by the Asian Development Bank “as a
population with per-capita consumption between USD
$2-$20 per day (2008) in purchasing power parity terms,” has
nearly tripled over the last 20 years.

Nearly 15% of India’s population is now considered middle
class and it is growing by about 13% each year. By 2015, more
than one-fifth of India’s population will fall under this category.
In Indonesia, the middle class has grown by more than 50%
over the last decade.
Nearly 40% of the population (about 500 million people) was
termed middle class in China as of 2010 and the number is
expected to grow by more than 50% (about 300 million) by
2020. Nearly half of the population could well be considered
middle class in China by 2015. In Philippines, nearly 25 million
people joined these ranks in the last two decades.
This explosive growth has had a noticeable impact on
domestic demand, consumer markets and supply chains in the
last few years. Sales of consumer durables and affordable
goods have increased substantially, driving tremendous growth
in manufacturing and service sectors. Intra-regional trade has
already surpassed exports to western economies and is still
growing at a healthy rate of 10% per year.
As companies continue to relocate within the region to
reduce costs or move closer to emerging domestic consumer
markets, Asia’s economic landscape will continue to evolve
and play a leading role in transforming global trade.

25

the Changing
World of Trade

Global Economic
overview

E-COMMERCE

Global
transportation

With average rents, abundant land supply and improving
infrastructure, Hanoi in Vietnam and Manila in the Philippines present
attractive options to large-scale manufacturers looking to relocate
from other countries due to rising labor and operational costs.
Anticipated supply growth in these markets is supported by
speculative demand from international logistics and warehousing
companies, as well as from pharma, auto, aerospace and electronics
manufacturers from Mainland China, Korea, Taiwan, Japan and
Malaysia. With sustained economic growth, these emerging new hubs
also present numerous opportunities for companies to expand their
scale and penetration in the region.

China: High-Quality Assets and
Lower-Cost Markets
Last year, the Chinese government moved to accelerate the
development of strategic emerging industries in such sectors as
energy saving, next-generation information technology, biotechnology,
alternative energy, new energy vehicles and advanced equipment
manufacturing. This will involve building a modern industrial system
and transforming traditional industrial, logistics and warehousing
space into high-quality, technology-based assets.
In key regional hubs such as Shanghai and Beijing, traditional
manufacturing assets are increasingly being replaced by value-added,
high-tech industrial space. With the growing scarcity of land, strong
competition for space and rising costs, businesses with large-scale
expansion and consolidation requirements may find it even more
difficult to find the right space in these markets.
Going forward, large companies are likely to explore the idea of
buying existing industrial properties and renovating or rebuilding
them to meet new requirements and higher standards. Alternatively,
developing cities (tier II and tier III), especially those located in midor western parts of China, offer numerous options along with other
benefits such as low labor costs, cheaper land and energy resources,
and local government incentives. Greatly improved infrastructure is
an asset to IT, automobile and large-scale manufacturing industries.

REAL ESTATE
IMPACTS

CONCLUSION

SEZs have helped improve the quality of infrastructure and generate
large-scale employment opportunities in several tier I and tier II
cities. However, due to recent economic strains and limited land
availability, several sector-specific SEZ proposals were withdrawn and
expansion plans put on hold in 2012. Meanwhile, demand for FTWZs
has remained steady, due to the strong desire to be near major hubs
such as New Delhi, Mumbai, Pune and Chennai. Proposed changes in
foreign investment policies made last year augur well for the
continued success of FTWZs.

Regulatory Reforms Strengthen Regional ties
Discussions are underway to form the Regional Comprehensive
Economic Partnership (RCEP) between ASEAN countries and India,
China, Japan, South Korea, Australia and New Zealand. The agreement
would cover nearly 45% of the world’s population (accounting for
nearly 40% of world trade) with much stronger trade links
between16 Asia-Pacific economies. Implementation of FTA
agreement in goods pushed trade between India and ASEAN
countries up by nearly 41% in 2011-2012. FTA in services and
investments, which was recently finalized, is expected to boost the
trade further by 25% in the next three years.
The government of India also announced several revisions pertaining
to its foreign direct investments policy to boost the economy.
Foreign investments in multi-brand retail are seen as a revolutionary
turning point for the trade sector. As a result, strong growth in the
logistics sector and warehousing space requirements in metropolitan
areas is likely. Increasing investment in industrial parks is expected to
boost the supply of large-scale, high-quality, value-added, technologyintensive logistics and warehousing space over the next two to three
years. Growing investments in automobile manufacturing not only
create a strong demand for logistics and warehouse space, but also
increase the trade flows between major auto markets such as Japan
and Korea.

India’s Special Economic Zones
Special Economic Zones (SEZs), offering monetary benefits in the
form of tax incentives for investors, developers and occupiers, have
been highly successful in attracting foreign investment into India. Free
Trade Warehousing Zones (FTWZs) are a special category of SEZs
designated for operations related to trade and warehousing. As of
2012, there were 160 operational SEZs in the country, including
multi-product, sector-specific zones such as IT, engineering,
electronics, hardware, textile parks and so on. In 2012, these units
accounted for more than 30% of all goods and services exported
from the country.

26

the Changing
World of Trade

Global Economic
overview

E-COMMERCE

Global
transportation

Most Dynamic
Regional Markets
Shanghai: Complex and Competitive
Shanghai logistics and warehousing markets have grown increasingly
complex and competitive over the past few years. With occupancy at
more than 90%, the availability of logistics and warehouse space in
the market was extremely tight in 2012. Scarcity of land parcels,
restrictions on the supply of development sites, rising rental and
capital values and growing competition for space are pushing
large-scale manufacturers and major logistics companies to consider
build-to-suit options and relocating to suburban or other low-cost
markets such as Wuxi, Suzhou and Hangzhou.
The growing demand from e-commerce, together with lack of supply,
has doubled the occupancy costs for high-quality logistics space.
Several upcoming markets have also witnessed rapid absorption
rates, and it is anticipated that they will be fully leased by the time
they hit the market in 2013-2014. Demand for logistics and
warehouse space is likely to remain robust through 2013-2014 on
the back of the rising middle class, strong domestic consumption
levels and booming e-commerce industry.

REAL ESTATE
IMPACTS

CONCLUSION

Hong Kong: Strong Momentum
Hong Kong is one of the largest, busiest shipping, freight-forwarding
and logistics centers in the world. With high-quality logistics,
warehouse space and infrastructure, it is one of the most important
hubs next to Singapore and Shanghai for movement of goods across
the region. Despite the recent cooling in most Asian economies and
slowdown in Chinese manufacturing, the logistics and warehousing
market in Hong Kong continues to perform well. It remained a
landlord-favored market through 2012, with rising demand and
restricted supply.
3PL, e-commerce companies, non-traditional occupiers such as data
centers and self-storage operators have driven the momentum in
Hong Kong since 2011. Large spaces, which are extremely limited in
this market, are in great demand. Large-scale manufacturers and
industrial occupiers are fiercely competing for such spaces despite a
slowdown in trade and continued uncertainty in global markets.
Going forward, the market is likely to remain tight in terms of space
availability and demand could remain steady with an anticipated
rebound in trade from China and other regional markets.

27

the Changing
World of Trade

Global Economic
overview

E-COMMERCE

Global
transportation

REAL ESTATE
IMPACTS

CONCLUSION

conclusion: winning
real estate strategies

SUPPLY CHAIN Challenges push new strategies
in adapting to the new demand economy
Dramatic shifts in demographics and in consumer expectations are
impacting the supply chain from end to end, from raw material
sourcing to the consumer’s front door. The movement of goods –
transportation – connects these points. Transportation is being
seriously challenged by issues such as driver shortages, volatile fuel
costs and the growing customer demand for “faster, cheaper, better”
good and services. Efficiency in transportation evolves at a glacial
pace compared to the connected supply chain elements.
To compete, companies will embrace fast-evolving technologies and
continue sourcing low-cost raw materials and labour markets. The
diversification of sources – near sourcing or right sourcing – to
minimize the risks of supply chain disruption will become increasingly
important. The effects on real estate include changing location
strategies – where buildings are located – and increasing investments
in reducing operating expenses.

WINNING STRATEGY 1: Supply
Chain Flexibility Diversity
REGIONALIZATION
The ongoing drive for improved performance standards will
continue to impose new requirements on supply chains, especially
in relation to the final step in the delivery pathway. Companies in
sectors with high customer service demands are expanding their
number of regional distribution centers and cross-dock facilities in
order to reduce the overall distances to customer destinations.
These facilities will be increasingly urban in order to satisfy the
growing trend towards same-day fulfilment, bolstering demand
around the edge of major cities for smaller, in-fill spaces located
closer to consumers. This shift will likely benefit some of the
better-positioned tier II markets as tier I markets become
congested, new trade routes become viable and population grows.

Of course, government regulations, openness to trade and political
stability will continue to play a major role in location decision
processes. As in the past, winning supply chain and real estate
strategies will likely incorporate concepts from the largest
companies and largest occupiers of space, where feasible; however,
the pace of competitive change is now so great that a user of any
size or scope would benefit from pursuing the following approaches.

28

The Changing World of Trade

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