Gross revenue for U.S. third-party logistics providers (3PLs) is expected to exceed $140 billion in 2011 — quite a feat when you consider that in 1976, less than 6,000 trucking companies had operating authority from the Federal Motor Carrier Safety Administration (FMCSA). After deregulation of the transportation industry in the 1980s, competition increased dramatically and traditional trucking companies began expanding their services. Many evolved into what we now know as 3PLs, offering warehousing, cross docking, inventory management, packaging and freight forwarding. The 3PL industry has grown steadily for three decades and, according to a recent report by Grubb & Ellis, 3PL were the most active segment of the warehouse logistics real estate market in the first quarter of 2011. A number of factors are in play and the outlook is good.
The Where and Why of 3PL Growth
Most of the demand for industrial real estate space in early 2011 came from the top six U.S. logistics markets including Inland Empire, California at 11.2 MSF; Dallas, Texas at 4.5 MSF; and Chicago, Illinois at 2.6 MSF. All top six markets combined represented 85% of total net absorption. Third-party logistics providers alone accounted for 32.7 MSF, the segment’s highest level since 2007.
What is driving 3PL growth and their need for warehouse space? It could be that the time value of money — the idea that money is worth more now than in the future because of its earning potential — has increased the demand for 3PL services. It could be that manufacturers have more supply than demand and require more inventory space from their 3PLs. Or it could be that companies need more space as they reconfigure their supply chains or move from one to multiple transport modes for greater efficiency.
Sean Fitzsimmons, VP of Investment Management at IDI, believes it is probably a combination of forces. “The industrial real estate market for modern, state-of-the-art facilities is clearly recovering with strengthening absorption since 2010. The third-party logistics industry is a major contributor to this recovery. IDI has tracked more than 16.5 MSF of new leases by 3PLs since 2010 in the major industrial markets. IDI’s own portfolio has also benefited both with new tenants and existing 3PL tenants expanding. In the first three quarters of 2011, IDI’s multiple location 3PL tenants expanded by more than 800,000 square feet.”
Logistics provider CEOs see the good news continuing over the next few years. The 18th Annual Survey of Third-Party Logistics Providers showed most are bullish about their financial prospects, with average three-year company growth projections at 10.3% for North America, 15.8% for Asia-Pacific and 9.1% for Europe.
Learn more about Tucson transportation and logistics at TREO, including a map of transportation and logistics providers in Southern Arizona.
Contact a PICOR industrial broker to learn more about Tucson commercial real estate, specifically industrial warehouse and logistics space.