Virginia Competes Nationally for Logistics Business

Virginia serves as a gateway for international business. Our world-class seaports in Hampton Roads handle the third-most containerized imports and exports of any East Coast harbor. Public and private investment in new capacity at the Port of Virginia should position it to be the number one East Coast port. Furthermore, a recent study by the Mason School of Business at the College of William and Mary shows that the Port of Virginia accounted for over 340,000 jobs across the Commonwealth with a $41.1 billion economic impact in 2006.

The nature of global logistics and international trade place Virginia in competition with numerous other regions for the capital investment and jobs created by global logistics companies. Beginning in 2000, major retailers such as Wal-Mart and Target, and third party logistics providers ("3PLs"), who provide value-added services to retailers and manufacturers, began diversifying their site selection for warehousing, fulfillment, and distribution centers from reliance on one specific region, e.g. Hampton Roads, or even in one state. Often, developers of industrial real estate throughout the Commonwealth are competing for tenants against developers in New York / New Jersey, Pennsylvania's I-81 corridor, Savannah and Atlanta, Georgia, and other regions. How well-positioned is Virginia to compete against these other regions?

The Port of Virginia is investing in major expansion to handle growing container trade well into the future. On September 7, 2007 APM Terminals, one of the world's largest operators of container terminals and a subsidiary of Maersk,Inc., officially opened its $503.8 million, 291 acre container terminal in Portsmouth. The third largest and most highly automated container terminal in the United States doubles the capacity of the Hampton Roads Harbor to 4 million twenty- foot equivalents (TEUs). Virginia International Terminals, Inc., the non-stock, non-profit operating company of the Virginia Port Authority ("VPA"), is in the midst of a nearly $400 million wharf expansion and modernization of its largest container terminal, Norfolk International Terminal. More importantly, Congress approved $356.1 million in funding for the new Craney Island Marine Terminal, which, when it opens in 2017, will again double the harbour's capacity to 8+ million TEUs annually.

Another key project is the Heartland Corridor, which when completed in December 2009 will cut nearly a day in transit time from Hampton Roads to Chicago via the Norfolk Southern intermodal rail route. The Heartland Corridor will make the Port of Virginia even more competitive against other U.S. Ports in handling discretionary freight bound for key Midwestern markets.

Does Virginia have enough stock of quality industrial property that is readily available? The three largest industrial markets, Hampton Roads, Richmond, and Northern Virginia, have delivered significant quality warehouse and distribution properties during the last few years. Northern Virginia has nearly 1.5 million square feet under construction as of the 1st Quarter 2008, while Richmond has over 500,000 SF and Hampton Roads nearly 1 million SF. Virginia's potential for major expansion and entry by port related companies has attracted investment from a broad base of development companies. For example, the world's largest developer and owner of industrial real estate, ProLogis, has the Gateway development in Northern Virginia and Northgate Commerce Park project in Hampton Roads; regional developers, such as The Regional Companies out of Charlotte and McDonald Development out of Atlanta, have 1 million SF developments underway in Hampton Roads; and Virginia-based developers such as Devon USA have enjoyed success with their Enterchange developments in Richmond and Hampton.

These Class A industrial developments offer tenants 30'-32' ceiling heights, numerous truck loading doors with dock equipment, 50' x 50' column spacing, and generous trailer parking to allow a diverse tenant base a flexible building suitable for their warehousing and distribution needs.

The following table shows how the Port of Virginia compares against the other major U.S. port markets.

As noted in the above table, the largest port complex in the United States is in Los Angeles and Long Beach. There are several factors of the Trans Pacific trade that may have a major influence on the Port of Virginia and other East Coast ports during 2008 and beyond.

• The 2008 ILWU negotiations are underway, with an uncertain outcome. In 2002 a lockout of the ILWU at West Coast ports caused major disruption in corporate supply chains and influenced many companies to shift some of their cargo to be shipped through East Coast ports.

• The Ports of Los Angeles and Long Beach Clean Truck Program, which requires replacement or retrofit of 16,000 + trucks in 5 years, may lead to significant harbor trucker shortage, not to mention $50 per TEU fees, much higher drayage cost in southern California, and confusion amidst possible litigation expected to stall the controversial plan. The disruption will likely lead to more container volumes shipped to the East Coast.

• With 80% of the U.S population accessible more directly via East Coast than West Coast ports and more carriers opening Panama and Suez Canal all waters routes, more container traffic will enter the U.S. on the East Coast.

All-in-all, the West Coast will remain the primary gateway to the U.S., but the Port of Virginia and East Coast will continue to see more business for many years to come. This new business will help increase Virginia's status as a gateway for international trade.

Lang Williams, First Vice President with the CB Richard Ellis Norfolk office, has 14 years experience advising occupiers and investors regarding their industrial and office real estate needs.

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