Ports of Opportunity

Ports of Opportunity

commercial real estate by Dave Szymanski | Tampa Bay Editor

Brokerage director Larry Richey is among a group of real estate professionals who foresee a surge in development connected to increased port activity.

The dredging of the Suez and Panama Canals, combined with a shift in manufacturing to Africa, will bring more cargo ships to Florida ports, triggering a commercial real estate boom in the state in the next five years.

That's one of the trends making the rounds in the commercial real estate industry, and a couple of the benefactors will be the ports of Tampa and Manatee and the land around them.

"This is receiving a lot of attention from the business community about the fundamental changes taking place," says Larry Richey, senior managing director of the Tampa office of Cushman & Wakefield, an international commercial real estate brokerage. "It is timely and important in the United States and the world."

The trend has to do with the movement of goods around the world, according to Jim Reeb, consultant for Cushman.

To be successful in the future, U.S. businesses of all sizes will need to decouple their facilities and respond to manufacturers and markets around the globe, Reeb says.

With phenomenal growth and standard of living increases in Asia, India and the Pacific Rim, China has started making relatively fewer goods than it used to. As manufacturing is market driven, migrating to the best financial place with the lowest-cost labor, a shift has begun from placing manufacturing facilities in China and Asia and instead moving them to Africa.

Besides labor, another reason is the abundance of natural resources. With a shift to Africa, that will mean more cargo ships will come to southeastern U.S. ports, like Tampa, Manatee, Jacksonville, Charleston and Savannah, because they are geographically closer.

The ports of Los Angeles and Long Beach, Calif. currently handle the bulk of the imports from Asia. Trains and trucks then take the goods all over the country.

Those two ports are well above capacity. Cargo ships are cued up, waiting to get in. The reason those ships don't come to Florida is that they have to go around South America as they are too big for the Panama Canal.

But that's changing as dredging projects deepen and widen those canals during the next few years.

"It's much more expensive to move goods across land than water," Richey says. Roadways are congested and the amounts carried are smaller, driving up the per-unit costs. The most cost-efficient transport methods are shipping goods by water as close as possible.

In preparation for this shipping shift, CSX is spending more than $1 billion upgrading track and facilities from Jacksonville to Ocala and beyond. It has already bought land and is going to build a giant intermodal train facility in Winter Haven.

This will allow all of the containers to come into a huge train yard with cranes, which can move the containers from trains to trucks. It will be a staging ground. Florida will be seen as a place that moves goods, rather than a costlier destination.

"Florida is an appendage to the Southeast part of the country," Richey says. "It's very expensive to get goods to Florida."

Reloading development

Besides getting the goods to Florida, after unloading, the trains and trucks go back empty. So one goal, before ships directly bring goods to Florida, will be reloading those trucks and trains with goods for their return trip.

That will lead to industrial, commercial and residential development in Florida, something a lot of businesses in real estate and development are seeing and for which they are beginning to prepare.

"It's all about efficiency," Richey says. "Now the backhaul is zero. This makes for a great economic model for shipping. We're an importer of goods from all over the world. We could become another southern California, a node."

That area of southern California development between the ports is called the Inland Empire, and includes millions of square feet of warehouse space and mile after mile of supply-chain employment.

The initial real estate impact in Florida will be warehouse needs. To accommodate more business, Florida ports will need to be expanded. Jacksonville is currently upgrading.

There will also need to be major distribution facilities and hiring should increase, eventually requiring houses.

New port plan coming

Tampa's maritime community will soon get its first look at a long-awaited blueprint of the port's development over the next 20 years.

But Tampa Port Director Richard Wainio and some maritime industry officials are already at odds over how to measure whether the port is heading in the right direction.

An industry group sent Tampa Port Authority board members statistics last month showing the volume of cargo moving across public and private docks declined 6.6% from 1990 to 2006, while other Florida ports had increases of 20% to 110%.

The number of cargo ships and barges visiting the port dropped nearly 11% and 13%, respectively.

Port businesses want to work with the public agency to reverse the trend, Arthur Savage, president of the Port of Tampa Maritime Industries Association, told port board members recently.

Wainio noted that the maritime industry does not live and die on cargo tonnage any more. It's the millions of containers that is important.

He also took issue with how Savage's group came up with its numbers, starting with a strong year for the port and ending with a weak one. Tampa's cargo volume has remained around 50 million tons since 1980.

Over that time, exports by the phosphate industry dropped by about half, to 16 million tons a year. Producers such as Mosaic switched from shipping rock phosphate to smaller quantities of finished fertilizer.

The port kept the same cargo volume because of increased imports of cement and crushed rock at shipping berths owned by the Port Authority. Bulk cargo businesses bring up big tonnage numbers but relatively small employment. A large terminal planned by Dominican Republic cement company Andino Cements will employ only 12 workers locally.

AT A GLANCE

Major trends affecting the trucking industry

• Increased demand for shipping capacity.

• Higher fuel costs. Fuel represents 25% of operating costs.

• Labor. Field is less appealing for drivers. Average age of drivers is 55. Fewer new drivers coming on board.

• Globalization, with different sources for goods, it is putting new pressure on the trucking industry.

• Environmental and regulatory changes. Road improvements have not kept pace with growth. Weather has damaged roads. Emissions requirements have put pressure on industry for greater productivity.

REVIEW SUMMARY

Company: Cushman & Wakefield

Industry: Commercial real estate

Key: Help clients buy and develop land around Florida's ports.