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VOICES FROM THE INDUSTRY: Logistics still driving central Indiana industrial market

June 16, 2008

For the past 10-plus years, central Indiana has benefitted from growth in the distribution/logistics industry with hundreds of new jobs and millions of square feet of new facilities. We've seen massive facilities go up one right after another, often topping the square footage of our tallest downtown skyscrapers. In the past eight years alone, the square footage of central Indiana distribution centers has more than doubled from 20 million square feet to 51 million square feet.

And we're not just building these giant facilities-we're filling them with merchandise stacked up to 36 feet high in rack after rack for national companies such as Pepsi, BD, Epson, Amazon, O'Reilly, CVS and Whirlpool.

Throughout this period of growth, central Indiana has maintained a healthy industrial vacancy rate averaging less than 7 percent, despite the fact that many of these facilities were built on a speculative basis and leased or sold after completion.

Building on a speculative basis can be risky, but the willingness of developers to take that risk is one reason central Indiana has thrived. Corporate consolidations, outsourcing to third-party logistics providers, and just-in-time delivery demands often create an immediate need for a new facility. Having move-in-ready buildings has given us the edge over competing cities.

The most obvious reasons for the growth can be attributed to our location and interstates. "Crossroads of America" is more than just a moniker. It's an attribute that has helped us capture millions of dollars of investment in real estate and jobs.

Our location and the four interstates configured in a "hub and spoke" layout around Interstate 465 put central Indiana within a one-day drive of 80 percent of the U.S. population. Additionally, Indianapolis is seventh in the U.S. in total air cargo with a major FedEx hub and $1 billion airport expansion nearing completion. These details can immediately land us on a site selector's short list.

Central Indiana's comparatively low cost of doing business and cost of living, coupled with our pool of available labor, have been important ingredients in growing our distribution industry. Indiana businesses pay no inventory tax and the lowest amount of business taxes, corporate state income tax and average workers' compensation as compared to other Midwestern states.

In terms of labor availability, the Indi anapolis area has 121,000 readily available workers according to a 2007 study by The Pathfinders, a Dallas-based economic development consulting firm. The study also found available workers in the Indianapolis area have much greater experience in warehouse and distribution functions than other metro areas studied.

Can we sustain the growth?

Many economists predict the third-party logistics industry will continue expanding, although at a slower rate due to current sluggish economic conditions. Evan Armstrong of Armstrong & Associates, a supply chain market research firm, cites a robust 13-percent average annual growth rate in the industry from 1996 through 2006. In 2007, the rate was down to 7.4 percent, and Armstrong predicts it may drop to 5.5 percent in 2008 before rebounding in 2009. Regardless of the exact numbers, the industry is still growing at a healthy rate.

So it seems Indiana has everything going for it to continue benefiting from this growing industry-available facilities, a great location, a competitive business environment, and workers. And one more thing-a fully funded highway plan.

An annual study published by Expansion Management and Logistics Today

magazines reports the one factor that can mitigate the importance of having low costs-of-doing business and an available work force is the quality of a regions' transportation infrastructure.

With Gov. Mitch Daniels' Major Moves initiative, Indiana is in the midst of implementing a 10-year highway plan that includes a $2.8 billion infrastructure improvement fund for statewide road construction projects to alleviate congestion, improve traffic flow, provide more access, and allow for maintenance of existing bridges and roads. There are few, if any other states that can make this same claim.

A glimpse at the future

All will not remain status quo however. Customer needs will evolve. Future facilities will need to accommodate more sophisticated technology, including advanced radio frequency identification systems to improve efficiency.

The size and shape of distribution centers has also continued to change based on new technologies and functional utilization of the facilities. We can also expect more companies to demand rail access due to the increasing impact of imported products shipped to U.S. ports and transported by rail to intermodal yards or distribution centers prior to final delivery.

The CSX-owned Avon facility is the closest we have to a major intermodal facility, but it would have to undergo significant expansion to receive direct shipments from the ports. Landing a new intermodal facility seems unlikely to many because of our proximity to Chicago and its intermodal terminals. This is one factor that could present us with our greatest challenge yet, but if there's one thing Indiana does well, it's plan for the future.



Castell is a principal in the Industrial Real Estate Division of Colliers Turley Martin Tucker. Views expressed here are the writer's.
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