Industries to Watch

By Christopher Steele, President, CWS Consulting Group LLC

After many months of darkness, it’s time to let some light back into our lives. Sources have suggested that we may come out of the recession as soon as the third quarter of 2009. This should start the wheels on long-needed real estate projects that have been unable to start due to the economy. Developers and corporations alike have been itching to make changes or act on economic stimuli that have been in the marketplace. The credit crunch and uncertainties on timing and direction have kept bulldozers and backhoes in mothballs.

Certain industries never got badly hit by the recession. Projects in these industries will pave the way in the recovery as well, and the factors that drive facility investment for them can be illuminating for future actions. Let’s take a look at two growing industries and see what’s moving them forward.

Life sciences
The pharmaceuticals, biotech, and medical device industries all operate on slightly different economic cycles, and have peaks and valleys that do not correspond directly with those of the broader economy. Development for this sector has continued without abatement through the cycle, resulting in some of the most exciting projects of the past year or two.

For example, Genzyme completed a $150 million, 89,000 square-foot manufacturing facility in Allston and a 180,000 square-foot science center in Framingham, Massachusetts during 2008 and 2009, barely blinking at the worst of the economy. Even though these had been budgeted earlier (before the downturn), there was no slack in demand – nor interruption in financing - for either facility. Likewise, Becton Dickinson made significant inroads into new world markets in 2008 and plans to continue to do so going forward.

Life sciences companies also have logistics needs unlike most other industries. Speed to market takes on a new meaning when the product is actively alive (as is the case with many biotech products)! Manufacturing and logistics sites for these industries tend to be located at areas relatively near their key talent (but not always) and have access to high-value, low- to moderate-volume transportation modes such as air and truck. The facilities themselves tend to be somewhat smaller, have very high tech materials and stock management systems, and may have other key features (such as refrigeration) depending on the product mix.

Green energy
Somewhat less understood and more broadly defined are the industries feeding the “green” and renewable energy clusters. These include such technologies as solar, biofuels, ethanol, wind energy, and even LEED construction materials.
Ethanol and biofuels had a brief summer of joy when gas peaked at over $4 per gallon.

Unfortunately, the perceived impact on food and other commodity prices produced significant public questioning of the wisdom of diverting foodstuffs to vehicle fuels. This (combined with dropping oil prices) put the concept on hold until better technology arrives.
Biodiesel on the other hand works on feedstocks that have fewer alternative uses. The problems here are getting the feedstock and the primarily Midwestern-produced biodiesel itself to where it is most likely to be utilized (the population centers on the coasts). This presents a logistics and storage issue yet to be surmounted. Certainly the first to do so will own a significant advantage when the economy stabilizes.

Other green energy technologies present different opportunities for distribution real estate.

Wind power for example involves the production, transportation, and installation of large and complex pieces of machinery. Most of this infrastructure has been successfully moved by truck, but the larger units envisioned for future installation will require rail, water, or a combination of both. Broad acceptance of the technology will result in a need for new manufacturing and distribution facilities with direct access to these transportation links.

Finally, solar technology could – if accepted as well – have other idiosyncratic needs for real estate. While the transportation of the finished cells and batteries is reasonably straightforward, the raw materials for production of the units require significant amounts of bulk materials such as silicon. In this way, these facilities resemble a glassworks as much as a high-tech manufacturing plant. Perhaps older communities with ready access to rail-served sites could win out in the race for these industries of the future!

Others – Targets of necessity
In addition to the crystal-ball produced uses above, traditional companies won’t be able to sit on their hands forever. Leases will expire. Fuel costs will rise again. Credit will begin to flow. And – finally – companies who have been reluctant to make a gamble on the future direction of their needs will have to plant a flag somewhere.

And once a small set of explorers do so, the world will follow.

Next month I’d like to re-examine the connection between site selection and logistics. As infrastructure stimulus funds become available to communities across the country, public and quasi-public sector agencies need to understand what drives these ‘industries to watch’ in order to properly prepare for the next wave of logistics and distribution real estate development.

In This Issue

Up Front

News, Trends & Analysis
New Items

The Growth Paradox

Supply Chain
Industries to watch

Trade compliance in the workplace

Logistics costs dropped in 2008

Overseas trade experts have some tips for you

Five things you should know about U.S. trade policy

Supply Chain product review
Inventory container management

Features
Gateway at a glance – U.S. Northeast

Bulk Up

Ports & infrastructure
Port of Seattle nets new container business

Clean trucks at your ports: How to pay for them?

Port Product Review
Project cargo equipment

Commentary
Are we thinking inside or outside the box?

On the horizon: Wave Energy - A future power source for your port

Casualties