Impact of modern logistics on industrial location choice and property markets

Abstract

The debate on the impact of modern logistics on industrial location choice and property markets focuses on (1) whether modern inventory control and supply- chain configuration consolidate manufacturing and distribution locations and (2) whether modern logistics have reduced the demand for industrial real estate. In this research, I test the hypothesis that modern logistics have been restructuring industrial manufacturing and distribution networks, dispersing firms into certain regions to achieve the economies of dispersion, and reducing the demand for industrial space per unit of industrial output. The methodology used includes (a) theoretical analysis, (b) statistical and econometric analysis, (c) case studies, and (d) comparative analysis. Because the theoretical analysis does not provide a clear conclusion, I rely on empirical analyses to derive the actual impact or implications. Principle findings from the U.S. empirical study include (1) the changes in the distribution sector have a more significant impact on industrial location choice and property markets than the changes in the manufacturing sector; (2) both manufacturing and distribution industries have been dispersed in the past two decades; (3) improvement of inventory control is almost ubiquitous and, within a supply chain, certain players' gains are not necessarily at the cost of their suppliers' or customers' losses; (4) the traditional partial stock-adjustment model using yearly data does not explain the industrial property market well.

(cont.) Major findings from the China case studies include (1) modern logistics enable manufacturers to achieve cost reductions and service-level improvements simultaneously, and the impacts on their industrial location choice and space demand are consistent with the empirical findings of their U.S. counterparts; (2) with the expansion of globalization, advances in information technology, development of efficient markets, and increased demand from sophisticated customers, location choice and demand for industrial space will continue to be determined by the requirements of efficient supply chains.