Supply Chain and

Real Estate Trends

And why it’s good news for Salt Lake City!

Kelly Gray

Jones Lang LaSalle

What am I going to talk about?

• How and why companies choose locations

• How does Salt Lake City stack up?

• Trends in:

- Supply Chain Network Design

- Location Selection

- Reshoring of Advanced Manufacturing

- Silicon Valley

• How are those trends effecting Salt Lake City?

2

Integrated Intelligence

3

Real estate makes up for only a small portion of total operating costs…

And therefore only a portion of real estate decision making…

The Right DecisionLabor Real estate

Operating cost

Supply Chain Strategy

Brand and image

Competitive environment Political stability

Future growth Portfolio optimization

Taxes Infrastructure

Business climate

Environmental issues

Incentives

Competitive environment

Utilities

Logistics

Representative clients & experience

4

Tenant Representation/ Consulting –Location Selection: Agency: Consulting - RLSSM:

Walmart Miller Coors Prologis Roll Global

FedEx Harbor Freight Tools Duke Realty JP Morgan Chase

P&G Under Armour Northern Builders CenterPoint Properties

Exel Logistics/ DHL Cloverhill Bakeries Area Property Partners Majestic Realty

Navistar, Inc. M. Block & Sons The Stratford Group

Chicago Sun Times Northern Tool & Equipment BPG Properties

Walgreen Co. Ris Paper Conor Commercial

Golden State Foods RJW Transportation Lincoln Property Company

Fonterra Foods Panera Bread Company Pertucci Development

Flowserve Ambius Covington Capital

Tesla Verizon

Where I’m from….

5

• St. Louis, MO

• University of Missouri

• Moved to Chicago

• CH Robinson 2 years

• Joined Staubach April 2008

• Location consulting and supply chain network design

• Global Industrial Exchange Program – Brazil 4Q14

• Moved to Silicon Valley office

Salt Lake City

• Population of Salt Lake County – 1,091,000

• Population under 18 years – 28.3% (US Average 23%)

• Low average age – 30

• Projected Year Population Growth Rate – 10.8%

• Low unemployment – 3-4%

• Relatively low cost of living

• Incentives

• Ease of doing business

6

The Silicon Slopes!

Impacts Effecting SLC:

Increased localization of

distribution

Advanced

manufacturing returning

to U.S.

Companies leaving

higher cost West Coast

markets

Supply Chain Network Strategy

7

How many facilities should we have? Where?

Full scope Network Strategy has many variables:

Inbound transportation

Outbound transportation

Facility size

Product types

Inventory levels

AND MORE!

Latest trends in Supply Chain Network Strategy

8

250 mile radius – 20 DCs = 86% of Total Population and 100% of Top 250 Cities

Salt Lake City

2,800,000 People in 250 Mile

Radius

FedEx Ground Hub Network

9

Industrial location selection

10

Best location? Lowest cost?

71

8379

100

5

76

65

8578

74

8

7166

89

72

39

2

6871

6267

5347

6660

30

7983

100

6155

4956

68

2

54

79

45

99

35

46

72

0

10

20

30

40

50

60

70

80

90

100

WORKFORCE /COMMUNITY

TRANSPORTATION WAGE RATES REAL ESTATE COSTS INCENTIVES TOTAL

LOCATION MODEL RESULTS

Paramount Logistics Park Tejon Ranch Commerce Center Moreno Valley Las Vegas Reno Stockton Goodyear

$7,522,483

$7,088,415

$6,567,958

$13,594,902

$16,500,926

$12,021,327

$13,751,110

$11,352,273

$11,394,766

$11,723,445

$11,470,243

$11,120,347

$12,129,207

$10,816,320

$4,528,125

$4,950,000

$5,512,500

$5,287,500

$4,799,250

$5,040,000

$5,578,875

-$5,000,000 $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000

Paramount Logistics…

Tejon Ranch…

Moreno Valley

Las Vegas

Reno

Stockton

Goodyear

OPERATING COST MODEL RESULTS

TRANSPORTATION WAGE RATES REAL ESTATE COSTS INCENTIVES

Cost-Service Trade-Offs

- Proximity to population

- Real estate cost and quality

- Transportation costs and infrastructure quality

- Workforce costs and demographics

- Taxes and Incentives

11

There is a trade-off between:

Analytical Factors

12

STATE INCENTIVE ENVIRONMENT

LABOR COST VARIABILTIY

LABOR MARKET MODELING

SUPPLY CHAIN ANALYTICS

Operating Cost Models

Quantitative considerations, such as:

Transportation costs, wage rates, real estate, & taxes and Incentives

13

$3,983,315 $4,307,830 $4,713,049 $5,236,113 $5,236,113 $5,462,279 $6,223,290 $5,545,647

$420,249 $414,864 $441,131

$392,170 $392,170 $370,196 $404,906

$370,167

$5,451,763 $6,465,000

$6,670,000 $5,310,000 $5,310,000 $5,752,500

$6,300,000

$5,637,500

$8,684,336

$10,021,940 $9,749,522 $10,299,546

$8,866,919

$10,341,225

$11,827,971

$10,453,088

$(5,000,000)

$(3,000,000)

$(1,000,000)

$1,000,000

$3,000,000

$5,000,000

$7,000,000

$9,000,000

$11,000,000

$13,000,000

$15,000,000

$(5,000,000)

$(3,000,000)

$(1,000,000)

$1,000,000

$3,000,000

$5,000,000

$7,000,000

$9,000,000

$11,000,000

$13,000,000

$15,000,000

Baltimore PRINCIPIOBUSINESS PARK

NORTH EAST LOGANTOWNSHIP

GREENCASTLE MARTINSBURG SPOTSYLVANIA SANDSTON

Annual Operating Costs

TRANSPORTATION WAGE RATES REAL ESTATE INCENTIVES TOTAL SCORE*Hypothetical results

Location Selection Models

Quantitative as well as non-financial considerations, such as:

Demographics, Workforce size and quality, rates of unionization, & infrastructure quality

14

*Hypothetical results

67.2

73.8 74.2

62.2 61.3 61.657.0 57.5

67.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

0

10

20

30

40

50

60

70

80

Reno Stockton Lathrop Fremont San Jose Oakland Richmond Napa W Sacramento

Location Selection Model Score

Subtotal WORKFORCE/ COMMUNITY Subtotal WAGE RATES Subtotal TRANSPORTATION Subtotal REAL ESTATE Total Score

Latest trends in Location Selection

• In BCG’s most recent survey of U.S.-based manufacturing executives, completed in August of last year, 54% of the respondents said they were actively considering relocating production from China to the U.S., up from 37% in 2012. Some 16 percent of the companies said they already had relocated at least some manufacturing capacity from China to the United States – more than double the number (7%) reported in 2012.

• Airbus

• Mercedes Benz

• Embrear

• Shinola

• Walmart

• Medical devices, 3D printing, high-tech complex goods (cars!), chips

15

Reshoring

• Lead time

• Higher product quality and consistency

• Rising offshore wages

• Skilled workforce

• Freight costs

• Image of being Made in USA

• Lower inventory levels, better turns

• Better responsiveness to changing customer demands

• Minimal intellectual property and regulatory compliance

risks

• Improved innovation and product differentiation

• Local tax incentives

What’s going on in the Silicon Valley/ Bay Area?

16

Rents at pre-recession highs – All submarkets tapped out

$0.40

$0.45

$0.50

$0.55

$0.60

$0.65

$0.70

$0.75

$0.80

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

Vacant SquareFootage

Silicon Valley Industrial Market

17

Shrinking market Facebook

3 million SF

Just displaced another 1

million SF of industrial

Tesla

5 million Sffactory

500,000 SF HQ

Gigafactory – 5 to 10 million

SF

Apple - Cupertino + 3

million SF

Building Apple Campus 2 –

2 million SF

Google +/- 8 – 10 million

Googleplex +/- 3 million SF

The Quad +/- 2.5 million

Mayfield Mall

Downtown

MORE?????

Silicon Valley Industrial Market

18

Shrinking market

64,000,000

66,000,000

68,000,000

70,000,000

72,000,000

2010 1Q 2011 1Q 2012 1Q 2013 1Q 2014 1Q 2015 1Q

Total inventory (s.f.)

Over the past 24 months, at least 2.8 MSF of industrial product has been demolished, replaced by

new Class A office campuses and high-density residential housing

2.8 million

SF

Reduction

19

20

21

22

23

24

25

26

27

67.273.8 74.2

62.2 61.3 61.657.0 57.5

67.0

0.0

20.0

40.0

60.0

80.0

0

20

40

60

80

Reno Stockton Lathrop Fremont San Jose Oakland Richmond Napa W Sacramento

Location Selection Model Score

Subtotal WORKFORCE/ COMMUNITY Subtotal WAGE RATESSubtotal TRANSPORTATION Subtotal REAL ESTATE

$3,983,315 $4,307,830 $4,713,049 $5,236,113 $5,236,113 $5,462,279 $6,223,290 $5,545,647

$420,249 $414,864 $441,131 $392,170 $392,170 $370,196

$404,906 $370,167

$5,451,763 $6,465,000

$6,670,000 $5,310,000 $5,310,000 $5,752,500

$6,300,000 $5,637,500

$8,684,336

$10,021,940 $9,749,522 $10,299,546

$8,866,919

$10,341,225

$11,827,971

$10,453,088

$(5,000,000)

$(3,000,000)

$(1,000,000)

$1,000,000

$3,000,000

$5,000,000

$7,000,000

$9,000,000

$11,000,000

$13,000,000

$15,000,000

$(5,000,000)

$(3,000,000)

$(1,000,000)

$1,000,000

$3,000,000

$5,000,000

$7,000,000

$9,000,000

$11,000,000

$13,000,000

$15,000,000

Baltimore PRINCIPIOBUSINESS PARK

NORTH EAST LOGAN TOWNSHIP GREENCASTLE MARTINSBURG SPOTSYLVANIA SANDSTON

Annual Operating Costs

TRANSPORTATION WAGE RATES REAL ESTATE INCENTIVES TOTAL SCORE

STATE INCENTIVE ENVIRONMENT

LABOR COST VARIABILTIY

LABOR MARKET MODELING

Back to the math!

Tech job creation over past year

28

Source – Bureau of Labor Statistics

Goldman

Sachs9 of 11 Business

Units in SLC

Overstock.comHQ

Adobe

Cost of Living Calculator

29

Forbes Top Cities for Doing Business 2015

1. Denver, CO

2. Raleigh, NC

3. Portland, OR

4. Provo, UT

5. Atlanta, GA

6. Seattle, WA

7. Salt Lake City, UT

30

Salt Lake City

• Young population

• High population growth

• Low unemployment – 3-4%

• Relatively low cost of living

• Incentives

• Ease of doing business

31

The Silicon Slopes!

Impacts Effecting SLC:

Increased localization of

distribution

Advanced

manufacturing returning

to U.S.

Companies leaving

higher cost West Coast

Markets

COPYRIGHT © JONES LANG LASALLE IP, INC. 2015

Thank you

Kelly Gray

Vice President

Silicon Valley

650.480.2130

Kelly.Gray@am.jll.com