That big-box warehouse down the street may not be the prettiest feature of the Nevada landscape surrounding you, but next time you’re driving past it, consider this: It, and other facilities like it, might just save the state’s struggling economy. Nevada is poised to become a major distribution center in the West.
According to a 2011 study commissioned by the State of Nevada, this isn’t an exaggeration.
The study, conducted by an independent third party, SRI International, working with the Brookings Institute and Brookings Mountain West, identified the key industries that Nevada should focus on as part of its economic diversification efforts—those that will be key to recession recovery and prolonged economic growth. The findings are documented in a November 2011 report entitled Nevada Industry and Competitive Analysis: Identification of Industry Opportunities.
The report calls the logistics and operations industry cluster (which includes logistics, warehousing, distribution, transportation and wholesale trade) “a natural target industry for Nevada,” and one which “has strong potential for job creation over both the short- and long-terms.” Additionally, it identifies an opportunity for Nevada to “serve as a West Coast hub of operations” for warehousing and distribution; advanced logistics; air cargo; integrated manufacturing- distribution, assembly manufacturing and food-processing operations; and freight transportation (ground and rail).
According to the report, key to the state’s success is its locational and geographic advantages, strong existing infrastructure and cost and regulatory advantages.
Location, Location, Location
Some people working in distribution around the state believe Nevada is already a distribution hub—at least on the West Coast. In 2010 (as reflected in the report), there were 6,848 establishments in Nevada that were considered part of the logistics, distribution and transportation industry cluster, which included the likes of CDW, Barnes & Noble, Toys ‘R Us, Bed, Bath, & Beyond, Levi Strauss, Amazon.com, Sysco and others.
“I do see Nevada as a national hub for distribution, and it’s a pretty compelling story, especially in Northern Nevada,” said Doug Kiersey, president of Dermody Properties, a private industrial developer based in Reno with regional offices in Philadelphia, Chicago and Portland. Dermody provides development, operations and finance expertise to its customers.
“Within one day’s truck drive, a company can reach most of its consumers on the West Coast,” Kiersey explained. “[Reno is] equidistant from Seattle and Los Angeles. We have excellent rail service and, via I-80, an east-west transportation route. When a national company looks at laying out its supply chain, they want a place that enables them to reach the most customers for outbound freight. We’re in the perfect spot on the West Coast to attract large distribution users.”
Doug Roberts, partner in Panattoni Development, believes similarly on this point, especially with regard to Northern Nevada. Panattoni, a commercial real estate developer headquartered in Las Vegas and specializing in industrial spaces, has offices throughout the United States, Canada and Europe.
“I think that of all the commercial sectors we deal with, industrial is one of the healthiest—particularly big-box distribution,” said Roberts, explaining that he sees Nevada’s emerging role as a distribution hub as attributable to three main factors: “Reno is centrally located for 11 Western states—that’s number one. Second, the business climate here is attractive for companies. And third, we’ve almost always had space available.”
Reno’s location indeed provides a distinct advantage that Las Vegas does not, Roberts adds. Though Las Vegas has been fairly successful at growing its gaming and hospitality-related distribution business (e.g. convention and exhibition companies, beer and liquor distributors, food suppliers, etc.) due to its inherent strengths, high rents near The Strip and a lack of large, available spaces have stemmed growth in the sector.
“If you look at the distribution patterns of a company, most product comes through LA and the Long Beach Port and moves up to Chicago, in sort of a Nike swoop,” Roberts said. “Mostly this travels by rail and truck. Then from Chicago it goes to other markets. But Reno and Las Vegas somewhat miss that swoop; we’re not within that belt.” Phoenix, however, is the sixth-largest city in the U.S. and is located within that “swoop,” he added, which is why Las Vegas has lost a good percentage of its potential distribution business to Phoenix.
Infrastructure
That may not be the case much longer if two long-anticipated, major infrastructure projects affecting Southern Nevada come to fruition.
The first of these is Interstate 11, a segment of the CanaMex project intended to provide a direct route between Canada and Mexico. The I-11 would connect Las Vegas and Phoenix, the two largest metro areas in the country that are not connected by an interstate highway, pointed out John Restrepo, principal, RCG Economics, a regional economics consulting firm specializing in economic forecasting, particularly in the area of real estate.
I-11 would tap into the “swoop” Roberts referred to, but it’s certainly not in the immediate offing. “I think I-11 is definitely going to happen; there’s a lot of cooperation taking place between Nevada and Arizona about it, and there’s a plan to do a corridor analysis. Money is also being allocated to the planning,” Restrepo said. “It’s moving forward, but it will take time, they need to do a lot of environmental impact work, they have to acquire the land—we’re talking at least seven to 10 years out, unless it’s put on some sort of accelerated program.”
There’s also considerable talk of making Las Vegas an inland port; RCG Economics has been hired by the Governor’s Office of Economic Development to do a feasibility study on the project, which would involve about 1,000-plus acres of land and a large-scale, multimodal industrial distribution center with rail and road coming and going.
As Restrepo explained it, coastal ports often wrestle with congestion; an inland port is usually associated with a coastal port in order to relieve its congestion, which Las Vegas could perhaps do for Long Beach.
But even without these projects currently on the books, Nevada’s infrastructure is quite good. Nevada Industry and Competitive Analysis indicates that the state’s existing north-south and east-west routes and strong rail connections (Union Pacific and Southern Pacific); excellent cargo facilities through both the Reno-Tahoe International Airport and McCarran International Airport; and existing technology infrastructure (fiber optics, etc.) all make Nevada very appealing to companies seeking a distribution location.
Kiersey added that availability of land is also what drives customers away from larger markets—for instance, Seattle and Portland, each of which struggles with a serious lack of available space for distribution, as well as zoning and urban growth constraints.
This may be why the Tahoe-Reno Industrial Center (TRIC), the largest industrial park of its kind in the U.S., is chief among the state’s attributes. TRIC is comprised of 104,000 acres, or 166 square miles of property, of which 30,000 acres are zoned and pre-approved for all industrial uses, with all utilities and infrastructure completed. Additionally, there are several miles of railroad track and two I-80 interchanges serving the park. It’s 100 percent ready for use upon move-in, explained Lance Gilman, member and principal for TRIC.
“It’s the most unique industrial park in the country, and probably the best-kept secret in Nevada,” said Gilman, pointing out that 130 companies currently do business on 12 million square feet of TRIC, all with a tremendous diversity of uses, both in manufacturing and distribution. “You’ll find U.S. ordinance manufacturing of 50-caliber machine guns, diapers and baby accessories, and Dura-flex fiberglass diving boards for schools and the Olympics.”
Gilman said that 2011 was “an incredibly successful absorption year,” and he credited the growing success of TRIC to its location and to its size, infrastructure and expedited permitting process, all of which make it possible for companies—including Toys ‘R Us, Zulily, the Red Cross, Petsmart and a Walmart distribution center— to do business almost from the moment they first roll onto the property.
“I’ve worked aggressively with Storey County to develop one of the most user-friendly permitting plans in the U.S.,” said Gilman, explaining that the county’s pro-growth attitude has it delivering building permits in 30 days or less.
Business Environment
Having some big-name companies located here, Doug Roberts pointed out, is a major factor in attracting other companies. “I think that sometimes there’s a negative perception of distribution and warehousing jobs as being low-paying and bad for workers. But when I travel the country, the company names we have here are a huge plus. Even just having a distribution center here means the world for a corporate real estate developer. We need to keep it a viable business community and make sure it’s a place where people want to do business, and where their brethren already are.”
The state’s business-friendly tax structure has long been hailed as a boon to economic growth. Our tremendous tax advantages include no corporate tax, unitary tax or inventory tax—essentially, shipping to and from the state costs companies no tax dollars.
But taxes may not be everything.
Restrepo is encouraged by growth in the distribution sector. He sees potential for Nevada to become a hub for distribution— but he doesn’t believe we’re quite there yet.
“What drives the industry, which is mostly comprised of large-scale industrial parks, is a variety of things,” said Restrepo. “It depends on a big manufacturing base, its multi-modal transportation capacities (for freeways, railroads, etc.), the quality of its labor, the price of fuel, questions of proximity to major population centers and, a big challenge in Nevada, though less in the north, is the amount of large pieces of flat land that are served by rail and highways. So there’s the issue of accessibility, the underlying extent of its transportation infrastructure system (and airports, to a lesser extent) and land availability.”
What’s not so important, Restrepo added, is tax structure. “It’s a component, and we have an advantageous structure, but it’s not the be-all, end-all.” He explained that what really drives a company to locate in a large-scale distribution center is logistics. “In my opinion, it’s not that Nevada is undiscovered country. There are other issues: labor costs, fuel costs, rail infrastructure and interstate infrastructure.”
That’s why the Cincinnati, Ohio area is one of the nation’s biggest distribution centers, Restrepo explained. Its criss-crossing railways and highways and the quality of its labor are appealing—despite its higher taxes.
Gilman agrees that in some respects Nevada is behind the curve. “Phoenix is on fire for relocating companies there,” he said. “One issue is the aggressiveness of the state. Utah has done a masterful job of securing companies that are moving west; it’s a function of their economic development success. They’re light years ahead of Nevada, because they’ve invested more capital and focus on development in that area. We’re doing that now, but we’re playing catch-up.” He said that although Phoenix’s high summer temperatures are somewhat of a disadvantage, it has simply out-positioned Nevada with good marketing.
But with Nevada’s increasing interest in economic diversification, much of which will derive from the findings of the Nevada Industry and Competitive Analysis study, greater continued efforts to market Nevada as a distribution hub are expected.
Gilman projects that the cost of gas (and the ability to distribute overnight to 11 Western states from the Reno area) will be a huge driver of growth, as will e-commerce, which enhances a company’s need to deliver rapidly to remain competitive.
Restrepo sees a promising future for Nevada as a reverse logistics hub—in other words, a prime location for companies that accept returned goods from consumers.
“The importance of distribution may fly below the radar for most Nevada residents,” said Kiersey. “But there are a lot of jobs in logistics here, and it’s a big driver of Nevada’s growth.”
Jessica Santina
Jessica Santina is a freelance writer based in Reno.
