Ouch!

Credit Cruch Hurts CB, JLL

http://blog.retailtrafficmag.com/retail_traffic_court/2008/07/30/credit-crunch-hits-cbre-jll/

Ocean cargo: ILWU and PMA reach tentative agreement on contract

From Logistics Management:

SAN FRANCISCO—Following what has been described as “marathon weekend bargaining session,” leaders from the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) announced a preliminary agreement on terms for a new six year contract covering more than 25,000 dockworkers at 29 West Coast ports. The leaders shook hands in San Francisco over the proposed agreement late yesterday.

Shippers, who had been hoping that a contract would be signed before the last one expired on July 1, welcomed the news nonetheless.

“We are just happy that this (bargaining session) is through,” said Joel Anderson, president of the International Warehouse and Logistics Association (IWLA).“Now we can get back to the business of moving freight.”

The agreement is subject to ratification by the ILWU and PMA membership. The ILWU and PMA have agreed to extend the previous agreement and resume normal port operations.

ILWU president Bob McEllrath and PMA president Jim McKenna said the proposed agreement meets the needs of both workers and the industry. It allows West Coast ports to be competitive and provides the good jobs that workers and communities need.

The parties have agreed not to discuss details of the agreement until the ILWU a nd PMA leadership teams have communicated with their respective membership.

The West Coast longshoremen are the highest-paid blue-collar workers in America. Average full-time wages for fully registered workers exceed $136,000. ILWU members also enjoy fully employer-paid health benefits, with no premiums or deductibles and 100 percent coverage for standard medical benefits. Based on a tentative agreement, those fully-paid benefits would continue.

At the same time, the PMA has reminded shippers that West Coast ports generate almost $1.3 trillion in domestic business impacts – representing 11 percent of total U.S. gross domestic product – and support more than 8 million direct and indirect U.S. jobs.

$500 is not what it used to be

In 1999, a gallon of diesel cost $0.99 and for $500 you could drive from Los Angeles to New York.

In 2001, a gallon of diesel cost $1.40 and for $500 you could drive from Los Angeles to Chicago.

In 2004, a gallon of diesel cost $1.63 and for $500 you could drive from Los Angeles to Kansas City.

In 2007, a gallon of diesel cost $2.63 and for $500 you could drive from Los Angeles to Denver.

In 2008, a gallon of diesel costs $4.05 and for $500 you could drive from Los Angeles to Salt Lake City.

Special thanks to The Multimodal Services Group for this presentation.

What a 5.8 Magnitude Earthquake Looks Like

I am at the top of a 32 story building today in Downtown Los Angeles, the building shook quite a bit, but everyone here is safe. I would rather live in California and deal with earthquakes than be in Florida and have to deal with hurricanes.

These earthquakes play themselves out in pretty short order.

Investor Relations: FirstService Corporation (USA) (Public, NASDAQ:FSRV)

The Colliers company that I work for is Colliers CMN, which is owned by FirstService Corp.

The FirstService share price is up almost 20% today because of this powerpoint, and other factors I am sure. The company is in "aquisition mode" so who knows what surprises are right around the corner.

Funds for Highways Plummet

From the Wall Street Journal:

Funds for Highways Plummet As Drivers Cut Gasoline Use
By CHRISTOPHER CONKEY
July 28, 2008;

An unprecedented cutback in driving is slashing the funds available to rebuild the nation's aging highway system and expand mass-transit options, underscoring the economic impact of high gasoline prices. The resulting financial strain is touching off a political battle over government priorities in a new era of expensive oil.

A report to be released Monday by the Transportation Department shows that over the past seven months, Americans have reduced their driving by more than 40 billion miles. Because of high gasoline prices, they drove 3.7% fewer miles in May than they did a year earlier, the report says, more than double the 1.8% drop-off seen in April.

The cutback furthers many U.S. policy goals, such as reducing oil consumption and curbing emissions. But, coupled with a rapid shift away from gas-guzzling vehicles, it also means consumers are paying less in federal fuel taxes, which go largely to help finance highway and mass-transit systems. As a result, many such projects may have to be pared down or eliminated.

The challenge comes at a time when surging costs for asphalt and other construction materials already are straining state and local transportation budgets. Those cost increases make it more expensive to maintain the nation's roads, bridges and rail networks.

In many areas, the ragged edges are already showing. About 25% of bridges in the U.S. are either "functionally obsolete" or "structurally deficient," like the Mississippi River bridge that collapsed in Minneapolis last August, killing 13 people.

Moreover, the pavement is rated "not acceptable" on one of every seven miles of the nation's roads, according to the National Surface Transportation Policy and Revenue Study Commission, whose job is to assess infrastructure problems and recommend fixes.

Overall, the commission estimated, $225 billion a year is needed to meet the country's transportation infrastructure needs. Current spending is about 40% of that level.

"We were losing ground to these incredible increases in construction costs, but then to see the erosion in driving -- it's a double whammy," said John Horsley, executive director of the American Association of State Highway and Transportation Officials. On top of the federal gasoline tax, currently 18.4 cents a gallon, the states charge their own gasoline taxes, which are typically slightly above the federal rate.

The Bush administration is expected to release as early as Monday figures projecting a deficit of $5 billion or more in the Highway Trust Fund for next year. Thanks to steady increases in driving, since it was set up under President Dwight Eisenhower, the trust historically has run a surplus. It steers gasoline-tax revenue through a federal appropriations process before sending it back to the states.

The prospect of the highway fund running a big deficit has sparked a frenzy of lobbying on Capitol Hill, as business groups, ranging from the U.S. Chamber of Commerce to the National Stone, Sand & Gravel Association, have pressed lawmakers for a quick solution.

"We're going to spend a lot of time, money and effort on this," said U.S. Chamber of Commerce President Tom Donohue. "People need to understand that this infrastructure thing is not optional."

In recent weeks, Mr. Horsley's group has circulated a memo estimating that the states will lose a total of about $14 billion and roughly 380,000 jobs if Congress doesn't act to shore up the fund soon.

On Wednesday, the House passed a bill targeting $8 billion for highway and mass-transit projects. The measure has a good chance of clearing the Senate as well, despite White House reservations.

On Thursday, the House passed legislation that designates an additional $1 billion for bridge repair. House and Senate leaders are talking about including a significant increase in infrastructure spending in a possible second economic-stimulus bill.

Prelude to a Debate

The moves are a prelude to a debate expected next year as Congress considers a new, six-year transportation bill that could authorize more than $400 billion in spending.

Transportation Secretary Mary Peters said administration officials are crafting an overhaul plan aimed at shaping the debate. The goal would be to give states more flexibility to set transportation spending, while making it easier for them to tap private-sector dollars. Also under consideration: asking Congress to loosen restrictions on states levying new tolls on interstate highways.

A big question will be what to do about the Highway Trust Fund, which pays for the promises laid out in each transportation bill. Another quandary will be whether a greater share of transportation dollars should go to rail or other nonhighway options.

With consumers already recoiling from high prices, raising the federal gas tax isn't a politically viable option. In fact, debate in the presidential campaign this year has centered on whether to give consumers a gasoline-tax holiday, a step presumptive Republican nominee Sen. John McCain has endorsed.

Rep. Earl Blumenauer, an Oregon Democrat who is leading efforts to solve what he calls the "transportation funding crisis," is hoping the presidential candidates will offer their views at a summit this fall.

Sen. Barack Obama, the presumptive Democratic nominee, and other lawmakers have proposed a $60 billion national infrastructure bank that would fund projects that could improve regional and national transportation, such as unclogging freight-rail bottlenecks in the Chicago area.

Consumers began tapping the brakes on driving in November, but by the spring, with gasoline prices hovering around $4 a gallon, many were leaving their cars in the driveway. March, April and May marked the steepest three-month pullback on record, the new data show.
The pullback over that short period is approaching the periodic declines seen throughout the volatile 1970s, when an oil embargo and the Iranian revolution sparked long lines at gasoline station and two major oil shocks.

"In the past...we've seen driving bounce back pretty quickly," said Ms. Peters. "That is not the case now."

As debate revs up, the retreat from the roads shows how consumers are altering the transportation equation. With driving down, the number of people riding Amtrak has risen 11% this year, and mass-transit systems in many areas, including Seattle and South Florida, are experiencing ridership increases of 30% or more, according to the American Public Transit Association.

APTA President William Millar rides Washington's Metro rail each weekday between his home downtown and Falls Church, Va. He used to be able to find a seat at some point on his trip, but these days, he said, "I can't even squeeze onto the train" during the afternoon rush.
Earlier this year, the House passed legislation that would provide an additional $1.7 billion to transit agencies over two years. Both chambers have passed bills that would significantly boost Amtrak funding.

The recent congressional action has raised some hopes. "I was ready until yesterday to have a list of projects to delay," said Larry L. "Butch" Brown, executive director of the Mississippi Department of Transportation, referring to the July 23 House vote to shore up the Highway Trust Fund. But going forward, he added: "There's going to be one hell of a challenge to come."

Diverting Money

Like many counterparts across the country, Mr. Brown is diverting money from new road improvement projects toward simple maintenance of existing roads. The most immediate challenge for states is ensuring Congress moves to bolster the trust fund so they don't have to further curtail plans -- and cut jobs. Mr. Brown said Mississippi stands to lose $140 million and around 5,000 jobs.

Vermont Gov. Jim Douglas sent a letter to Congress last month saying the state would have to cancel numerous transportation projects that employ 1,600 people unless lawmakers shored up the trust fund.

Meanwhile, many consumers are rethinking their transportation options and drastically altering their travel patterns, forcing auto makers to overhaul their plans and straining the capacity of many transit systems.

Nancy Underwood, an administrator in Alexandria, Va., got rid of her gas-thirsty Ford Explorer in favor of a Honda Accord, which still cost her $69 to fill up Sunday morning. She and her husband have nearly stopped their frequent trips to Richmond, and gasoline prices have even influenced her job situation.

"I took a job three blocks from my home" to save on gas and parking, even though "I could make more money" working in town, she said.

Bush signs Maritime Prevention Pollution Act into law

Ocean cargo: Bush signs Maritime Prevention Pollution Act into law

Jeff Berman, Group News Editor -- Logistics Management, 7/24/2008

WASHINGTON and ALEXANDRIA, Va.—President George W. Bush officially inked H.R. 802, the “Maritime Pollution Prevention Act, into law this week. This follows the passing of the legislation by the U.S. Senate on July 8.

This bill implements Annex VI of the International Convention for the Prevention of Pollution from Ships, which is more commonly known as MARPOL, and is comprised of air quality benefits for port communities throughout the country. Annex VI, which is an international treaty that sets limits for oxides of nitrogen (NOx) and oxides of sulfur from ship exhaust, is the global protocol for regulating vessel emissions.

"While land-based emissions and some marine emissions are the responsibility of the U.S. Environmental Protection Agency, AAPA believes that an international process is the most effective for vessels, the majority of which are flagged in countries other than the U.S.," Nagle said in a statement. "Considering that emissions from ocean-going ships are predicted to grow by more than 70 percent over the next 15 years, it's imperative that meaningful and effective air emissions standards be adopted to improve air quality."

And AAPA Director of Communications Aaron Ellis told LM in an interview earlier this month that the biggest takeaway with this legislation being passed is that by being part of the international treaty (Annex VI), the U.S will be able to level the playing field for all ships so that there is a single emissions standard that will have to be maintained.

“This is really all about trying to be able to control something that we have not been able to control in the past,” explained Ellis. “Previously—and now—international ships that call U.S. ports really are outside of U.S. jurisdiction with regard to emissions. We really don’t have any control over their particulate matter, oxides, nitrogen, or sulfur they are putting into our atmosphere, however, domestic ships that call at U.S. ports and all other domestic vessels do have to live under the U.S. EPA rules for emissions.

Another component of this legislation is that port authorities have been very supportive of it, because many ports are trying to manage—and struggling—with some of the emissions sources in their facilities, said Ellis. And he added that ships are the largest source of emissions in outward regions, but by being able to finally have some control over those emissions to keep them at a level that is pre-ordained, it will give ports in non-payment zones like Los Angeles and Long Beach a better ability to reduce their overall emissions and have more control over their atmospheric conditions.

The AAPA said that a U.S. delegation led by the EPA and the U.S. Coast Guard with support from the AAPA and the World Shipping Council played a large role in negotiating a suite of amendments that will further reduce amendments that will further reduce air emissions and particulate matter from ships.

MARPOL Annex VI entered into force on May 19, 2005 and has remained unchanged ever since, but the International Maritime Organization’s Marine Environment Protection Committee is expected to approve changes to Annex VI at its meeting in London in October.

What A POW Economy Can Teach Us About The Real Economy

Interesting Article on the function of cigarettes as currency. http://www.albany.edu/~mirer/eco110/pow.html

Some Highlights:

The cigarette currency
Although cigarettes as currency exhibited certain peculiarities, they performed all the functions of a metallic currency as a unit of account, as a measure of value and as a store of value, and shared most of its characteristics. They were homogeneous, reasonably durable, and of convenient size for the smallest or, in packets, for the largest transactions. Incidentally, they could be clipped or sweated by rolling them between the fingers so that tobacco fell out.

Cigarettes were also subject to the working of Gresham's Law. Certain brands were more popular than others as smokes, but for currency purposes a cigarette was a cigarette. Consequently buyers used the poorer qualities and the Shop rarely saw the more popular brands: cigarettes such as Churchman's No. 1 were rarely used for trading. At one time cigarettes hand-rolled from pipe tobacco began to circulate. Pipe tobacco was issued in lieu of cigarettes by the Red Cross at a rate of 25 cigarettes to the ounce and this rate was standard in exchanges, but an ounce would produce 30 home-made cigarettes. Naturally, people with machine-made cigarettes broke them down and rerolled the tobacco, and the real cigarette virtually disappeared from the market. Hand-rolled cigarettes were not homogeneous and prices could no longer be quoted in them with safety: each cigarette was examined before it was accepted and thin ones were rejected, or extra demanded as a make-weight. For a time we suffered all the inconveniences of a debased currency.

Machine-made cigarettes were always universally acceptable, both for what they would buy and for themselves. It was this intrinsic value which gave rise to their principal disadvantage as currency, a disadvantage which exists, but to a far smaller extent in the case of metallic currency; – that is, a strong demand for non-monetary purposes. Consequently our economy was repeatedly subject to deflation and to periods of monetary stringency. While the Red Cross issue of 50 or 25 cigarettes per man per week came in regularly, and while there were fair stocks held, the cigarette currency suited its purpose admirably. But when the issue was interrupted, stocks soon ran out, prices fell, trading declined in volume and became increasingly a matter of barter. This deflationary tendency was periodically offset by the sudden injection of new currency. Private cigarette parcels arrived in a trickle throughout the year, but the big numbers came in quarterly when the Red Cross received its allocation of transport. Several hundred thousand cigarettes might arrive in the space of a fortnight. Prices soared, and then began to fall, slowly at first but with increasing rapidity as stocks ran out, until the next big delivery. Most of our economic troubles could be attributed to this fundamental instability.

Almost Real Time Gas Prices By Zip Code

The Internet: Lowering Transaction Costs.

http://autos.msn.com/everyday/GasStations.aspx?m=1&l=1&zip=91106

June Container Numbers Weak…Again

From LAEDC:


The June container numbers from the ports of Los Angeles and Long Beach continued weak. The total number of containers handled at the ports declined by -12.1% over the year to 1.21 million TEUs. The number of loaded import containers dropped by -13.7% over the year to 627,501 TEUs. Export activity, however, continued to grow, with the June count up by +12.3% over the year to 311,032 TEUs.

At the port of Oakland, it was the same story. The number of import containers declined by -4.0% over the year to June, while the export container count was up by 9.6%. The total number of containers handled at Oakland in June was down by -0.3% over the same period last year to 198,557 TEUs. (Jack Kyser)

Port of Long Beach PR: http://www.polb.com/economics/stats/latest_teus.asp

Port of Los Angeles PR: http://portoflosangeles.org/maritime/stats.asp

Port of Oakland PR: http://www.portofoakland.com/maritime/facts_cargo.asp

It's The Economy, Stupid

Q2 Office North American Highlights

Source: Colliers International


Office Space Market Shows Further Softening in Second Quarter

&

U.S. office vacancy rate posts third consecutive increase

&

Further contraction in occupied space
-------------------------------------------------------------------------------

=Bad News


And now the numbers:

Vacancy Rate Q2 2008 (Change from Q1 2008) – 13.24% (+0.27)
Absorption Q2 2008 (Million Square Feet) – -1.4
New Construction Completions Q2 2008 (Million Square Feet) – 19.4
Under Construction Activity (Million Square Feet) – 121.0
Asking Rents Per Square Foot (Change from Q1 2008)
• Downtown Class A – $50.10 (+1.45%)
• Suburban Class A – $28.70 (-0.26%)

Worst Market In North America (based on vacancy rate) Is:

*Drum-roll*

Pleasanton/Walnut Creek, CA with a vacancy rate of 24% average asking downtown class A rents of $2.30.

Somehow they forgot to add the Inland Empire. I am almost positive I submitted my numbers, I am going to call them and ask them why my market was bumped.

The vacancy rate for the Inland Empire is 16.1%, so it could be a lot worse.

It Never Gets Any Easier PT II

Ocean cargo: West Coast dockside productivity down as labor talks falter

Patrick Burnson, Executive Editor -- Logistics Management, 7/17/2008

SAN FRANCISCO—With labor and management talks at a standstill, reports from West Coast ports indicate that the International Longshore and Warehouse Union (ILWU) is now playing a “stalling game.”

According to the Pacific Maritime Associations, union members in Southern California have expanded disruptive job actions at terminals at the twin ports of Los Angeles and Long Beach, leading to widening productivity losses.

“What we're seeing is a troubling pattern emerging here by the ILWU whose actions could jeopardize the U.S. economy at a time when it can least afford to take another hit,” said PMA spokesman, Steve Getzug.

Overall, productivity at the port complex was down 20 to 30 percent during the day shift on Tuesday, according to the PMA, whose 71 member companies include cargo carriers, terminal operators, and stevedores on the West Coast.

In a message to its members, ILWU leaders admitted to disruptions and asked for cooler heads to prevail:

“When contracts expire, some people are tempted to take matters into their own
hands,” the ILWU told its members. “Let’s respect the Negotiating Committee
strategy and our elected union officials by discouraging talk about ‘wildcats.’
We’re stronger when we stick together!”

A “wildcat” strike is an action taken by workers without union permission.

First detected during the dayshift on Tuesday, the new work actions are occurring on top of coordinated mid-shift unit breaks that began Friday and continue to hamper operations at the nation’s busiest ports. Essentially a series of small steps—such as tractor drivers operating their vehicles more slowly than normal, or brief delays being made during routine actions such as placing containers on trucks—the cumulative impact of these actions is to slow operations incrementally, but significantly.

As time goes on, the impacts threaten to become even greater, warned the PMA. Furthermore, because the previous waterfront contract expired July 1 and the union refused to extend it as current negotiations continue, there are no means to arbitrate these matters.

It never gets any easier

Port Container Fee Passes Calif. Assembly:

From Mercury News

Basically, it is a $60 a container fee that will generate $400 million, with the goal being to spend that $400 million to reduce air pollution and traffic congestion.

It passed the assembly, and the Governor vetoed a similar bill in 2006.

Environmental economics is based upon the Coase theorem, where the winners will subsidize the losers.

The questions I have are:
1. Who will pay this container fee?
2. Will these costs be passed onto consumers
3. Will the money actually be spent to improve the infrastructure as promised?

This seems like one more problem added to the heap on conflicts that is erupting at the port. I agree with Assemblyman Rick Keene, we are taxing the economic engine of the state.

How naive we are to think that this business will not go elsewhere.

Second Quarter 2008 East Inland Empire Industrial Report

Industrial Vacancy Rate Continues to Creep Upward, Sales and Leasing Activity Dwindles

Sales and leasing activity in the first quarter totaled 1.5 million SF, below the 2007 quarterly average of 2.5 million SF. In previous quarters, sales and leasing activity in the East Inland Empire was characterized by a handful of very large deals (400,000 SF+). These large deals were noticeably absent this quarter, resulting in low sales and leasing activity and also negative absorption for the region.

For Full Report: Click Here

Several new projects broke ground this quarter in the East Inland Empire, and several that were marketed as "under-construction" have been downgraded to planned.

Honestly, I don't know why people are building on spec anymore.

As this credit/ housing bubble thing continues to unwind, demand for these buildings remains shaky at best. And with gas prices skyrocketing to the moon, shipping consumer goods to the middle of a desert and back again doesn't make as much sense as it used to.

And forget about the 64 really really large competing projects that are currently available in the East Inland Empire. Maybe they will be gone by the time your building is completed, but this 64 number looks just as likely to go up than not.

Now don't get me wrong, some people are still making money in the development business.

There is a 1.3 Million SF building in Perris (Yes another one) that is currently under construction and is fully leased (thanks to some of my guys) but that was dirt when the deal was done, so not really a spec building.

More of an absorption bomb waiting to happen (Q4 est. completion date).

Second Quarter 2008 West Inland Empire Industrial

Activity Continues To Slow In The Inland Empire Industrial Market

Sales and leasing activity remained low in the second quarter of 2008 (only 2.9 million SF), far below the average of 6 million SF of activity per quarter witnessed from 2004 to 2007. Net absorption turned strongly negative (-3 million SF), a rare occurrence in this market but a deepening of the trend witnessed last quarter which had -1 million SF of net absorption. Reasons for this slowdown include a sluggish economy, adjustment to above-average activity in previous quarters, continued increases in supply and higher operating costs brought on by higher gasoline and diesel prices.

For Full Report: Click Here

Quite a few projects finished construction this quarter: 10288 Calabash in Fontana (574K Avail), 14600 Bar Harbor in Fontana (244K Avail), 16142 Fern in Chino (227K Leased).

What is hurting this market is the rise in availabilities: Spring Industries moved out of 270K in Ontario and Wickes moved out of 572K in Rancho Cucamonga.

Things are going to be slow in the West Inland Empire industrial market for awhile. Gas prices are up, home prices are down and consumer spending is moving sideways.

The heyday of land flipping and spec building, those days are over and it is time to start touting the fundamentals - long term value, population growth, lack of space elsewhere.

Second Quarter 2008 Inland Empire Office Report

Rental Rates Continue To Decline In The Inland Empire Office Market

Over the past 12 months, the Inland Empire office market inventory has expanded by 8.3%. Many of these projects were started 2-3 years ago during a period of high office demand in the Inland Empire. Since that time, the vacancy rate has risen from 11.5% to 16.1%, mainly due to the rapid increase in construction completions.

For Full Report: Click Here

GE Company leased 24,000 SF in Ontario and Citizens bank leased 3,900 SF in San Bernardino. We had 290,800 SF of people leaving and I wish I knew who was leaving and where they were going. If I was to guess, it seems that home mortgage, finance and real estate related firms are the usual culprits.

Second Quarter 2008 Tri- Cities Office

Leasing Activity Remains Steady, Positive Net Absorption Recorded As Vacancy Rate Begins To Recede

The Tri-Cities office market shows signs of a recovery as vacancy rates have started to decline from last quarter’s high of 11.5% to 10.8% this quarter. Part of this reason for this vacancy rate decrease was a lowering of average asking lease rates on the part of landlords. The average asking lease rate for the Tri-Cities office market dropped slightly from $3.05 last quarter to $3.01 this quarter, the first rental decrease in over two years for this market.

For Full Report, Click Here

In the second quarter, there was some hope of a rebound for the Tri-Cities office market, which had a rather disappointing first quarter.

In the Second Quarter:
Kaiser Permanente leased 194,200 SF in Burbank.
Arden is selling off quite a bit of their portfolio: 303 N. Glenoaks in Burbank (179,500 SF @ $291 PSF) and 70 S. Lake (104,400 SF @ $349 PSF).
Arden is owned by GE and GE has been hammered lately, mostly in their real estate and finance divisions.

Looking Forward:
IndyMac is going to be a big concern in the third quarter. In the last month they halved their workforce and are in the process of selling at least 60 of their 150 retail outlets.
Pasadena is IndyMac headquarters: 352,000 SF of space at 888 Walnut in Pasadena, 412,146 SF of space at 3465 E. Foothill in Pasadena. With only 1/2 their workforce remaining, it is very likely that a good chunk of this space will be available next quarter, putting further pressure on the Pasadena submarket.

Skyrocketing gasoline prices have hidden spillover

This is my July Article for the San Bernardino County Sun:

Thomas Galvin

Most of the goods consumed here in the Inland Empire were made somewhere else.

The majority of what we do make here will be shipped someplace else.

Materials handling and the supply chain are often overlooked elements of our economy, and rising fuel prices and declining transportation demand are changing the way our nation does business.

While the cost of gasoline affects our everyday lives in very noticeable ways, there is a hidden cost that has not made its way into our pocketbooks - yet.

Inflationary spillover effects of higher crude prices will be felt in higher prices for petroleum products such as lubricants, asphalt, plastics such as PVC and in rising diesel prices, which affect the price of shipping products to consumers.

This last result is particularly troubling for the Inland Empire, the transportation and logistics hub for Southern California and the gateway of Asian imports for the rest of the United States.

Driven by record crude oil prices, transportation and inventory-carrying costs of American businesses topped $1.4trillion, a 9percent rise over last year. This cost equates to roughly 10.1percent of GDP, meaning that for every dollar spent on an item, a dime went to cover the cost of getting that item to you.

Trucking companies are in a particularly tough spot.

Since the start of 2005, the price of a gallon of diesel fuel has risen from an average of $2.06 a gallon to $5.02 a gallon. Fuel is the greatest expense a trucking company faces, accounting for over 25percent of total operating costs, a percentage that has been on the rise.

"The price of diesel, if it is $5 a gallon or if it is $6 a gallon, this is a problem. But it isn't the major problem," says Jon Thys, vice president in Colliers International's Inland Empire office who specializes in supply chain management companies.

"The uncertainty of fuel prices and the inability to plan on a specific fuel price for 6 months to a year is the major problem. It is hard for any company to plan long term and institute an efficient warehouse system for their products when the price of diesel keeps rising.

"The change in fuel prices may dramatically change the logistic system and the size of the warehouses required by companies. Companies could shift from three or four large warehouses at transportation hubs to smaller warehouses located across the country. Most of these companies can't plan and make financial commitments to new warehouses until a fuel price plateau is reached, and nobody seems to know when that will be."

Thomas Galvin is a research associate at Colliers International commercial brokerage firm in Ontario.

Second Quarter 2008 San Gabriel Valley Office

Vacancy Rate Increases Despite Large Bank Lease This Quarter



Despite a 102,500 SF lease this quarter from Cathay General Bancorp, office vacancy rates continued to rise in the San Gabriel Valley. Net absorption was negative 66,100 SF, a slight improvement over negative 72,100 SF in the previous quarter. A higher portion of this vacant space is sublet space, which on average is 40 cents cheaper than direct vacant space.



For Full Report: Click Here



Basically what happened this quarter was a single large deal. Cathay General Bancorp moved their headquarters to 9650 Flair Drive in El Monte after rather extensive renovations.

If you have driven on the 10 freeway to San Bernardino, chances are you have seen this building being built (renovated) over the past year or so. It is right next to the Asian American Association in El Monte.

The San Gabriel Valley has the largest concentration of Chinese American communities in Southern California and a lot of industrial users in the area have special needs in terms of getting loans and doing business. Niche banks such as Cathay and East-West Bank are extremely important for filling a void in order to get business done.

Second Quarter 2008 San Gabriel Valley Industrial

Tight Industrial Market Begins to Soften As Vacancy Rates Rise

The overall vacancy rate increased over the quarter to end at 3.4%, a 1.6% increase over the total vacancy rate from the previous quarter. Especially hard hit has been the big box segment (100,000+ SF) in the Industry submarket, where the vacancy rate went from 0.4% last quarter to 2.9% this quarter. Large users, especially transportation companies and retail / wholesalers, have put space up for sublease or have moved out completely, due to diminished space needs.

To View Full Report: Click Here

Most of the rise in the vacancy rate and negative net absorption came from the Industry submarket (City of Industry, Baldwin Park, Diamond Bar, La Puente, Pomona and Walnut).

What went on:

620 Hacienda: A 140,000 SF building in Industry with 25,000 SF of refridgerated warehouse and 16,500 SF of freezers space. Orignially the tenant was Vien Dong and ethnic food company which has since moved to San Diego. From what I can tell, Super 7 Cash and Carry was subleasing the space, but all that space is now immediately available, so that is -140,000 SF of net absorption.
Since the space is refridgerated warehouse, the rents are higher @ $0.60 N. This pushed up the asking rents for the region.

13155 Railroad: 124,400 SF of warehouse asking $0.57 G*, 8,000 SF office. (*Gross asking rates are not recorded in our reports) ABE furniture just moved out this quarter, rumor is they are filing for bankruptcy. They have many smaller locations in Southern California and they are most likely consolidating space. Furniture companies have been hard hit by the housing downturn. Colliers has represented this tenant since 1993 at this location. Tough times all around.

3777 Workman Mill: 206,980 SF previously occupied by Four Seasons General Merchandise and available for sublease @ $0.59 G (Sublease space is also not included in our rent calculations, nor are gross leases) They leased out the entire builiding, 613,375 SF, and I guess they don't need this portion. They moved in at $0.45 N three years ago with a mid-term CPI bump, at least 3%, so they should be paying $0.46 - $0.47. So the Net to Gross (asking) of around $0.12, which is spot on for the Industry market. Especially for a newer building. Pretty reasonable considering.

1601 Mission Unit 6: 241,000 SF of sublease vacant space. Carrier Central Air Conditioners was in here before, but they moved their operations to Commerce. Right now, Razor Scooters is leasing out 125,000 SF of this 241,000 Sf on a month to month basis (which will lower the vacancy rate a bit, since this space would be counted as available space, since it is month to month, but does not count as vacant space).
So the vacancy rate is really a moving target, it changes a little bit with every deal.

Construction Permits Are Down

From LAEDC:


May Nonresidential Permit Values Mixed

The May nonresidential building permit value data from the Construction Industry was another mixed bag of news. In Los Angeles County through five months, industrial permits were up by 63.0% over the 2007 period, and retail was up by 20.4%. Hotel permits increased by a huge amount ($148 million this year versus nearly $14 million last year). However, office permit values were down by -57.6%. In Orange County through May, permit values for all four major nonresidential building types were down: industrial (-68.8%), office (-68.0%), retail (-79.1%), and hotels (-86.7%).

For Riverside County, the five-month permit values were mixed. Retail was on the upside (+3.8%), while $10.7 million in hotel permits had been issued compared with none last year. Industrial permit values were down by -51.9% and office was behind by -13.8%. In San Bernardino County, hotel permit values were up by 2.2%, but all the other sectors were down from last year: industrial (-37.6%), office (-56.5%), and retail (-27.2%).

The San Diego County picture was really mixed through the first five months of 2008. Industrial permit values were down by -52.7% from last year, while office was off by -2.8%. Retail permits were up by 93.0% over the comparable 2007 period, while hotel permits were up by a thumping 461.4%. Things remained slow in Ventura County through May. Office permit values through five-months were down by -75.6% over the year, while retail permits trailed by -9.0%.

In the nine-county Bay Area through five-months of 2008, office building permits were down by -3.0% over the comparable 2007 period, while retail was -10.5% behind, and hotels were down by -73.8%. However, industrial building permits were 59.6% ahead of last year, due to large projects in Alameda and Solano counties.