First Quarter 2011 Los Angeles Industrial Market Reports Now Available

Check the heading for links to the new industrial market reports. Basically, the first quarter saw positive industrial demand in all markets. So the recovery that started with Fortune 500 companies a year ago in the Inland Empire has finally worked its way into all markets. I expect rents to start going up and development to continue this year. Fuel prices, inflation, stagnant job growth, and a changing regulatory climate, you can expect these too.

10,000 Shipping Containers Lost at Sea a Year

Right now, as you read this, there are five or six million shipping containers on enormous cargo ships sailing across the world’s oceans. And about every hour, on average, one is falling overboard never to be seen again. It’s estimated that 10,000 of these large containers are lost at sea each year. I had no idea lost containers were this prevalent. Source: MBARI

What a long strange trip it has been

About two months ago I purchase a couple of sinks from a company in Georgia. These sinks were held at their industrial building (or an industrial building managed on their behalf by a third party logistics provider). Upon my purchase they were sent to the trucking carriers warehouse, where they were assembled with other goods headed in my direction and sent to the West Coast.

When arriving, the long haul shipment was taken to the carriers receiving warehouse for short distance delivery. It was then taken to my store.

I just found out that these sinks were actually manufactured in one of the industrial buildings I track in El Monte (http://www.allstrong.com/), not 30 miles from where they would eventually end up.

You would be surprised what is made here.

Twilight Landing At LAX (Cockpit View)

I enjoyed this video of Los Angeles at night. A different way to see my market.

Egyptian Riots & You

"The desire to protest has overwhelmed a large sector of society"

Egypt is going through the most significant political upheaval in over 34 years. The reasons are multi-faceted, but have to do with rising food prices and people feeling disenfranchised.

The same thing is happening in Tunisia and now Yemen.

Egypt is a bigger worry for me, the reason being that it controls (controlled?) the Suez Canal.

The Suez Canal is one big choke point for world trade and most importantly, oil. Along with the canal is the Sumed Pipeline, which crosses the northern region of Egypt.

Why is this important? Because nearly all the northbound oil shipments out of Saudi Arabia, 2.3 million barrels a day, goes through that pipeline.

Basically, if you are trying to ship oil out of the Middle East to Europe or the United States, you go through Egypt.

As events unfold, I will be watching the price of oil more closely, as it will greatly effects the profitability of the transportation industry and the general economy as well.

Fourth Quarter Reports Now Available

Industrial market reports for the region are now available.

The fourth quarter is a magical time when year over year assessments make a lot more sense in that you have a full years worth of info to work with.

If I was to sum up 2010, it was an incredibly successful year in terms of industrial demand. Los Angeles returned to positive net absorption for the year and rents as a whole bottomed out.

There really is nowhere left to go but up.

When that happens will largely be based on where you are and the building class of your building. For office space, buildings are neatly categorized into Class A, Class B and Class C based on rents. Location, desirability of the building are reflected in that.

For industrial space, building class is measured on how functional the space is, meaning how efficient will a company be when it moves there. If you have low ceilings and it is far away from the freeway and is hard to get a truck into, it is not an efficient building. Landlords of these buildings should not place great hope in an economic recovery, since their building will be overlooked by any serious company.

That is not to say some sucker will not come along and overpay for their building like they did when rents increased like they did. Just one should not count on it. That was dumb money then, and we would like to think that we have learned something about the abuses of the past.

Markets with a great deal of Class A space, modern buildings with ample truck doors, high ceilings and great truck depth, will see high demand from users. This will drive up the prices as this space becomes scarce. This is where the rental rate growth and absorption will come from. It just happens that a lot of this space is in the Inland Empire.

What happens next is any ones guess but I can tell you how I see it playing out. In 2011, rents will increase for this Class A space. Developers and "investors" who have been sitting on these massive entitled land plots will again resume construction. Spec space will be constructed again.

For someone like me this seems dangerous. After all, the spec space is what got us into this mess to begin with. A lot of the investment sales that occurred in the downturn were developers who overpaid for spec space selling their buildings at a significant discount. Why would you want to relive that nightmare, especially when economic fundamentals remain so weak?

When you look at it in the context of who is going to be doing the building, institutional investors and REITS, Los Angeles does not seem risky. Many of these companies got out of what they perceived to be the risky markets and doubled down on much of the "core" LA buildings.

These REITS now have the expectation to make some money, their stock has been rising and investors are going to start demanding that action be taken in order to justified further share price growth.

This will lead to less risky development, which means to favor LA over say Atlanta or Dallas.

The desire for safety stands against every great and noble empire, and I think after three years of shrinking, we will see the empire building start again.

How Its Made

The Science Channel has a video series called "How Its Made" which basically takes you inside the factory to see how the goods we use everyday are made.

This is fascinating to me, since it is a behind the scenes look at the production process, something most people never really get to see.

How something is made and what it is made of will largely tell you where it is made. Things are produced usually where they can be produced the cheapest, and proximity to suppliers & to labor will tell you where the industrial space should go.