LA Basin Rental Appreciation

Along the lines of my “3% Annual Bump” post, using C&W’s market information I ran a quick calculation on rental appreciation on average over the past five years in the LA Basin industrial markets, the biggest and hottest industrial market in the US.  Here are the results:

Central LA: 9%

Inland Empire: 7%

San Gabriel Valley: 7%

Mid-Counties: 6%

South Bay: 6%

Orange County: 5%

Westside: 5%

LA North: -1%

The largest percentage increase for most markets happened this past year.  The Central Los Angeles market jumped 23%!

Wisdom of Munger

This weekend I came across another nugget of wisdom from Tim Ferriss’s 5 Bullet Friday email.  The nugget was a transcript of a speech given by Charlie Munger (if you don’t know who he is, google him) to the USC Business School titled “A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business”.

Aside from the investment advice, which I know nearly nothing about, I appreciate Mr. Munger’s insights and interests-mostly likely because at a much less developed level the same topics interest me.  Especially psychology.  I am working on relating his ideas to the supply chain real estate world.  I must tell you that I don’t need to think very long to find examples of his concepts.

I would encourage you to read the transcript above, which is in way too small of a font, and check out this and this.

 

Ocean

From my GLS class this past Tuesday taught by Brandon LeCou of Hamburg Sud NA, some information I thought was interesting about ocean transportation:

  • Beneficial Cargo Owners (BCO’s) with high cargo volume have tremendous leverage in negotiating rates directly with carriers, however, they may not have the expertise nor the risk protection offered by working with a freight forwarder
  • A “tramp service” is an ocean carrier which goes where it wants to go, i.e. it is not part of an established ports of call.  An example would be chartering a shipment to Guam for a bulk shipment of power plant parts.  As you might expect, the term “tramp” is derived from the English word meaning a beggar or vagrant.
  • There are a significant amount of carriers and they are constantly consolidating and forming alliances with other carriers.
  • Containerships are still called steamships, even though most of them run on diesel.
  • Most of us heard about the CMA CGM 18,000 TEU Benjamin Franklin’s recent call to the POLA.  It is the largest steamship to service the POLA.  Interestingly another the previous record for ship size was set two days earlier when the 15,000 TEU Maersk Edmonton called on the POLA.
  • CMA CGM is planning on calling on the POLA with all six of its 18,000 TEU ships over the next year.
  • Big ships can cause big problems for infrastructure and other supply chain requirements.  It remains to be seen whether US ports are prepared for the larger ships.
  • More ocean carriers are offering freight consolidation, warehousing, trucking, and rail services to deliver packages to their final destination.

The 3% Annual Bump

In the primary industrial real estate markets in the United States, a strange phenomenon has taken shape through the past few market cycles.  Market rental rate increases have found an almost uncanny stability across markets and property types.  The 3% annual rental increase, while not an absolute, is so common in most top tier markets that one almost does not need to inquire about it-it is just assumed to be the case.

My question is not why this trend has happened.  I am more interested in understanding why it has stayed consistently at 3% despite all the other lease elements adjusting with the market conditions.  Low interest rates no doubt play a part.  Obviously landlords are much more accepting of lower rental increases when there are few inflationary pressures, as their value of money would theoretically stay somewhat consistent.

However, I think the trend is tied more to custom rather than rationale.  It’s easy to play along with the market and, if no one is objecting, toeing the status quo.  I am not insinuating that landlord’s should ask for more than 3%.  Obviously tenants are accustom to this structure in primary markets and would probably greatly resist a substantial deviation (or get it from the landlord “down the street”).  But with such a tight market across the country for good quality distribution space, it is interesting we don’t see more landlords at least asking for more.

Remote

I am currently in the town of Landers, California, in a house off a dirt road which you need the latitude and longitude coordinates to find.  Basically I am in the middle of the Mojave Desert and it is beautiful.

I have noticed that the nearest place to buy really anything is 5 miles away, a liquor store which doubles as a market.  The selection is obviously limited.  There is a Von’s about 10 miles away, but I am not so sure about its existence given its location on the map looks even more remote than my current location.  I get the impression that the population in this area need to drive a decent distance in order to buy really anything from a storefront.

It makes me wonder what kind of market exists for ecommerce in remote areas.  Although the population density is not substantial, you would think the participation percentage would be significant.  If I owned a store that served such a population, I certainly would look into ways to partner with ecommerce companies or even start my own website storefront to deliver goods or have them ready for pickup at the brick and mortar storefront.  When ecommerce offers convenience to a city dweller how much more so to those outside of populated areas.  

The Next New

Today I am wondering what is the next new innovation in logistics that will be a game changer for the industry.  Is it widespread implementation of RFID (5c magic price), automation, new ways to transport?  On one hand technology continues to improve rapidly for ERP and software, on the other tools like RFID have been around for a long time.  Warehouse clearance heights go up but how many companies really take advantage of the extra cubes?  I am interested in hearing from supply chain experts on their thoughts.

Vision Statement

Do you know if your company has a vision statement, a mission statement, or goals?  If so, do you know what they are?  In my Global Logistics Specialist class last night we reviewed the importance of understanding your client’s vision statement, mission statement, and goals in designing a program to service their requirements.  Some interesting examples of vision statements that were discussed include Disney’s “Make People Happy”, which I think they no longer use in lieu of a more descriptive mission statement.  I honestly did not know much about the difference between each and when they are used (or in the case of Disney, apparently not used).  Something I will certainly pay attention to in the future…

In Support of Sales Realism

Salespersons should have a balance between the optimistic and realistic assessment of the probability of a sale.  I find that the more salespersons I meet and get to know, the more the latter is a consistent trait of those who are successful.  Our greatest resource is time.  Only those who dedicate themselves to the pursuit of finding out whether optimism is justified will be able to use their time efficiently in the long run.