Of the many Views From The Frontier Of Commercial Real Estate at today’s session of the same name at NAR Annual 2011, it was Sam Foster‘s that presented a definitive roadmap. That’s because Sam, head of industrial practice at Jones Lang LaSalle, took a long look at the transportation and warehousing industries and the likely impacts on CRE.
In a fascinating session, Sam brought to light the role of ports, transportation, and inventory in the forecasting of tomorrow’s hottest CRE markets. Playing on NAR 2011’s theme of carpe diem (sieze the day), Sam quipped “The theme should really be carpe crastinum diem – sieze tomorrow. We should be looking for future opportunities.“
In industrial property, CRE pros don’t make a lot of money on manufacturing space – typically corporations build and own their own – so most industrial CRE deals are in distribution space – warehousing. Where are the warehouses going to be in the future? That’s kind of a long story with more questions than definitive answers. Sam set about showing what the right questions are.
In the 1980s, Sam says, the largest cost component in warehousing was inventory – e.g. the cost to carry goods. And in the 1980s, management techniques such as JIT (Just In Time) appeared on the scene to allow reductions in inventory – big ones. JIT succeeded in knocking over $400 billion yearly out of inventories, but the real estate implication is this: today, the largest cost component is fuel costs.
The general flow of goods from Asia to North America shows no signs of stopping. To the contrary, it has turned places like Shenzen, China from a fishing village in 1990 to the world’s third largest port today. Shipping’s flow to the west coast is only the first stop, since the overwhelming majority of consumers of goods live in points east. But the rise in fuel costs are forcing changes in routing patterns. Altered rhythms of goods flowing through Los Angeles and Vancouver mean that new shipping and warehousing centers in the interior will have and will come online.
Sam specified Columbus, OH as a “new intermodal inland port”. He also pointed out Prince Rupert, BC and central Ohio generally before closing with a slide of Richard Ziman’s famous quote” “The first three rules in the real estate business: timing, timing, timing.”
I liked carpe crastinum diem better, but the message is the same.
Get a copy of Sam’s full presentation at PlaybackNAR.
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