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5/19/11
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By CBRE San Francisco Bay Area Research
The data and comments in this report were provided to us by CBRE San Francisco Bay Area Research as part of an ongoing column by the leading real estate services firm exclusive for Rentv.com:
The nation’s gas prices have soared again. The average price per gallon for gas has risen to rates last seen at the peak of the credit crisis in 2008. For food and retail distribution companies in the Bay Area this increase has been particularly straining, as the rising price of diesel gas drives up transportation costs. Between September 2010 and April 2011 the price per gallon of diesel gas has risen from $2.84 to $4.40; a 55% increase in just over seven months. This increase has many local retailers like Macy’s, Nordstrom, Whole Foods and Snapple, preferring their current market locations in the East Bay as opposed to outlying submarkets when making decisions regarding the expansion or relocation of their warehouse distribution centers.
In the past, outlying submarkets such as the cities of Tracy and Fairfield were appealing to warehouse/distribution users for their low cost of labor, competitive rental rates and the many built-to-suit opportunities in the area. However, a majority of the goods these companies sell are shipped through the Port of Oakland. Both Tracy and Fairfield are over 40 miles from the Port of Oakland and the Bay Area urban centers, where many of the retail outlets can be found. With increased transportation costs, the distance from the Bay Area makes these outlying submarkets much less attractive in terms of overall cost.
“Tenants have three major cost considerations -- labor, rent and transportation. When considering, for example, a warehouse in Tracy, tenants are looking at an additional $0.06 to $0.09 per square foot in transportation costs, making local submarkets such as Richmond, Hayward and Union City far more economical options,” explains Doug Norton, Senior Vice President at CB Richard Ellis’ Oakland office and member of the company’s Port Logistics Advisory Group. Although traditionally labor and rental costs are higher in these local submarkets, the financial strain of higher diesel prices does not outweigh the benefits of staying local.
A decline in gas prices is not anticipated in the foreseeable future and, as a result, the cost of inbound and outbound transportation will increase. Because of this, it is predicted that warehouse/distribution tenants in this market will find relief by staying within 10 to 20 miles of the Port and their stores.
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