Bottlenecked ports are remaking supply chains — and U.S. industrial real estate market
By Ashley Fahey
Tampa Bay Business Journal
Published: Sep 16, 2021

The number of cargo ships waiting to dock and unload shipments off the coast of California hit a new record this week.

On Monday, 56 cargo ships were either anchored or in drift areas off the ports of Los Angeles and Long Beach, with 140 total ships in those ports, according to the Marine Exchange of Southern California. A boom in e-commerce and pandemic-induced disruptions to the global supply chain, not to mention labor shortages, are creating backlogs at the ports.

It's also driving the industrial real estate market in a lot of ways.

North American ports saw surges in cargo volume in the first half of 2021, with the ports of Los Angeles and Long Beach in California posting 44.3% and 38.5% growth, respectively, in total container volume from a year prior, according to a Cushman & Wakefield PLC report. Last year was a record but 2021 is tracking to those peak levels.

Among the 10 largest ports analyzed by Cushman, all saw more than 10% growth in total container volume. Although a lot of cargo comes through the ports of Los Angeles and Long Beach, given how much is exported from Asian countries, East Coast ports like Savannah, Georgia, are seeing unprecedented growth, too.

Carolyn Salzer, director and Americas head of logistics and industrial research at Cushman & Wakefield, said industrial markets near ports are seeing big vacancy decreases and high absorption. That's not strictly pandemic-related, as port markets have historically been big industrial real estate markets but, like much else, the pandemic has only accelerated those constraints.

New Jersey, Los Angeles, Seattle, Miami and Long Island, all port markets, have posted more than 11% year-over-year rental rate increases for industrial space, Cushman found.

Land availability near ports, especially on the West Coast, has also become very scarce, Salzer said.

"Trying to find space to put that product in some of these port-proximate markets is getting increasingly difficult, causing backups," she continued.

That's led groups to more secondary markets that may have a bit more runway, such as the Inland Empire in southern California. Juan Arias, senior consultant at CoStar Group Inc., said there's been record demand this year and in 2021 for industrial space in the Inland Empire.

Because of employment challenges in trucking and bottlenecks at the ports, more industrial groups are focusing on airport-adjacent warehouses. Arias said since the end of the first quarter, rent growth at airport-area warehouses was up more than 9.1%. It was about 9% near seaports. The rest of the logistics market saw about 5% rent growth.

"Demand has zeroed in on infrastructure-centric properties," Arias said.

Companies — also industrial real estate tenants — are having to take a critical look at their supply-chain infrastructure, such as by pivoting away from the West Coast and to less crowded, although still busy, East Coast ports.

Investors are subsequently looking at opportunities in the Southeast especially, as tenants may choose to locate there to avoid bottlenecks in other parts of the country, Arias said.

The cost of shipping materials is also surging. Cushman found container shipping costs from China to the U.S. West Coast ports is more than $20,000 per 40-foot container, which is a record. A rising number of Covid-19 cases across the globe is partly to blame for that, as it's slowed container turnaround times.

Both Salzer and Arias said the backups at the ports, and resulting impacts on the economy — higher materials costs, labor shortages, delayed deliveries, even inflation concerns — will have to be resolved, as e-commerce demand isn't going away.

"The pandemic is forcing advancement of supply chains into the 21st century," Arrias said.