News & Events > Insights

LONG BEACH, December 6 – Ports across America are vying for cargo, hoping that the recent swing of freight from the West Coast to the East and Gulf Coasts will remain permanent.  But the amount of land available for warehousing and distribution centers – industrial real estate – will play a large role in that effort.

“We estimate between 85% and 90% of our growth this year actually is West Coast cargo,” Beth Rooney, director of the Port of New York – New Jersey, told Bloomberg News. “Our focus now is on retaining that cargo that has shifted here.”

Other gateways along the East Coast are doing their best to compete, too, with the South Carolina Ports Authority this week announcing that the Port of Charleston now has the deepest harbor in the region.

Georgia adds space

Farther to the south, the Georgia Ports Authority has approved a plan to renovate and realign the docks at the Port of Savannah’s Ocean Terminal to better accommodate its expanding container operation.

Along the Gulf Coast, Port Houston has been the national leader in the rate of throughput growth this year and shows no signs of slowing down.

“We are handling record amounts of cargo and remain focused on aggressive infrastructure development to optimize capacity and efficiently handle current and future demand through our port,” said Port Houston Executive Director Roger Guenther. 

Industrial land prized 

While much of the movement can be attributed to massive improvements of infrastructure within those East and Gulf Coast ports over the past 20 years, a key indicator of future growth lies in the amount – and cost – of adjacent land for warehouses and distribution centers.

Emerging and burgeoning East Coast ports, as well as the Port of Houston, are seeing upticks in industrial demand and absorption, Lisa DeNight, national industrial research managing director at Newmark Group Inc, told The National Observer.

Newmark found the 12-month trailing absorption for industrial space in Los Angeles was about 3.7m sq ft in the third quarter of 2021, while Houston had 29m sq ft, northern New Jersey 12.8m sq ft, Savannah 9.5m sq ft and Charleston 7.8m sq ft.

Proximity to Asia matters

DeNight conceded that the West Coast ports of Los Angeles and Long Beach will always hold a premium for industrial space because of their proximity to manufacturing centers in Asia and because of their own population base, a major destination for imports.

“Where we’re seeing the movement in commercial real estate is that discretionary volume that’s not necessarily staying in southern California,” she said. “Firms are starting to think critically about whether it has to be southern California.”

In particular, occupiers are considering markets where they can find lower rents, availability, new or modern inventory, and supply-chain resiliency, she said.

Geographic diversity aids resilience

Mark Russo, senior director and head of industrial research at Savills PLC, told The National Review that his industrial clients now want analyses of locations for warehouse real estate beyond southern California, in favor of ports with less congestion and where space costs are lower. 

Russo acknowledged that a key metric in decision making is the time it takes to get inventory from Asia and that the ports of Los Angeles and Long Beach will continue to hold a strong advantage in that respect. 

He told the paper that it can take almost twice as long to move a container from China to the East Coast than it does to Los Angeles.

“It matters where their suppliers are, where the company is based, where the outbound logistics are going,” he said. “But I would say, on average, there’s more interest in building that (geographic) diversity for the sake of resilience.”

The Inland Empire remains tops

Nonetheless, as reported by L.A. Business First, a lot of smart money is still betting on industrial properties with access to the San Pedro Bay port complex, especially in the nearby Inland Empire.

This week, the paper reported that a warehouse and distribution building in the Inland Empire has sold for $220m in “one of the largest single-asset industrial sales in Southern California this year.”

The property, which totals 761,000 sq ft, offers a “buying opportunity” in the “supply-constricted” industrial market in the Inland Empire, the paper said. 

Michael Kendall of Colliers’ Western Region Industrial Capital Markets Group, told L.A. Business First that demand for available space in the Inland Empire remains “insatiable” and is driven by “strength in container volume” at the San Pedro Bay ports and by the “sustained growth” of e-commerce in Southern California.

“It remains the most sought-after market in the United States,” Kendall said of the Inland Empire. “This, coupled with a flight to the safest and most dynamic markets in the country for investment capital, makes this a bellwether transaction for industrial in the US.”

The race is on.

Chart: Industrial space under construction in key locations. Lightest blue is Q3 2022. Source: Newmark Group, Inc.