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August 10, 2023 – Two years ago, surging demand for warehousing close to major ports made storage space hard to find and increasingly expensive, all driven by the growth of e-commerce and the resulting flood of containerized imports. But times have changed—especially in California.

In the first five months of 2021, the ports of Los Angeles and Long Beach were flying high, handling more than 4.3 million Twenty-Foot Equivalent Units (TEUs)—up 47.1% from the same period in 2020 and 29.2% more than in the January–May period in 2019.

Just comparing a single month’s change from then to now, in June of 2021, the two Southern California ports had import throughput of 467,763 TEUs and 357,101 TEUs respectively, for a total of 824,864 TEUs. This June, by contrast, they stood at 435,306 TEUs and 274,325 TEUs respectively, totaling 709,631 TEUs—down 14% in the two years since June of 2021.

Matthew Hocum, a research analyst with commercial real estate firm CBRE, drew attention to the change in a recent posting on LinkedIn, noting that “the Los Angeles industrial market fundamentals are materially affected by the health of the ports.”

To illustrate his point, Hocum displayed what he called “a great visual, highlighting the rise in both availability and vacancy in the South Bay submarket (home to both the ports of LA and LB) aligning with the port slowdowns.”

He expressed hope that the recent agreement between the West Coast dockworkers and their employers will see a return to higher throughput at the two South Bay ports.

“With a tentative labor agreement in place, we hope for normalized port activity and increased tenant demand,” Hocum said, noting that the third quarter is typically the busiest time of the year for the twin ports.

Will Austin, writing for CoStar Analytics, made a similar observation about the impact of declining throughput numbers on warehousing around the Port of Oakland.

According to Austin, containerized imports have been falling “steadily” at the Port of Oakland since the second quarter of 2021, reaching their lowest point in the first quarter of 2023.

The Port of Oakland shows imports totaling 289,506 TEUs in the second quarter of 2021 versus 207,294 TEUs in the second quarter of 2023, a decline of 28%—double that of the South Bay ports.

As those imports have declined, Austin said, “leasing activity in the Oakland market has slowed drastically with the leasing total failing to reach 3 million square feet for the past five quarters, something not seen since 2008.”

The demand for industrial space had been accelerating nationwide for several years because of the rapid growth of e-commerce, which requires more warehouses and distribution centers rather than retail space.

The trend accelerated during the pandemic as more consumers turned to e-commerce while also stepping up their spending on goods instead of services.

But with the decline of covid-19 lock-downs, consumers have increased their spending on services and reduced it on goods, leaving many retailers with excess inventories.

The hope now is that as the excess inventories decline due to increased consumer spending, the need for additional inventories will prompt shippers into a new round of import orders—creating demand for more warehouse space to store them.

EMBEDDED CHART ONE: Credit: CBRE

EMBEDDED CHART TWO: Credit: CoStar Analytics