Port Climbs to Fifth-Ranked Market

Rumors of a CRE downward spiral are largely exaggerated (photo courtesy of Port of Houston).

HOUSTON—Despite a serious commodity slowdown in Houston, the Port ‘s climb to the fifth-ranked port market in North America demonstrates that rumors of a downward spiral in Houston’s commercial real estate market are largely exaggerated, according to CBRE Group Inc .’s second annual North American seaports and logistics index. The port recorded nearly 10% growth in 2015, driven by strong petrochemical export business, some residual effect of west-east cargo shift and the strength of Houston’s industrial market. Combined with the upcoming Panama Canal and Houston ship channel’s expansions, midstream and downstream companies continue to view Houston and the Gulf Coast Region as a solid investment. According to the report, nearly $150 billion in petrochemical projects have taken place along the Gulf Coast since 2010, and $50 to $60 billion in projects are located in the Houston area. “Companies today are facing monumental supply chain pressures due to changing consumer behavior, and a need to balance cost and service while keeping their business safe from interruption,” said Adam Mullen , occupier and supply chain leader in CBRE’s industrial and logistics division, the Americas. “Recent shifts in port volumes as companies strain to determine their best global shipping routes underscore that global commerce is in a race–an arms race of sorts–to build better, even more efficient supply chains.” While container volume grew by 9.2%, the value of exported goods dropped to $251 billion from 2014′s record of $289 billion. The biggest sectors to post losses were computer and electronics products ($45.3 billion), petrochemical and coal products ($44.1 billion), and chemicals ($39.9 billion), according to the Census Bureau . In spite of these losses, the Houston area is projected to record an increase of new exports in the near future. “The Port of Houston’s significant investments to its infrastructure and container terminals will ensure the port can accommodate the present and future logistics needs that are being generated by a diverse group of industries such as agricultural exports, and food and consumer imports. Improving efficiency at the port will better facilitate the import/export of goods that will satisfy the ongoing demands of population growth in Texas and adjoining states,” said Billy Gold , senior vice president for industrial services in Houston. “These demands, coupled with the growth of the petrochemical sector and the ongoing needs of the energy industry, prove that the Port of Houston continues to be an integral part of companies’ logistics and supply chain management plan.” Overall, local economists anticipate mixed performance in the job market and the industrial market in 2016. While shifting oil prices have hit the office market hard, prices have yet to derail industrial demand as vacancy in this submarket currently sits at 3.4% with 170 bps of decrease expected during the next two years, says CBRE. “The industry premonition that 2015 was the year of the East Coast was born out in the overall stats and in the way our rankings turned out,” said David Egan , CBRE’s head of industrial and logistics research in the Americas. “It demonstrated that the benefit to the East Coast from the turmoil on the West Coast is real and quantifiable.” That continued eastward shift means that the June 2016 opening of the widened Panama Canal , which will allow substantially larger ships a faster route from the Pacific to East Coast ports, likely won’t register as large an impact on cargo destinations as previously thought. Much of the cargo that could be transferred from West Coast delivery to East Coast delivery without substantial extra cost was shifted in recent years. However, Houston’s population growth and e-commerce will result in Texas Gulf ports contributing to more cross-Panama Canal traffic. Robert Kramp , CBRE director of research and analysis for Texas and Oklahoma, tells GlobeSt.com: “Houston’s population growth, forecasted to be more than a 1 million people by 2020 and 3 million in 15 years, is going to drive demand for imports and that’s what the Panama Canal’s expansion is all about: the global explosion of trade driven by the consumer. So it stands to reason that by being one of the busiest deep water trading partners with the Panama Canal already today, coupled with the surge in supply chain and global logistics linked to e-commerce, Houston’s sheer heft in future population growth will undoubtedly make the Port of Houston and surrounding Gulf ports in Texas huge contributors to even more robust cross-Panama Canal traffic.” CBRE’s North American seaports and logistics index takes into account both port infrastructure capabilities, such as total 20-foot equivalent unit volume, and the fundamentals of the industrial real estate market surrounding each port. The former receives slightly greater weighting. For example, the Port of Houston ranks number eight in terms of port infrastructure but it weighs in at number three for real estate fundamentals. That amounts to an overall ranking of number five.