Industrial Port Headwinds Show Signs of Easing

The headwinds facing industrial port markets in the first half of 2022 — including elevated dwell times for cargo ships, landside bottlenecks, and chassis shortages — appear to be easing, but growth expectations for 2023 may be tempered by inflation, ongoing supply chain issues, and resulting disruptions.

A new report from Cushman & Wakefield notes that the National Retail Federation is projecting lower port volumes in the second half of 2022 as many retailers stocked inventories early in preparation for the holiday shopping season. Shipments are also expected to slow as the overall economy slumps. Cargo ships are also likely to be congested for the near future thanks to a surge in empty containers in outbound traffic.

Cushman experts are also keeping a close eye on the ongoing West Coast port negotiations. While talks “have not yet had a substantial adverse effect on cargo shipments as a whole,” should they “hit a stalemate and a slowdown or shutdown occur, the impacts could be felt by port operators and consumers across the country,” the report predicts.  And although the White House recently stepped in to avert a potential strike by the nation’s two largest rail unions, the deal is not a sure thing. Cushman analysts say the strike could stop intermodal service from some major ports to many key markets across the country and could cost the U.S. economy approximately $2 billion per day.

The remainder of 2022 is predicted to finish strong, as industrial rents remain at record highs amid historically low vacancy rates. The average rents for port markets finished the second quarter at $12,209 pf, nearly 45% higher than the US average of $8.36 psf. Seven industrial markets close to major ports posted double-digit rents, and markets around the major cargo ports recorded six of the top 10 average asking rents in the US for warehouse space. And “taking rents for Class A logistics space in many cases were much higher, particularly within new construction projects in and around the ports,” the report notes. To wit: in New Jersey, taking rents exceeded $20 psf in some cases and some even reached $30 psf, while new developments in Los Angeles and Los Angeles have garnered rents in the $20 to $30 psi range.

As of the middle of the year, seven industrial markets had vacancy rates of 2% or lower, including the Inland Empire (0.6%), Savannah (0.6%), Los Angeles (1%) and New Jersey (2%).