Driving vacancy rates lower and rents higher
According to global real estate consultant CBRE, industrial markets at major U.S. port cities have come under additional strain from big increases in U.S. imports, fueling demand for warehouse space in markets with already scant availability.
This increase in imports, which amounts to double-digit percentage gains from year-ago levels in many markets, has resulted from retailers seeking to bolster their inventories in the wake of pandemic-related demand and global supply chain shocks like the recent blockage of the Suez Canal.
CBRE reports west Coast ports such as Long Beach and Los Angeles have seen the biggest surge, with year-to-date loaded imports increasing 32.1 percent and 24.2 percent, respectively. On the East Coast, Savannah (17.7%), Port of Virginia (16.8%) and New York and New Jersey (13.2%) have all seen significant increases as well.
This activity has increased demand for warehouse space in seaport markets, pushing down their average vacancy rate to 3.6% at the end of 2020, one percentage point lower than the national average. Low availability may persist for some time. Only 75 million sq. ft. is under construction in these markets, with more than a third preleased. All of this equates to rental rates hitting record highs.
"With all of the volatility and consumer changes of the past year, retailers and manufacturers have learned to build-up a healthy safety stock of inventory to limit supply chain disruptions," said John Morris, executive managing director and leader of CBRE's Americas Industrial & Logistics business. "While this will help protect consumers, it has put a strain on seaport industrial markets, as they need more supply to meet this surging demand. Without more construction, we will see rental rates continue to soar."