By Tina Arambulo
Port of entry markets in the United States remain one of the key drivers in the industrial market. As imports have risen steadily over the last few years in many of the ports across the country, the appetite for nearby industrial space has been robust. A huge driver of demand, imports increased 7.6% in 2017 and represented 63% of the total loaded cargo volume in 2017 for the top 13 ports in the U.S. The National Retail Federation is predicting imports will be up 4.9% in the first half of 2018.
In 2017, West Coast Ports accounted for 52% of loaded imports at the top 13 U.S. ports. The Ports of Los Angeles and Long Beach will remain fairly entrenched as the top ports in the country and 2017 was a record-setting year with a combined total of 16.9 million TEUs, up 8.0% from 2016. Much of that traffic flows to the Los Angeles Basin, one of the hottest industrial markets in the country. The Inland Empire posted the highest leasing activity in the U.S. with 42.6 msf, followed by Greater Los Angeles with 34.0 msf.
The Port of Oakland had its busiest year in its 90-year history. The Port handled 2.42 million TEUs and broke the previous record of 2.39 million containers set in 2014. Meanwhile, the Northwest Seaport Alliance’s (NWSA) total container volumes grew 1.4% in 2017 for a total of 3.7 million TEUs. The infrastructure and process improvements at West Coast ports are complemented by similar efforts underway in the industrial sector, where growth in development of warehouse/ distribution centers continues.
In the East Coast, the Port of NY/NJ recorded a 7.3% increase in cargo volume compared to 2016 with 6.7 million TEUs handled throughout 2017. The record-setting year helped the port maintain its status as the third busiest port in the nation with an almost 15.0% market share. The recent completion of the raising of the Bayonne Bridge allows mega container ships with capacities up to 13,000 TEUs to reach the port and will help the port of NY/NJ compete with others around the country going forward. Imports have now risen each of the last five years at the Port of NY/NJ, which has helped fuel the local industrial marketplace. New Jersey now boasts historical lows in vacancy for industrial product (3.8%) while net absorption has eclipsed 10.0 msf for the fourth straight year.
With the explosive growth occurring in eCommerce, the demand for industrial space in warehouse, distribution, and fulfillment centers has been soaring. The U.S. industrial market recorded over 240 msf of absorption for four consecutive years—the strongest run on record. These banner numbers do not occur without healthy port markets, which accounted for 28% of the net absorption registered in 2017 and vacancy rate of just 3.5%.
Warehouse vacancy rates remain below prior cycle lows in many industrial markets, with conditions tightening further in Q4 2017 as rates track below 5% in nearly half of all U.S. markets. At year-end 2017, the tightest U.S. markets included Savannah, Los Angeles, Orange County, the San Francisco Peninsula, and Oakland/East Bay, all of which have vacancy rates at 3% or below.
Tina Arambulo provides industrial quarterly reporting for the Los Angeles Basin (Los Angeles, Orange County and Inland Empire) and is responsible for the preparation of the quarterly market reports. She is also part of the U.S. Industrial Research practice group, working closely with the industrial management team on a national basis.