Healthy TEU Volumes at U.S. Ports Amid Softening Industrial Demand

Rhea-AI Summary

Cushman & Wakefield's latest report on U.S. port-proximate industrial real estate markets highlights a cooling demand, increased vacancy rates, and tempered rent growth across 13 key markets. Contributing factors include a return to pre-pandemic import levels and changing inventory strategies. Despite West Coast ports being expected to outperform due to various crises, this shift has not been consistent.

The top 10 maritime ports showed healthy container volumes in Q1 2024, with Los Angeles, Long Beach, and Houston seeing significant year-over-year gains in TEUs. Some markets experienced steep rent declines, like Charleston (-30%) and Inland Empire (-16.6%), while others saw rent increases, like Orange County (5.6%) and Hampton Roads (8.5%).

Overall, while some areas struggle with high vacancy rates and declining rents, others continue to see growth, influenced by tight market conditions and construction activity.

Positive

• Top 10 U.S. ports reported healthy container volumes in Q1 2024.
• Ports of Los Angeles, Long Beach, and Houston saw 30%, 16%, and 15% YOY gains in TEUs handled, respectively.
• Orange County reported a 5.6% YOY rent increase and a low vacancy rate of 2.8%.
• Hampton Roads experienced an 8.5% annual rent increase and a low vacancy rate of 3.2%.
• Jacksonville saw a 30% climb in rents with a 4.9% vacancy rate.

Negative

• 13 key port-proximate industrial real estate markets experienced cooling demand.
• Increased vacancy rates and tempered rent growth noted across many markets.
• Charleston’s average rent fell by 30% in Q1 2024.
• Inland Empire and Puget Sound-Eastside saw rental declines of 16.6% and 15.9%, respectively.
• Greater Los Angeles posted a 10.8% drop in asking rents and a net absorption loss of -3.8 msf.

Insights

Financial Analyst

The latest report by Cushman & Wakefield reveals mixed trends in the U.S. port-proximate industrial real estate markets. While container volumes at the top 10 maritime ports showed healthy year-over-year growth, the combination of cooling demand, rising vacancy rates and tempered rent growth pose noteworthy concerns. For instance, the Port of Los Angeles saw a significant 30% increase in TEUs, highlighting resilience in trade volumes. However, rising vacancy rates, as seen in Charleston (9.2%) and the Inland Empire (6.3%), signal a shift in industrial real estate dynamics, potentially leading to a decrease in property values and rent profitability in the long term.

Investors should pay close attention to markets like Orange County and Hampton Roads, which reported low vacancy rates and steady rent growth—indicative of strong local demand and limited supply. Conversely, significant rent declines in areas like Charleston (-30%) and the Inland Empire (-16.6%) suggest an oversupply or reduced demand, which could lead to further rental concessions or incentives.

It’s important for investors to consider the broader economic context, including the ongoing supply chain diversification and the anticipated acceleration in demand over the next three years. While the current market conditions may present short-term risks, the projected demand growth could offer long-term opportunities for capital appreciation.

Logistics Expert

The U.S. port performance data reflects emerging trends within the logistics and supply chain sectors. Notably, diversification of ports of entry has led to modest growth across most major ports, despite prior expectations of a significant shift in market share towards West Coast ports. The strategic response of shippers to past supply chain disruptions has resulted in a more balanced distribution of traffic, which could enhance the resilience of the logistics network.

The reported increase in TEU volumes at key ports like Los Angeles and Houston points to recovery and growth in maritime trade activities, yet the concurrent rise in vacancy rates and negative net absorption figures highlight a mismatch between supply and demand in industrial real estate. This indicates that while import activities are robust, the distribution channels are still adapting to new inventory management strategies.

For investors, understanding these logistics dynamics is crucial. The trends underscore the importance of geographic diversification and the potential impact of regional market conditions on supply chain efficiency. The expected acceleration in demand over the next three years could necessitate strategic investments in infrastructure and technology to optimize port and warehouse operations.

Market Research Analyst

An in-depth look at the Cushman & Wakefield report reveals regional disparities within the port-proximate industrial real estate markets. Markets like Orange County and Hampton Roads demonstrating low vacancy rates and increasing rents reflect robust local demand, likely driven by their strategic advantages and limited availability of industrial space. On the other hand, areas experiencing steep rent declines, such as Charleston and the Inland Empire, may indicate an oversupply or a shift in tenant preferences.

Investors should consider the potential future implications of these trends. For instance, the slowdown in construction activity could stabilize vacancy rates, but the current softness in demand could persist if economic conditions don't improve. Additionally, the report's data on rent declines and absorption rates offer vital clues about market stability and investor sentiment.

The long-term prospects hinge on projected demand acceleration, suggesting that while current market conditions might seem daunting, there’s potential for recovery and growth. Investors should align their strategies with these projections, perhaps focusing on regions with low vacancy rates and strong rent growth to capitalize on expected market improvements.

Cushman & Wakefield report on U.S. port-proximate industrial real estate markets and port performance

NEW YORK--(BUSINESS WIRE)-- Cushman & Wakefield’s (NYSE: CWK) latest report on U.S. Ports shows 13 key port-proximate industrial real estate markets have experienced cooling demand coupled with rising vacancy rates and tempered rent growth.

While these trends mirror the U.S. macro trends, negative net absorption has been more prominent in many of the port markets as imports reverted to pre-pandemic levels and inventory strategies shifted away from a “just in case” approach. There have been occupiers within port-proximate markets that have placed excess space back on the market.

“Despite expectations that West Coast ports would regain market share from East and Gulf ports due to the ongoing Red Sea crisis, Panama Canal drought, and the upcoming East Coast port negotiations, this shift has yet to materialize consistently,” said Jason Price, Senior Director, Americas Head of Logistics & Industrial Research. “Having learned from previous supply chain challenges, shippers continue to diversify ports of entry, resulting in modest growth at most major ports nationwide.”

The nation’s top 10 maritime ports registered healthy container volume totals through the first quarter of 2024. All 10 ports registered increases versus the first quarter of 2023, with the ports of Los Angeles, Long Beach and Houston registering 30%, 16% and 15% year-over-year (YOY) improvements in 20-foot equivalent units (TEUs) handled. This is a shift from the first quarter of 2023, which started off slowly due to the reduction of pandemic-era inventory surplus by retailers. The remainder of 2023 saw improved, but modest, monthly totals, ending the year with 13% lower volume than 2022.

Although many port markets rank among the priciest in the U.S. for industrial space, some reported notable annual rental rate declines in the first quarter as demand decelerated and vacancy rates edged higher. Charleston’s average rent fell by 30%, while the Inland Empire (-16.6%), Puget Sound-Eastside (-15.9%), and Greater LA (-10.8%) yielded some of the sharpest asking rent decreases nationwide during that time. However, some port-proximate industrial markets continued to see steady rent growth amid relatively tight market conditions: Orange County, California posted a 2.8% vacancy rate amid a 5.6% YOY rent increase; Hampton Roads, Virginia, saw rents rise 8.5% annually while boasting a vacancy rate of just 3.2% as of the first quarter; and Jacksonville’s 4.9% vacancy rate was 90 bps below the national average while recording a 30% climb in rents since last year.

Q1 2024 U.S. Port Market Industrial Statistics
Industrial Market	Port of Call	Inventory (msf)	Under Construction (msf)	Vacancy (%)	Avg Asking Rent (psf)	YOY Rent Change (%)	Q1 2024 Net Absorption (msf)
New Jersey	Port of NY/NJ	678.0	10.2	6.3%	$17.04	3.5%	-3.2
NYC Boroughs	Port of NY/NJ	139.5	1.5	4.4%	$28.19	7.9%	0.5
Hampton Roads	Port of Virginia (Norfolk)	115.2	3.3	3.2%	$9.40	8.5%	0.8
Charleston	Port of Charleston	97.8	4.5	9.2%	$7.84	-29.9%	-0.7
Savannah	Port of Savannah	128.9	29.3	7.0%	$6.78	4.6%	3.6
Jacksonville	JAXPORT	112.8	3.9	4.9%	$8.26	30.4%	0.2
Houston	Port Houston	572.6	10.7	6.9%	$7.53	8.0%	5.1
Greater Los Angeles	Port of LA/LB	799.6	8.0	3.9%	$18.29	-10.8%	-3.8
Inland Empire	Port of LA/LB	624.6	20.8	6.3%	$15.62	-16.6%	-0.1
Orange County	Port of LA/LB	253.4	1.5	2.8%	$19.86	5.6%	-0.4
Oakland/East Bay	Port of Oakland	214.8	1.6	5.1%	$16.18	0.0%	-1.2
Seattle	Northwest Seaport Alliance	261.3	5.6	6.0%	$11.83	3.1%	-0.9
Puget Sound - Eastside	Northwest Seaport Alliance	65.4	1.2	5.5%	$13.79	-15.9%	-0.4
		4,063.9	102.1	5.5%	$14.09	-0.1%	-0.5
Source: Cushman & Wakefield Research

“While some major port markets have been hit the hardest in terms of occupancy losses and rental rate declines, the dissipating construction pipeline will help alleviate some of the upward pressure on vacancy rates in the future. Furthermore, demand is projected to accelerate over the next three years,” said Price.

About Cushman & Wakefield

Cushman & Wakefield (NYSE: CWK) is a leading global commercial real estate services firm for property owners and occupiers with approximately 52,000 employees in nearly 400 offices and 60 countries. In 2023, the firm reported revenue of $9.5 billion across its core services of property, facilities and project management, leasing, capital markets, and valuation and other services. It also receives numerous industry and business accolades for its award-winning culture and commitment to Diversity, Equity and Inclusion (DEI), sustainability and more. For additional information, visit www.cushmanwakefield.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240617793072/en/

Mike Boonshoft

michael.boonshoft@cushwake.com

Source: Cushman & Wakefield

FAQ

What are the major trends in U.S. port-proximate industrial real estate markets?

The major trends include cooling demand, increased vacancy rates, and tempered rent growth.

Which U.S. ports saw the most significant year-over-year TEU volume growth in Q1 2024?

The ports of Los Angeles, Long Beach, and Houston saw the most significant YOY TEU volume growth, with increases of 30%, 16%, and 15% respectively.

How did Charleston’s industrial real estate market perform in Q1 2024?

Charleston's average rent fell by 30% in Q1 2024, reflecting a decrease in demand.

What was the rent growth in Orange County's port-proximate industrial market?

Orange County experienced a 5.6% YOY rent increase and maintained a low vacancy rate of 2.8%.

How did the Greater Los Angeles port-proximate market perform in terms of rents and net absorption?

Greater Los Angeles saw a 10.8% drop in asking rents and a net absorption loss of -3.8 msf.

What factors contributed to the cooling demand in U.S. port-proximate industrial real estate markets?

Factors include a return to pre-pandemic import levels and shifting inventory strategies away from 'just in case' approaches.

What are the vacancy rates and rent changes in Hampton Roads?

Hampton Roads has a 3.2% vacancy rate and an 8.5% YOY rent increase.