The Port of Oakland could help to relieve some of the pressure on the Ports of Los Angeles and Long Beach, according to a new report from Marcus & Millichap. The Southern California ports are currently in the midst of a crisis-level bottleneck with some 80 ships waiting off of the coast to unload. The line has caused national attention as many people fear that goods won't be on the shelves in time for Christmas.
The Port of Oakland had a similar issue in the summer, when there was a backlog of 28 ships waiting to unload. The port managed through the challenge, and now has capacity to help unload ships, according to the report. The Port of Oakland might also see an increase in cargo volumes due to local needs for increased inventory.
The supply chain issues along and local storage demands will drive continued growth in the Bay Area for warehouse space, which the report says will "buoy" the market through the end of this year and 2022. The return of tech companies to the office will also fuel warehousing demand and help absorb speculative space from new construction deliveries.
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The report notes that fundamentals have been missed since 2020, but demand for warehouse space will fuel both rent growth and occupancy gains. Overall, Marcus & Millichap forecasts rents to grow 2.6% and the market vacancy rate to fall 10%. This year, rents have already increased 3%, up to $14.66 per square foot, while the vacancy rate has increased 50 basis points to 6.8% the end of the first half of the year. The increased vacancy rate is largely due to the new construction pipeline. More than 2.7 million square feet of new industrial space has come to the market this year, a 1.1% increase in supply. The pipeline had shrunk significantly from the last year when 4.5 million square feet came to market. Marcus & Millichap expects the pipeline to continue to shrink. There is currently only 1.8 million square feet under construction.
Despite strong tailwinds for the local market, investment activity has fallen 7% from last year. The decrease in activity came largely from the light distribution and distribution segment of the market. Owners of these properties have been reluctant to sell due to strong operations. The average cap rate in the market is 5%, compressed 30 basis points, and pricing increased 2% to $245 per square foot.
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Kelsi Maree Borland
