Negative net absorption for industrial assets 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, according to Cushman & Wakefield, which notes that 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."
This report dovetails a recent CoStar Group analysis that found record numbers of large industrial properties near major US seaports. In the current market, large tenants seeking industrial space near the busiest US seaports have more options than at any point in at least 20 years, it said.
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These trends have had their predictable effect on rents in certain markets.
Although many port markets rank among the priciest in the US for industrial space, some reported notable annual rental rate declines in the first quarter as demand decelerated and vacancy rates edged higher, C&W said.
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.
"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.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
