Import Slowdown Reduces Demand Around Largest Ports

BOSTON-A decline in import traffic is pushing up warehouse availability rates in markets surrounding the nation’s largest ports, according to an analysis by Laura Stone Mortimer, vice president and managing economist for Torto Wheaton Research. While Southern California markets face the greatest impact due to the fact the ports of Los Angeles and Long Beach handle 40% of US imports, she says markets in New Jersey and Florida are also seeing a rise in vacancies as a result of slowing imports.

California’s Inland Empire started to exhibit rising availability in Q2 ’07, Stone Mortimer notes. Since then, the rate has risen 230 basis points to 9.1%. “The warehouse availability rate has not been this high in the Inland Empire since Q1,” she observes. She adds that the increase, especially in Riverside County, is the result not only of a plunge in demand but also of perpetually growing supply. The market saw 13.5 million sf of completions last year, after 29.6 million sf in ’06.

The falloff in consumer demand inevitably is affecting the Inland Empire, she says, which is why Torto Wheaton is forecasting a slight contraction in rents there until the economy recovers. By contrast, she continues, Los Angeles County has been much less affected because most regional and national distribution business has shifted inland and land constraints limit construction of new inventory.

According to Sam Foster, senior vice president, industrial services, in the Los Angeles office of Jones Lang LaSalle, import shipping volume very closely tracks with industrial absorption in the Los Angeles Basin. He says the correlation generally escaped analysts until recently because they failed to break down port activity into imports and exports.

He notes while the volume of 20-foot-equivalent units (TEUs) at the Long Beach and Los Angeles ports grew an average of 9% to 10% from 2001-05 then fell off last year, industrial absorption stayed flat from ’02-04 then exploded in ’05 and ’06. But if export containers, are subtracted from total TEU volume, he points out, the annual changes in port volume and absorption levels turn out to be almost identical. Import levels, thus, can be used to predict industrial absorption, he remarks.

Te situation is slightly different on the East Coast, says Stone Mortimer, with both of the largest port markets there experiencing negative net absorption in ’07. She reports demand declined by 676,000 sf in Northern New Jersey, increasing the warehouse availability rate by 80 basis points to 8.7%. She says demand also declined in Miami to 2.3 million sf, increasing the availability rate by 240 basis points to 7.8%. “While both port markets remained relatively supply-contained, the rather large fall in demand in Miami will result in warehouse rent contraction in ’08 and ’09, whereas Newark will fare better with moderating rent growth over this time period,” she predicts.The Torto Wheaton economist says the Puget Sound area is also seeing a negative impact from declining imports. But Savannah, Houston and several other ports that have staked much of their growth on diverting traffic from Southern California appear to be largely immune. “Houston may be getting more traffic from Latin America,” she tells GlobeSt.com. “These ports may also be seeing significant export growth. In any case, they seem to be continuing to grow or at least remaining stable.”

Stone Mortimer says non-port markets are also experiencing declining absorption levels as an indirect result of the drop in imports. With consumer demand down, the flow of goods from major distribution points into local markets has fallen. “We really need the consumer to rebound here,” she declares. “There’s a broad-based economic slowdown and until that reverses, I think we’ll see declining industrial demand.”