Competition Rising for Premium Industrial Space at Top Seaports

While vying for business amidst flat cargo volume growth, U.S. seaports also face heated competition for post-Panama Canal expansion market share.

JLL’s fifth-annual Seaport Outlook ranks the most prominent ports in the U.S., this year identifying the availability of industrial real estate surrounding the ports as one of three top features shared by successful ports. The other two top factors include proximity to population density and improved infrastructure.

“Competition is rising even while trade growth is stagnant,” explained Rich Thompson, Managing Director of JLL’s Ports Airports and Global Infrastructure (PAGI) group. “The emergence of marketplace shifts related to multi-channel retail strategies, as well as the soon-to-be completed Panama Canal expansion are changing the positioning for many U.S. ports. To gain market share, ports must both improve infrastructure, connectivity and possess required, Class A distribution center space to support the increasing demands of corporate supply chain strategies.”

As the top ports begin serving larger “post-Panamax” ships carrying double the number of containers, sites near to the ports are in great demand, with port-driven markets outperforming other top industrial real estate markets nationwide. According to the report, there are only eleven available distribution center spaces larger than 500,000 square feet within 15 miles of any major seaport. Furthermore, only 23 blocks are available for warehouse space users in need of at least 250,000 square feet within five miles of a major port.

As the top ports begin serving larger “post-Panamax” ships carrying double the number of containers, sites near to the ports are in great demand, with port-driven markets outperforming other top industrial real estate markets nationwide. According to the report, there are only eleven available distribution center spaces larger than 500,000 square feet within 15 miles of any major seaport. Furthermore, only 23 blocks are available for warehouse space users in need of at least 250,000 square feet within five miles of a major port.

What Defines a Top Seaport?
Having surpassed the California ports to claim the top spot in the index in 2012, the Port of New York and New Jersey ranked first again in 2013, this year by a rapidly-widening 9-point margin, followed by the ports of Los Angeles and Long Beach.  “The ports that succeed in our index are the shipping destinations best able to adapt to challenges of serving larger ships, expanding efficiencies and capacity while managing the ups and downs of a volatile global marketplace,” said Thompson. “The industrial real estate market in New Jersey offers more options for retailers that need to both store and distribute inventory immediately after it comes off the ships.”

The highest ranking seaports in the index benefit from the following three primary factors:

1. Population Density Proximity. The warehouse and distribution center markets bordering the ports in the Los Angeles and New York regions serve considerable super-regional populations. In the case of New York / New Jersey, the surrounding metropolitan population totals 30.9 million, and 80 percent of imports stay within 260 miles of the port.

2. Real Estate Availability. Overall, the seaport markets continue to lead the broader industrial real estate market, making port-centric locations of perennial interest to investors in this property type. To help alleviate demand for big box space, national industrial construction is up 50 percent from one year ago and inland ports are being developed to provide an alternative to on-port warehouse and handling space.

3. Improved Infrastructure. The winner in this category is the Port of Los Angeles owing to its large and fast-growing container volume, rail connectivity and post-Panama expansion preparation. On this metric, New York / New Jersey is second while Long Beach, Savannah, and Baltimore round out the top five. A few other ports, such as Miami, are also undertaking major infrastructure improvements to improve connectivity and accelerate their competitive market positioning.

Seaports to Watch
When it comes to second-and third-tier ports, the rankings were shuffled: Savannah continues to lead the second tier of ports in the Index, followed by Baltimore and Jacksonville. The third tier has Charleston in the lead, followed by Tacoma and Virginia. Charleston and Virginia switched places compared to last year’s rankings.

The good news for port executives and industrial real estate investors is that several second and third tier markets have projects underway that—upon completion—will eventually provide users with more options. For example, Miami is developing a new tunnel and rail system that will give the port easier access to 74 percent of the U.S. population.

“As larger ships with double the capacity make calls on our U.S. ports, one of the real differentiators will be the ports ability to improve their throughput and to move those containers more efficiently and effectively from the ships to the major distribution centers and population hubs,” said Thompson.