The Port of Los Angeles is suffering as a result of record-breaking volume.

Rents are rising as warehouse space cannot keep up with demand.

As output boosted the US economy in July, volume at The Port of Los Angeles reached its sixth all-time high in seven months, raising concerns about the area’s infrastructure, warehousing demand, and rate structures.

A total of 935,345 Twenty-Foot Equivalent Units (TEUs) were processed in July, breaking the previous record from 2019 by 2.5%.
At a news conference on Wednesday, Port of Los Angeles Executive Director Gene Seroka stated, “Remarkably, we continue to move record amounts of cargo while working down the backlog of ships by almost 90%, a remarkable accomplishment by all of our partners.

“Even with the current rail challenges, our marine terminals are more fluid than last year. That’s due in part to our data portal that allows our stakeholders to see around corners and tackle problems before they arise.”

Observing that ships are now waiting for space at numerous other ports across the US, Seroka claimed that the supply chain environment in Southern California has improved.

Regarding the biggest port in the world, Seroka remarked, “Our terminals have capacity. For cargo owners looking to re-chart their course, come to Los Angeles. We’re ready to help.”

Ordering of goods won’t slow down “anytime soon”
According to Brad Yates, Senior Vice President at Stream Realty Partners, as e-commerce grows, so does the demand for additional warehouse space, which has a significant influence on Southern California’s ports and roadways.
“With so much demand for warehouse space here, we will continue to see an increase in port activity,” Yates said. “As COVID-19 fueled this demand in early 2020, and now more people are ordering goods online, it will not slow anytime soon.

“We are also seeing many third-party logistics (3PLs) and warehouse users over-order their supply, as it has been hard to get goods from overseas since the pandemic started.

“The record volume has caused rental rates for industrial to rise dramatically. There is not enough warehousing supply to meet the influx of containers and product flooding the Southern California industrial market. With a sub 1% vacancy rate and a scarcity of industrial land, tenants are having a difficult time securing the space needed to store these goods.”

Roads in Los Angeles are not expanding at the same rate as the need for warehouse space, according to Yates, so the situation will only get worse as warehouse space becomes more in demand.
Additionally, he added, “It is also harder for trucking companies to hire and retain workers, If the imbalance between supply and demand continues, the lease rates will continue to rise. That imbalance coupled with many cities implementing moratoriums on new industrial development, especially in the Inland Empire, it is hard to forecast the supply of warehousing easing over the near future.

“We predict that tenants will be forced to be searching for warehousing in more peripheral markets where there is more supply of industrial land.”

Highest Rent Gains in Boston, New Jersey, and the Inland Empire

Supply-chain issues, according to Doug Ressler of Yardi CommercialEdge and GlobeSt.com, are making it more important than ever to be strategically situated and pay a premium for space in port areas, which have had the biggest increases in in-place rents in the past year.

According to Ressler, the areas with the highest rent increases are the Inland Empire (8.7%), Boston (8%), New Jersey (7.8%), Los Angeles (7%) and Orange County (6.8%). Additionally, port markets have the lowest vacancy rates. The Inland Empire is at 0.8%, Los Angeles is at 1.9%, and Orange County is at 3.1% in Southern California, which has the narrowest region.

According to Ressler,  “The United States is a consumption-driven economy, and most goods come into the country from elsewhere, Estimates peg transportation as accounting for at least half of companies’ supply-chain costs. Although energy prices have fallen of late, those costs are still elevated compared to historical averages.

“Recent supply-chain stresses have illuminated exactly how dependent the U.S. is on other countries for both raw materials and finished products. As a result, firms are now exploring reshoring and nearshoring of manufacturing, which would reshape supply chains but also lead to new challenges.”

He claimed that although more items would be produced domestically, port markets may see some alleviation.
According to Ressler, “U.S. rail and highway infrastructure will need to be upgraded to handle the increased domestic and cross-border movement of goods, In the near and medium term, current issues will be here to stay, as supply chains are massive, complex systems that take a long time to fundamentally change.”
We are ready to assist investors with Santa Ana Commercial Real Estate properties. For questions about Commercial Real Estate Investments, contact your Orange County commercial real estate advisors at SVN Vanguard. 


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