Healthy TEU Volumes at U.S. Ports Amid Softening Industrial Demand

Cushman & Wakefield report on U.S. port-proximate industrial real estate markets and port performance

Cushman & Wakefield’s (NYSE: CWK) latest report on U.S. Ports shows 13 key port-proximate industrial real estate markets have experienced cooling demand coupled with rising vacancy rates and tempered rent growth.

While these trends mirror the U.S. macro trends, negative net absorption 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. 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.”

The nation’s top 10 maritime ports registered healthy container volume totals through the first quarter of 2024. All 10 ports registered increases versus the first quarter of 2023, with the ports of Los Angeles, Long Beach and Houston registering 30%, 16% and 15% year-over-year (YOY) improvements in 20-foot equivalent units (TEUs) handled. This is a shift from the first quarter of 2023, which started off slowly due to the reduction of pandemic-era inventory surplus by retailers. The remainder of 2023 saw improved, but modest, monthly totals, ending the year with 13% lower volume than 2022.

Although many port markets rank among the priciest in the U.S. for industrial space, some reported notable annual rental rate declines in the first quarter as demand decelerated and vacancy rates edged higher. 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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