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Seaport industrial real estate exceeds expectations.

Distribution center and warehouse occupancy levels have reached historic highs, while expensive construction and labor costs keep new development sparse in many seaport industrial real estate markets, reported JLL, Chicago.

JLL analyzed the health of major container seaports and their surrounding real estate, and found that occupancy levels by total square feet now have surpassed 2007 levels--the high point of the last real estate boom.

"We are seeing unprecedented industrial real estate growth around our nation's seaports," said JLL Managing Director Mark Levy. He said industrial real estate occupancy grew by 17 million square feet in West Coast seaport markets between 2007 and 2014, including 15 million square feet in 2013 and 2014. "East Coast and Gulf of Mexico seaports had equally impressive gains," he said.

The 15 seaports Levy studied received a total of 43.4 million 20-foot equivalent units (TEU) containers last year, marking an 8.5 percent increase from 2007. Though West Coast cargo volume decreased slightly during this period, East Coast and Gulf of Mexico cargo volume increased more than 25 percent. Recent supply-chain disruptions on the West Coast have resulted in companies reevaluating their import strategies, JLL said, which may have boosted Gulf and Eastern Seaboard port volumes.

"Cost, service and risk are the three perennial drivers for supply-chain executives as they develop their logistics strategy," Levy said. "As a result, the East Coast/Gulf seaports are gaining favor among industry veterans because they mitigate some risk, provide access to major population centers and connect with the optimal inland transportation mode of rail."

For the fourth consecutive year, the Port of New York/New Jersey topped JLL's Seaports Index. New York/New Jersey's 2014 TEU volume grew 5.6 percent from 2013 and 40.9 percent from 2007, outpacing West Coast rivals Los Angeles and Long Beach, California.

"Perhaps most notable is the Port of Savannah [Georgia] coming in at No. 4," JLL reported. Savannah saw 28.5 percent TEU growth and significant industrial development between 2007 and 2014. Savannah's distribution center real estate market serves as a conduit to inland ports in Atlanta, where goods connect with major East Coast and Midwest rail lines. "The port's proximity to Atlanta means that it will continue to thrive when more ships begin to arrive after the new, wider Panama Canal opens next year," JLL's report said.

JLL also said Charleston, South Carolina (ranked ninth) and Hampton Roads, Virginia (ranked 10th) will also see increased cargo traffic due to their rail connectivity to major markets. Both ports--like Savannah--feature on-dock, double-stacked rail capabilities. "These are strong-selling points since intermodal rail provides logistics executives with a cheaper alternative to long-haul trucking," the report said.

But Long Beach and Los Angeles will remain the primary gateway into the United States in the coming years based on their infrastructure, automation enhancements and strong rail connectivity to the rest of the nation, JLL said. The firm expects occupancy on the West Coast to remain strong based on its established markets that are home to notable consumer bases. "Additionally, much of the cargo shift to the Eastern Seaboard is discretionary--goods not destined for local consumption, but which can move through any entry point of the shipper's choosing," the report said.
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Title Annotation:Commercial
Publication:Mortgage Banking
Date:Sep 1, 2015
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