A potential strike that could have had adverse effects on the demand for industrial warehouses in North America’s thriving commercial property sector seems to have been avoided with a tentative agreement between union dockworkers and West Coast port operators. Late Wednesday, the Pacific Maritime Association and the International Longshore and Warehouse Union announced that they had reached a new six-year contract covering workers at all 29 West Coast ports. While the details of the agreement remain undisclosed, both parties must still ratify the contract. Industrial real estate brokers and analysts view this agreement as a crucial step in eliminating a significant source of uncertainty that has been threatening to disrupt supply chains and further dampen the demand for warehouses amidst the broader economic slowdown. The industrial market has already experienced a decline in occupancy and rent growth from its record highs. The dispute has resulted in cargo processing delays, intermittent work stoppages, and reduced productivity at major shipping gateways along the West Coast, including the busiest ports in Los Angeles and Long Beach, as well as Oakland, Seattle, and Tacoma. The Port of Seattle reported slowed work over the past week. However, if the agreement is ratified by union workers, it could lead to a reduction in demand for East Coast ports that have experienced an increase due to the West Coast disruptions.

Rustin Mork, a JLL managing director and industrial broker specializing in supply chain issues, believes that the settlement will not only bring importers back to the West Coast but also ensure that ports like Los Angeles and Long Beach remain the strongest and most relevant in the United States. While there may be some expansion and diversification among different ports across the country, the agreement should help retain many shippers in the region. Since the expiration of the dockworkers’ contract last summer, available industrial space for lease in Los Angeles and the Inland Empire has increased by approximately 50% or 40 million square feet, according to Adrian Ponsen, CoStar’s director of U.S. industrial analytics. Ponsen suggests that some major ports on the eastern and Gulf coasts, which have benefited from the West Coast troubles, may experience a short-term dip in import activity. However, in the long run, the Southeast’s major ports are still expected to achieve the fastest import growth due to their larger land and labor availability for expansion, as well as the rapidly growing local populations in those areas. The combination of Los Angeles, Long Beach, and the Inland Empire constitutes the largest industrial hub in America in terms of square footage. These regions attract the world’s largest companies seeking available logistics space to establish a presence near the ports and efficiently distribute products to the area’s businesses and 25 million people. Southern California alone boasts approximately 2 billion square feet of industrial space across Los Angeles, Orange, Riverside, and San Bernardino counties, as per CoStar data. The stalled negotiations have provided a boost to ports in New York and New Jersey, Savannah, Georgia, Houston, and other locations.

Importers, concerned about potential work stoppages along the West Coast, have diverted some shipments to eastern ports. Mork acknowledges that port labor issues are only one factor contributing to the slowdown in industrial leasing in Southern California and other West Coast ports. The primary cause remains the softening conditions in the broader economy. Nevertheless, the proposed settlement increases the chances of a rebound in the U.S. industrial real estate markets, especially with the Federal Reserve’s recent decision not to raise interest rates, which could help stimulate the overall economy. While it cannot be definitively stated that this settlement alone will cause a turnaround, Mork believes it will undoubtedly strengthen the Southern California industrial market and demonstrate the continued relevance of these ports as primary entry points for Asian cargo. It is a positive development that should bolster the market and reduce the likelihood of a major downturn.

Source: www.costar.com / Randyl Drummer