As global trade begins to rebound, U.S. ports are looking to expand capacity to meet the anticipated demand and are focusing on capital development to meet the infrastructure need, according to the new Ports, Airports and Global Infrastructure (PAGI) report by Jones Lang LaSalle.
“Between 2007 and 2009, the nation’s top 13 ports witnessed an 18.5 percent decline in total volume as both domestic and foreign consumption waned,” said John Carver, head of the Ports Airports and Global Infrastructure group at Jones Lang LaSalle. “Fortunately, transpacific U.S. bound trade from Asia started to recover in the second half of 2009 and has started to show a positive impact on West Coast ports, with traffic up 14.8 percent year-over-year.”
The PAGI report also features the new Jones Lang LaSalle Port Index which rates U.S. port markets not only on the performance of the ports themselves, but also on their impact to the surrounding real estate economy. Ports are scored on their land value-to-lease rate ratio, local vacancy rates, labor costs, on or near dock service by rail roads as well as planned infrastructure investment. Not surprisingly, LA/Long Beach tops the Index, followed by New York/New Jersey and Savannah which have all performed above the national average and have committed to substantial infrastructure investment in recent years.
“According to the American Association of Port Authorities, in the last 50 years U.S. seaports have invested more than $34 billion in capital projects to enhance their facilities,” said Carver. “By our estimates, the top 13 ports alone will pour nearly a quarter of that amount, roughly $8.5 billion into container terminal and harbor dredging projects in just the next five years. This ratio clearly demonstrates the major efforts being made to ensure that U.S. ports remain competitive and efficient in the fight for global market share.”
A good portion of the future capital is expected to be earmarked for East and Gulf Coast ports in anticipation of vessels carrying Asian import cargoes being diverted from West Coast ports via an expanded Panama Canal. The massive canal project is set for completion around 2014.
The report examines the real estate landscape around international seaports and airports and says that port operators in greater China and the Middle East went on a global buying spree in 2006-2007 to gain control of global shipping routes and direct access to raw materials. It was stringent foreign direct investment regulations in the U.S. that prevented the same influx of capital into U.S. ports from foreign investors. Instead, many U.S. ports have leaned on private domestic investment and public-private partnerships to help support the multi-million dollar projects necessary to maintain long-term economic competitiveness.
Looking forward, world container port handling is expected to grow by six percent annually starting in 2011, according to a recent report by Drewry Shipping Consultants. U.S. ports will have to compete with strong growth programs already in place around the world, such as Brazil’s Pac 2 Program, a $526 billion investment program led by the Brazilian government. Expenditure on infrastructure projects in Southeast Asia is also on the rise, with an expected $32 billion to be spent between 2010 and 2014, according to a study by KPMG.
“With the increasing interdependence between global economies, the need for infrastructure improvements and the rapid movement of goods will put increasing pressure on U.S. ports to secure long-term capital access to financing from both the public and private sectors,” said Carver.
Demand for U.S. Port Real Estate
Despite a future gearing up for investment, shock waves resulting from the global economic meltdown have brought demand for warehouse and distribution space around ports to critically low levels.
Over the course of a year potential vacancy escalated by 1.6 percentage points to 9.0 percent as tenants shed excess space, consolidated operations or ceased business altogether. For the second year running, net absorption increased by a negative 2 million square feet for a total negative 3.9 million square feet in 2010. Despite some inventory replenishment, demand has yet to return to most major port markets. Even though potential vacancy is soft, it remains below the U.S. national average vacancy rate of 10.6 percent.
“Asking rents declined by an average 7.1 percent with the largest losses in the markets surrounding the ports of Los Angeles, Long Beach and Charleston,” said Craig Meyer, Managing Director and head of Jones Lang LaSalle’s Americas Industrial Services team. “It’s no surprise that these three ports, along with Virginia and Tacoma, posted the highest year-over-year losses from 2008 in total container volumes, demonstrating the integral relationship between port through traffic and industrial vacancy rates.”
However, U.S. ports are in anticipation of the expansion of the Panama Canal, the long-term rise in cargo and freight traffic, and in order to compete with foreign ports are aggressively attempting to move ahead with massive infrastructure investments, concession agreements and capital improvement plans that will help capture or increase market share. As an example, the LA/Long Beach port has broken ground on a $40 million harbor dredging project which will deepen the main channel to 76 feet in order to accommodate the deep draft post Panamax ships holding more than 14,000 Twenty-foot equivalent units (TEUs).
“There are great long-term opportunities on the horizon for port real estate leasing and investment,” said Meyer. “Not just the main ports on the East like New York/New Jersey or West Coast like LA/Long Beach but also for some of the emerging ports such as Gulfport, Mobile, and Port Manatee on the Gulf Coast and Philadelphia on the East.”
About the PAGI report