By Joshua Burd
Two decades’ worth of infrastructure upgrades are paying dividends for New Jersey’s booming port region, supporting a surge in cargo volume that is poised to sustain the growth in the state’s industrial market.
That’s according to a recent report by Transwestern, which highlighted the steady uptick in recent years at the Port of New York and New Jersey and the resulting demand for warehouse and logistics space. Those trends have coincided with the growth of the two largest West Coast ports in Southern California and a similar pattern of investing in infrastructure, the study found, as port authorities on both coasts have been planning for the arrival of larger container ships.
“Two massive port complexes, a nation apart, are on surprisingly similar tracks to increase their share of the global trade in containerized goods,” Transwestern wrote. “Sharing a belief that the widened Panama Canal would convince more shippers to route their products from Asia directly to the East Coast, U.S. port authorities on both coasts have devoted the better part of two decades to deepening channels, raising bridges for greater clear heights, investing in greater terminal automation and shoring up dockside infrastructure to handle ever-larger ships.”
In 2016, container volume at the Port of New York and New Jersey reached 6.25 million 20-foot-equivalent units, or TEUs. That figure represents almost 13 percent of the total U.S. volume last year and has grown from 5.53 million TEUs in 2012.ATE-Ports-Timeline
This timeline shows the extent of these dual efforts, which have continued through economic prosperity, recession and recovery, and despite labor disputes, natural disasters and shipping bankruptcies affecting international trade. — Courtesy: Transwestern
That volume has only added to the demand for distribution space in northern and central New Jersey, where rental rates continue to rise and where vacancy reached a record low of 4.6 percent in the third quarter, Transwestern said. And the region is seemingly prepared for a continued increase in ship traffic, thanks to infrastructure projects such as a $2.1 billion, 12-year harbor deepening project and the recent raising of the Bayonne Bridge roadway.
“The Port Authority really did an excellent job of foreseeing the future and making the necessary investments,” said Matthew Dolly, Transwestern’s director of research for New Jersey. “And they’re now coming to fruition and it’s going to continue to be fruitful for many years to come.”
New York and New Jersey are home to the nation’s third-busiest port, behind only the ports of Los Angeles and Long Beach. Both West Coast ports, which had a combined volume of 15.6 million TEUs in 2016, have also been shoring up their infrastructure in an effort to protect their market share ahead of the expansion of both the Suez and Panama canals.
All told, the largest ports of both coasts have remained dominant with the arrival of larger vessels. Experts with Transwestern say that dominance has also been helped by consolidation in the container shipping industry, as companies seek to find economies of scale by directing more of their goods to larger ports.
“All of a sudden we’re beginning to see these companies turn around and become more profitable these days, and they are definitely focused on the bigger ports that accommodate these larger container vessels,” said Nick Kim, a broker and managing director in Transwestern’s Parsippany office. “And there’s definitely a surge in demand for that.”
The firm also pointed to another promising sign, at least for industrial owners and developers: As activity at the major ports increases, rising transportation costs and access to labor are now overshadowing rental rates as the top factors that companies consider in selecting space. That is reflective of two major concerns for tenants and shipping companies, but it could at least signal continued demand and rent growth for warehouse and logistics space in high-density regions.
“They’ll spend the money and they’ll pay higher rents, but it will cost less to transport the goods to where the population is,” Dolly said. “With the larger ships, the thought is that the savings can be passed on and it will be less of a cost to ship things, so the rents are a little bit less of a factor.”