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Surging demand for warehousing close to major ports driven by the growth of e-commerce and the flood of container imports hitting U.S. shores is making storage space harder to find and more expensive, adding new stresses to already strained supply chains.

Logistics service providers and real-estate firms say competition for warehouses close to ports such as those in Southern California and New York City is intense, pushing up rents and forcing companies to look to neighboring regions to serve shippers’ needs.

Traditionally, landlords have required business tenants to sign leases of between three and five years, according to Mr. DeLuca. Today, landlords in the area are requiring seven- to 10-year leases to lock in space at current rates, he said.

DHL occupies more than 10 million square feet of industrial space for 28 customers in the region around the Southern California ports.

Demand for industrial space has been accelerating nationwide for several years because of the rapid growth of e-commerce, which requires more warehouses and distribution centers rather than retail space. The trend has accelerated during the pandemic as more consumers have turned to e-commerce at the same time that they’ve increased their spending.

Retailers’ efforts to restock depleted inventories as the economy has reopened have swamped the ports of Los Angeles and Long Beach with containers, leading to growing stacks of boxes at the neighboring sites, overwhelming inland distribution networks and pushing shippers and logistics providers to seek storage space for shipments. The two main railroads carrying containers from the ports, Union Pacific Corp. and BNSF Railway Co., this month began restricting shipments from the West Coast into Chicago because boxes were piling up at their Midwestern hubs.

The ports of Los Angeles and Long Beach together handled more than 4.3 million container imports, measured in 20-foot equivalent units, in the first five months of this year, according to research firm Beacon Economics. This was up 47.1% from the same period a year ago and 29.2% more than in the January-May period in 2019.

Demand is also being driven by a rush to move shipments following backups, such as the weekslong stoppage at the Yantian terminal in Shenzhen, China, because of a coronavirus outbreak. Many retailers also are ordering goods early for the holiday shopping season, adding to the bottlenecks.

“Retailers are so scared of not having availability that they have been bringing in orders in June,” said Walter Kemmsies, a ports and industrial real-estate consultant.

The shipments are landing in a real-estate market that was already tight and more expensive.

Real-estate group CBRE Group Inc. in a recent report said asking rents across the U.S. were up 7.1% year-over-year in the first quarter, but that the rents for industrial space in northern New Jersey and the Inland Empire, the industrial zone east of Los Angeles, were up 33.3% and 24.1%, respectively, from the same period the year before.

Storage rates have in some cases doubled in the last several years, according to Karl Siebrecht, chief executive of Seattle-based Flexe Inc., which connects businesses to warehouses with shared space. “Customers have been normalized to those rate increases,” he said.

At Southern California’s Inland Empire, the first two quarters of this year were among the busiest in the market’s history, according to commercial-property company Jones Lang LaSalle Inc. Vacancy rates in the second quarter of this year fell to a record low 1.7%, JLL said.

Craig Meyer, president of JLL’s industrial group in the Americas, said nationwide vacancy rates across 14 billion square feet of industrial real estate are at 4.8%. “That’s the tightest it’s been in the U.S.,” he said.

Source: wsj.com/articles