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Southeastern Ports Adjust to Expanded Panama Canal

The Southeast’s top seaports and their surrounding industrial real estate markets have braced themselves for years for the larger post-Panamax vessels that can now pass through the newly expanded Panama Canal. The 102-year-old canal opened in late June 2016 following its $5.4 billion expansion, creating a shortcut for the larger ocean carriers coming from Asia.

The opening of Panama Canal’s expansion was delayed by two years, missing the 100-year anniversary of its 1914 debut. Shipping companies had their larger vessels in place, though, and decided to ship those vessels to the East Coast via the Suez Canal, according to Walter Kemmsies, managing director, economist and chief strategist of JLL’s U.S. Ports, Airports and Global Infrastructure Group.

“As the Panama Canal gets through the learning curve, we’re seeing the number of weekly transits increase, and we’re still in that phase and perhaps will be for the next six months,” says Kemmsies, who is currently engaged with three of the top five seaports in the United States on their master plans. “The ocean carriers are starting to scrap their smaller vessels and moving their services back from the Suez Canal to go through the Panama Canal. Right now the East Coast has done quite well and had a pick up in volumes.”

The Port of Savannah and Port of Virginia in Norfolk both enjoyed record shipping volumes in October. The Port of Savannah moved 251,566 TEUs (20-foot equivalent units) in October, setting an all-time record for activity for the month. The port moved 167,333 TEUs in November, a 6.5 percent increase in volume year-over-year.

The Port of Virginia handled 238,567 TEUs in October, making it the single-busiest month in the port’s history. The port followed that up by handling 236,155 TEUs in November, its second-busiest month ever.

“The fact that some of these ports recorded their highest volumes ever in October, despite relatively low economic growth in the U.S., tells you that some of the companies that moved over during the contract negotiations stayed on the East Coast permanently,” says Kemmsies in reference to the contract negotiations in 2014 and 2015 between the International Longshore and Warehouse Union and the Pacific Maritime Association, which caused major delays for the West Coast ports. During that time the East Coast and Gulf Coast ports took some of the market share from the West Coast ports.

The full extent of the Panama Canal’s expansion on the Southeast’s ports is yet to be seen, but industrial real estate professionals are confident it will ultimately be a boom for the region.

“It’s a little too early to tell what the impact of the Panama Canal can be. Overall we feel that it’s beneficial to the East Coast port markets,” says P.J. Charlton, senior vice president of investments at CenterPoint Properties, an industrial investor and developer that primarily focuses on markets with either seaports or inland ports.

CenterPoint Properties recently purchased a two-building, 511,302-square-foot industrial portfolio in Hanahan, S.C., near the North Charleston Terminal at the Port of Charleston. The Oak Brook, Ill.-based company is also developing a nearly 500,000-square-foot speculative facility within CenterPoint Intermodal Center in Savannah.

“Industrial tenant demand is strong in all the Southeast port markets, particularly the ones we invest in,” says Charlton. “Rents are growing, and in many markets we’re approaching peak rents again, plus vacancy is low so overall it’s a very healthy time in our business right now.”

Infrastructure & Expansion

The mega post-Panamax ships can handle 13,000 to 14,000 containers, nearly tripling the capacity of the ships that previously passed through the Panama Canal. With the aid of the recently passed Water Resources Development Act, port authorities around the Southeast now have more capital expenditure allowance to expand their capacity and invest in infrastructure improvements to handle the increased container traffic.

“One challenge all ports face is the ability to get all the containers from a post-Panamax ship out of the port,” says Walter Byrd, senior managing director of Transwestern’s South Florida office. “If you’re not connected to an intermodal system and have good roadway system traffic, one container ship can bog down the entire port.”

To handle the uptick in volume, the South Carolina Ports Authority (SCPA) and the State of South Carolina are investing $2 billion in the Port of Charleston over the next 10 years. Construction is underway on the Leatherman Terminal, which will increase the port’s container capacity by 50 percent, according to Kelsi Childress, SCPA’s external affairs coordinator.

“Leatherman Terminal is currently the only new permitted container terminal under construction on the East or Gulf coasts, and Phase I is expected to be completed by 2020,” says Childress.

SCPA is also following the success of its inland port in Greer, which opened in 2013, with a newly announced inland port in Dillon County near the South Carolina-North Carolina border. Other projects underway at the port include rehabilitation to the Wando Welch Terminal Wharf and the Charleston Harbor Deepening project, which will increase the harbor’s depth from 45 feet to 52 feet.

“Once we complete the Charleston Harbor Deepening Project in 2020, Charleston will be the deepest harbor on the East Coast,” says Childress. “This depth advantage will help us compete favorably with other ports in the Southeast, which is the fastest growing port region in America.”

SCPA is not alone in its expansion and infrastructure efforts. The Georgia Ports Authority has recently brought in four new Super Post Panamax ship-to-shore cranes at its Garden City Terminal, giving the Port of Savannah more super cranes than any other port in the United States. The port is also undergoing dredging that will deepen Savannah Harbor to 49 feet and the Savannah River channel to 47 feet.

“Anytime there’s a dollar commitment to the improvement of ports’ infrastructure, it’s great for all business,” says Byrd of Transwestern. “Those markets that are coordinating their efforts between federal, state and local governments to improve the infrastructure of the ports and the road system will be the most successful long-term.”

A Hub for Cruises

Containers aren’t the only items passing through the Southeast’s ports. Tourism and travel are major economic drivers in the Southeast, and the cruise industry has made major investments in the Southeast’s top ports, especially PortMiami, Port Canaveral and the Port of New Orleans.

“I often tell port directors that cruises are the new containers,” says JLL’s Kemmsies. “It’s always a smart investment strategy to diversify and it’s also good to be involved with something that has legs. Cruises are definitely well-positioned relative to demographic trends and cruise companies have done a terrific job creating an environment to attract repeat cruise vacationers.”

PortMiami recently set a world record for cruise passengers with nearly 5 million passing through the port, which is the global headquarters for five major cruise lines: Carnival Cruise Lines, Norwegian Cruise Line, Royal Caribbean Cruises, Oceania Cruises and Regent Seven Seas Cruises. Royal Caribbean has started its $200 million expansion at PortMiami that includes a new cruise terminal.

The cruise traffic and the announced expansions at PortMiami should have a significant impact for Miami’s industrial market, according to Byrd.

“The increase in cruise ships not only benefits the ports but the additional passengers require greater stocking and resupply of goods resulting in higher demand for warehouse space,” says Byrd. “All the cruise lines and the vendors that supply them have increased their demand for industrial space over the last couple of years.”

Roughly 45 miles east of Orlando, Port Canaveral is also investing heavily in its cruise business. The port handles roughly 4 million cruise passengers per year.

Recent and current developments at Port Canaveral include a new $110 million Cruise Terminal One, $48 million renovation of Cruise Terminal five, $35 million renovation of Cruise Terminal Ten and $2 million renovation of Cruise Terminal Eight. Port Canaveral hosts several top individual cruise ships, including Disney Dream, Disney Fantasy, Carnival Magic, Norwegian Epic and Royal Caribbean’s Oasis of the Seas.

In New Orleans, Carnival Cruise Lines and Norwegian Cruise Line sail from the Port of New Orleans weekly to destinations in the Caribbean, Mexico and the Bahamas. Overall the port handled more than 1 million cruise passengers in 2015.

The Port of New Orleans also handles passenger traffic for cruise lines that travel the Gulf of Mexico and the United State’s inland river system. These include Great American Steamboat Co., American Cruiselines, Travel Dynamics International and Blount Small Ship Adventures.

“The Port of New Orleans has done a terrific job with their cruise lines and it’s a growing market with its cruise-related real estate,” says Kemmsies. “It’s a great location, the terminal is within walking distance of the French Quarter. It couldn’t be a better setup.”

— John Nelson

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