With cargo volume mushrooming at local ports, South Bay warehouses are quickly reaching capacity, and the peak holiday-merchandise shipping season of June through October is just getting started.
For the ports of Los Angeles and Long Beach combined, the holiday-season volume is expected to surpass 1999 by 16 percent, said Hal Hilliard, marketing manager for the Port of Long Beach. And that means warehouses will be bursting at the seams.
While much of the local cargo is shipped directly to stores on a “just-in-time” basis, there is still a huge volume of goods that must be stored in warehouses before it is transferred to retail shelves. But with the warehouse vacancy rate at a scant 2 percent in the South Bay, finding short-term space has become virtually impossible.
“There’s a lot (of companies) out looking for temporary space,” said Vince Manchee, an industrial broker at Cushman & Wakefield. “A lot of public warehousers like to get additional space if they can, from August and September to the end of the year. It’s really a problem for a lot of them.”
Brokers estimate seasonal space requirements run anywhere from 2 million to 4.5 million square feet to accommodate the flow of toys, games, clothing, wrapping paper and plastic pumpkins and Christmas trees. There are currently about 20 requirements for temporary warehouse space in excess of 20,000 square feet, one broker estimated.
But with the vacancy rate so low, many landlords are reluctant to enter into short-term leases.
“You’re lucky if the landlord (agrees to) three years,” said Don Smith, a broker in the South Bay office of Lee & Associates. “If you’re looking for temporary space, you’re not going to find it.”
That means many public warehousers and import-export firms on the hunt for such space will have to resort to the sublease market, or buildings under renovation or buildings in outlying areas, such as the Inland Empire. Very few distribution operations have excess space on their floors now, Smith said. Some are “double-racking” in order to get more mileage out of their existing space, or adding another set of racks and making the aisles narrower.
Other coping strategies
Warehousers might also end up leaving merchandise sitting in shipping containers in their yards until space inside a warehouse becomes available.
“There may be a tenant in the building with excess space and they’ll lease you 50,000 square feet for three months,” Manchee said. “But the landlord’s not going to tie the building up. When we had a lot of space available (in the past), they were willing. But not in this hot market.”
David Drummond, senior vice president with the Seeley Co., said a couple of his clients have even volunteered to pay a premium for short-term space.
“I don’t know if it’ll sway landlords,” he said. “It’s catch as catch can. Somehow this stuff seems to work out, but it’s going to be a little more challenging (this year).”
He said he has encouraged tenants to consider securing space in smaller chunks, rather than in one large block.
Meanwhile, developers are not sitting idly by. About 1.5 million square feet of warehouse space is under construction in the South Bay, about half of which is already pre-leased.
Yet even that new space is hardly enough to put a dent in demand. In the first three months of the year, 2.3 million square feet of space was sold or leased in the South Bay 800,000 square feet more than the amount currently under construction.
“Luckily, we’ve got all this space under construction, but it won’t be delivered until the end of the year or the first quarter of next,” said John Schumacher, an industrial broker at CB Richard Ellis.
Driving the space crunch is a thriving economy and increasing activity at the ports. About half of local cargo traffic goes to local destinations and 90 percent of those trips terminate between San Bernardino and Oxnard.
Last year, the Port of Long Beach processed the equivalent of 4.4 million 20-foot-long cargo containers and this year, the number is expected to be between 4.6 million and 4.8 million, much of it over the June-October period.
Looking to facilitate the flow of holiday imports, local port officials and shipping line executives are trying to convince major retail chains to institute round-the-clock distribution operations.
Some say that what used to be a holiday peak has actually become less noticeable, because the overall volume has risen year-round.
“The last couple of years, it hasn’t slowed much,” Smith said. “The spikes are not as dramatic, but the pressure’s still there. We’re real tight on space and I expect it’s going to get tighter before it gets looser.”