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East Coast Ports Need Big Infrastructure Investment To Meet Booming Demand

Seaports along the East Coast have ridden a tidal wave of activity in recent years as they expand to meet growing demand. These booming ports are spurring the region's robust industrial sector, but the critical need for infrastructure improvements puts that growth at risk. 

Port of Virginia
The Port of Virginia's Virginia International Gateway terminal in Portsmouth

At the Port of Virginia, the amount of cargo passing through has increased every year since 2010, and its 2017 total was up 7.2% from the prior year, Port of Virginia CEO John Reinhart said. 

"Everyone is growing," Reinhart said. "Every port in the U.S. did more business in 2017 than in 2016 because we're in a strong economy." 

That growth has bolstered demand for industrial real estate from the Shenandoah Valley to the D.C. area, especially as e-commerce companies look to reduce delivery times with more last-mile distribution centers. The port serves a 79M SF industrial real estate market that experienced positive net absorption of 1M SF in the first half of 2017, according to CBRE's 2017 North America Seaports and Logistics report. 

The Port of Virginia has a facility in Warren County, the Virginia Inland Port, that sits about 60 miles from D.C. and just 15 miles from a new Amazon distribution center. 

"We saw an uptick last year with industrial space for manufacturing and distribution centers," Reinhart said. "They need to be close to population centers and have their freight shuttled to them." 

Business at the Port of New York and New Jersey has also been strong, Port Authority Manager of Leasing and Property Development Dean Bodnar said. The port is the largest on the East Coast, and third-largest in the U.S., and serves an 811M SF industrial real estate market, according to CBRE. That market has experienced strong absorption and currently has 9.1M SF of industrial space under construction, with over half of that being built speculatively. 

"If overall cargo keeps increasing, it's going to suggest more seaport-related warehouse might be a play," Bodnar said.

Rockefeller Group's Brandi Hanback; Kurt Nagle, American Association of Port Authorities; John Reinhart, Port of Virginia; and Molly Campbell, Port of NY & NJ
Rockefeller Group Executive Vice President Brandi Hanback, American Association of Port Authorities CEO Kurt Nagle, Port Authority of New York and New Jersey Port Director Molly Campbell and Port of Virginia CEO John Reinhart

Ports across the U.S. and their nearby industrial markets have seen strong demand from e-commerce companies looking for more efficient supply chains to offer faster delivery times, American Associations of Port Authorities CEO Kurt Nagle said. 

"Certainly there’s been a trend toward being able to accommodate major distribution centers that can provide the ability to meet demands in terms of e-commerce," Nagle said. "Ports are looking at that and really focusing in terms of their business on how they are able to serve that growing market." 

Meeting that growing demand requires major infrastructure investment. The Port of Virginia is undergoing a $700M expansion that will increase its total capacity by 40% by 2020, Reinhart said. The Port of New York and New Jersey is about halfway through a $4.3B capital investment plan, according to CBRE, most recently completing the renovation of the Bayonne Bridge to allow larger ships to pass underneath.

Port of Virginia
A rendering of the expansion project at the Port of Virginia's Virginia International Gateway terminal

Similar expansions are happening across the country. Nagle said AAPA members, along with their private sector partners, are poised to invest $100B over the next five years in improving their infrastructure. But completing those projects also requires significant federal investment. Nagle said his identified $66B of necessary federal spending in port-related infrastructure. 

President Donald Trump has been promising an infrastructure bill since the campaign, and in Tuesday's State of the Union address he called on Congress to put forward a $1.5 trillion infrastructure package. To help make that proposal a reality, Nagle said the AAPA is actively pushing the issue in Washington. 

Nagle said ports will not be able to meet the growing demand without that federal investment, and a failure by Congress to pass an infrastructure bill could do serious damage to the U.S. economy. 

"The cargo moving through all of our ports throughout the country accounts for just over a quarter of [the] nation's GDP," Nagle said. "It's a vital, significant part of our economy and supports 23 million jobs including industrial real estate. That part of our economy and jobs is at risk. It certainly hurts our international competitiveness if we’re not able to get through supply chains in and around ports out to international markets." 

Reinhart, Nagle and Bodnar will speak on the Diving Into Ports and Shipping panel at Bisnow's full-day National Industrial and Logistics Summit Northeast event Feb. 20 at One Hudson Square in New York City.