Logistics and Lodging Have Never Been More Closely Intertwined
By Strategic Passive Investments
As Christmas neared in December 2021, everyone started to wonder what the holidays would look like. Thanks to the emergence of yet another COVID-19 variant – this one more contagious but, thankfully, likely less severe than the previous wave of “Delta” – and ongoing supply chain issues due, in large part, to the behemoth horde of container ships in a holding pattern off the west coast, everyone waited with bated breath to hear whether there would be any Christmas cheer on the air and on the shelves in time for the holiday season. CBS News jumped on the shortage-reporting bandwagon early, warning that there were 13 things that would probably be missing from your yuletide joy, and the “shortage alerts” just kept coming. Citing issues with televisions, gaming consoles, laptops, turkeys, and even artificial Christmas trees, soon everyone was out bulk-buying dressing mix and sweet potatoes (not to mention hams and frozen turkeys) in hopes of preserving the holiday season.
Make no mistake: There were empty shelves this past holiday season. While there was not the same type of panic-fueled buying that led to the Great TP Shortage of 2020 that is still causing fast-food providers to only provide napkins upon request, there were certainly some items (like ham) that a lot of people did not find in the stores this holiday season. The bigger takeaway than just “order your celebratory meat online and early next year,” however, is that the business of logistics – shipping and freight logistics specifically – is going to be more important than ever in 2022.
For real estate investors in general and especially those in the southeast, the supply-chain issues were relatively minor as they related to shipping and consumer goods other than computers and cars (yes, big exceptions), but the bigger issue for every sector and every region of the country is, of course, “What about the product?” Whether said product is microchips for cars, the cars themselves, or just what to do when shortages morph into gluts and there is nowhere to put the overflow, investors who invest in 2022 with an eye to the freight and logistics industries will be in prime position to deal with future complications and challenges while owning assets that help solve real-world problems.
Follow the Freight
At this point, most Americans probably know far, far more about cargo ships, ports, and how freight moves across the country than they ever expected to, but what is getting far less attention is how some ports are getting this done much more efficiently than others. According to FreightWaves.com, in 2020, ports around the United States created 2.2 million jobs and generated about $5.4 trillion in economic activity. That number is expected to rise astronomically for 2021 once all the data is in. While there are dozens of international ports contributing to that cumulative performance, by October 2021, the Ports of Los Angeles, Long Beach, New York and New Jersey, Savannah, and the Northwest Seaport Alliance Seattle and Tacoma ranked in the top five ports in the country according to PortTechnology.org.
Why is this important?
Notice that three of the five ports on the list are out west; one is in the northeast, and one, the Port of Savannah, is located in the southeast. And yet, the Port of Savannah is the largest and fastest-growing container terminal in America and holds its own, thanks to a huge network of supporting terminals and inland “dry ports” that help get goods off the water, onto the docks, into trucks and trains, and out for delivery. No wonder that the port is going great guns into 2022; it is emerging as an international alternative to other, more established import/export locations and its continued success is wholly contingent on growth not only in its sector but also in local real estate sectors and logistics.
“Savannah is the fastest-growing market in the country [for warehouse leases] in terms of how quickly new leases are being signed compared with existing inventory,” said James Breeze, head of research for industrial real estate services firm CBRE. Breeze noted that continuing population shifts toward the southeast are helping the port and associated supporting sectors fill the jobs necessary for the Savannah market to “snag a larger share of imports” from other countries that have traditionally shipped to the West Coast.
The southern port benefits from a vast inland ports shipping system, which keeps the cost of housing for those employed in freight and shipping relatively low since they do not necessarily have to cram into small, coastal areas, and also provides companies with the option of spreading out their resources so that they can find more employees. Breeze noted that many inland cities are seeing stronger demand for warehouse real estate and other logistical services as coastal companies shift their operations farther and farther onto dry land.
Although the Port of Savannah, like every other port in America, dealt and continues to deal with supply-chain issues due in large part to a shortage of truck drivers and warehouse employees, local developers and businesses are working hard to fill the gap. Companies are hiring daily, and developers are rushing to create residential options for those new employees. With planned developments in both South Carolina and Georgia, the Port of Savannah and its associated terminals are in a prime position to lure desperately needed workers to the area and keep them, thanks to temperate climate, relatively low cost-of-living, and access to competitive, affordable single-family housing options.
How to Make the Most of This Crazy Market
For real estate investors looking to make the most of supply-chain opportunities in 2022, watch the warehouse, logistics, and related residential markets for the best chances for success. In these areas, even if there is a glut in the market in terms of a particular product, those service providers are still going to be in high demand and the real estate associated with those sectors is likely to hold onto its “heat” long after any economic volatility has settled – not that we are terribly close to that happening!