Full steam ahead: How commercial real estate is preparing for the renovated Panama Canal
Sep 19, 2013
The Panama Canal has buoyed U.S. maritime trade for nearly 100 years and stands as a pillar of American determination and ingenuity. But since container vessels have grown in size and the number of shipments increased, Panama launched a $5.25 billion project to expand the canal to increase the number and size of ships capable of passing through the channel.
The project will add two new locks and a third lane, as well as widen and deepen the canal to accommodate Post-Panamax ships, which carry three times the amount of cargo of current canal vessels. The expansion project is slated for completion in 2015, and has already spurred development throughout the U.S. to handle the increase in shipments. And while this development is concentrated in the obvious places, like East Coast ports, developers all the way out in Chicago are preparing for the aftershock of the canal’s increased trade flow.
How canal expansion will impact U.S. infrastructure and commercial real estate
The Panama Canal expansion means a greater volume of trade items traveling from the Pacific to the East Coast. The U.S. will need to prepare for the influx of cargo by upgrading and building more comprehensive transport and storage systems around the country, creating opportunity for investors and developers. The topic is so important, Vice President Joe Biden is currently making the rounds to ports around the country to discuss the importance of infrastructure upgrades to support the canal expansion. Here are the five infrastructure and commercial real systems most impacted by canal renovations.
- Ports: Since more ships will be able to sail through the Panama Canal, East Coast ports will experience an upswing in the number and size of cargo ships docking and unloading. At the moment, only the Norfolk, Virginia port is designed to handle this capacity, meaning ports in New Jersey, New York, and Miami are frantically renovating in order to comply with Post-Panamax ship standards. Property owners in port areas are undertaking expansion projects, increasing the depths of channels and raising bridges.
- Rail systems: As larger numbers of imports float their way onto U.S. soil, companies will need more ways to efficiently transport these items across the continental U.S. At the moment, the rail system is the cheapest method to transport items by land. Developers are already in the process of constructing more rail systems and additional warehouses alongside the tracks to prepare for anticipated demand as more commodities enter the U.S. along the eastern seaboard and Gulf coast.
- Intermodal centers: In order to efficiently organize and transport items, organizations utilize intermodal points where a plethora of shipping methods converge. With an increase in imported items, developers might need to construct more centers to handle the rise in demand.
- Highways: Once goods reach certain intermodal points by train, they’re typically delivered by truck, making highway infrastructure just as important as rails. As the number of trucks on the roads rises, highway maintenance and development will also increase to support the extra weights adding to wear and tear on the highways.
- Warehouses: More merchandise needs more storage. In some markets, where warehouse vacancy rates are high, this means more tenants and reduced rates. In areas already pressed for warehouse space, expect a jump in construction. For example, Jones Lang LaSalle is predicting a jump in warehouse construction in the Port of Virginia over the next 18 months.
How the Panama Canal expansion affects the Midwest as much as the East Coast
At the moment, the majority of products shipped to the Midwest travel on rail directly from western ports. As a higher volume of products sail eastward through the canal, Midwesterners might find more goods traveling from East Coast ports or north out of Houston. A new Houston to Chicago route would trim 1,000 miles off the journey most goods currently take from Los Angeles to Chicago.
As distributors seek the best intermodal points for distributing goods, Chicagoland is a major hub that could run point on the imminent influx of goods. Chicago boasts a high concentration of logistics companies and freight brokers, and nearby Peoria, Ill. was ranked seventh in the U.S. in terms of exports (warehousing and distribution activity) by the Foreign-Trade Zones Board. More goods shipping west through Chicago could be good news for the Midwest’s office and industrial sectors.
The Panama Canal expansion will ship even more products to Eastern Ports. In order to prepare for the increase in goods, developers will need to strengthen infrastructure and potentially construct new industrial spaces, all of which could also potentially drive ancillary development. In the end, the expanding canal will expand opportunities not only along the Eastern seaboard and Gulf coast, but also in the heart of the country.
