When transportation infrastructure is built or modified, the results can be far greater than smoother roads and wider canals. The real estate industry that is routinely affected by transport projects, both in terms of development and property value. For instance, if a neighborhood is made more accessible by train, more buildings may be built to accommodate growing numbers of residents and businesses, and existing property values may rise. With waterways, the situation is similar, with more space needed to support the storage and distribution of commodities.
Enter the Panama Canal, which, for the first time since its construction over a century ago is undergoing significant renovation. The canal’s current expansion, called the Third Set of Locks Project, is intended to accommodate larger “post-Panamax” cargo ships. In doing so, the project will directly impact port cities along the East Coast by creating more opportunity for trade, rivaling that of the West Coast. In Eastern US, this has already lead to a boom in industrial real estate.
The expansion, almost a decade in the works, will double the canal’s capacity by opening a new lane of traffic. This means that in addition to larger ships, there will be ample space for more panamax and post-panamax vessels. Between this increase in size and number, room for cargo will double. After its proposal a decade ago and subsequent construction, the project is expected to be complete around May of 2016 according to Panama’s President Varela.
The industrial impact
As larger ships prepare to dock in city ports, the opportunity for wider distribution of goods, and the potential for further profit, is as expansive as the project itself. But in order to optimize these changes, cities need to adapt. This means building and developing industrial spaces in and around port areas.
Industrial real estate is a form of commercial, for-profit real estate that includes factories, plants and warehouses. Though the canal won’t open until May, a date that has been set back several times already, preparing for its reboot will likely be a smart move for investors, property owners, and those in business periphery to trade and manufacturing.
Over the last five years, the average price of warehouse space and distribution has risen 50 percent, while the asking rent for industrial property has risen 20 percent in coastal cities. In the last two years sales volume tripled, and 46 million square feet of new space was added. These figures indicate that the growth in industrial real estate is in full swing, partly in anticipation of the canal’s opening.
As the gateway between South and North America, Southern Florida is a good case study for real estate potential. The increased cargo demand there is expected to increase demand for all types of real estate, including industrial, office, shopping centers and apartments.
Other North-Eastern cities are due for similar expansion. It’s estimated that Norfolk, Virginia is one of the cities with most to gain, as the region has ample space to build upon and expand.
Analysts disagree on whether or not the benefits of the expansion will be reaped right away, or little by little over the course of a decade or more. Whatever the case, investment in industrial real estate will likely pay off due to the growth of e-commerce, which also boosts the demand for warehouse space, storage, and distribution facilities.
Both before and after the canal’s reopening, we can expect the trend of investment in industrial real estate in coastal cities to continue growing, along with periphery businesses. As it progresses, developers will likely incorporate more efficient design and smarter locations to bring down the costs of the supply chain.
At least one thing remains certain: a century ago, property and distribution needs were hugely different than they are today. The Panama Canal’s 21st century upgrade will reflect the needs of our age in both its modernized operation, and the real estate developed to accommodate it.
Featured image: World Bank via Flickr