West Coast Crises’ Impact on Real Estate

Recent and potentially long-term events on the West Coast (especially California) are threatening to do some harm to the U.S. economy, and with it certain aspects of the commercial real estate market.

Recent and potentially long-term events on the West Coast (especially California) are threatening to do some harm to the U.S. economy, and with it certain aspects of the commercial real estate market, and maybe not just in California. Start with an update on the labor dispute between dock workers and the owners of the West Coast docks: things aren’t looking good. At last report, the two sides aren’t talking to each other, and ships are backing up at the nation’s busiest port, the complex at Los Angeles and Long Beach.

The labor kerfuffle is at least getting some attention from the media and government officials as a potential threat to the health of the rest of the economy. After the holiday weekend, Labor Secretary Tom Perez is slated to try to persuade both sides, the Pacific Maritime Association and the International Longshore and Warehouse Union, to return to the negotiating table. Retailers stand to suffer from increasing kinks in their distribution chains, and industrial properties might suffer from cancelled expansions on the part of tenants, or even tenant contraction, if the dispute is protracted.

Labor disputes come and go, but the California drought has settled to near-historic proportions. During 11 of the past 14 years, much of the American West has suffered drought, according to the U.S. Drought Monitor, and California has been hit particularly hard. Much of the state is experiencing what the Monitor terms “Exceptional Drought.” There was a bit of relief in recent weeks, but not very much. One example of how bad things are: According to the California Department of Water Resources, California’s snowpack (snow water equivalent) is currently at 27 percent of normal.

The continuing drought crisis will probably cost billions in lost farm revenue and thousands of jobs in the coming years, although the national food system probably won’t be seriously affected. But even if the damage is confined to California—and it was estimated to be $2 billion in lost revenue just during last year—the situation might affect real estate growth in the worst of the drought-stricken areas as they lose income and jobs, and maybe even population. National retailers and national real estate investors might conceivably face a less promising Golden State in the future, with fewer opportunities for expansion.