Industrial warehouse properties near many U.S. seaports are suffering higher vacancy rates and financial setbacks as the flow of cargo to U.S. ports has dropped by roughly 15% from last year. But better days are in store for warehouse investors as the ports fight back with ambitious improvement projects, spending billions of dollars to gear up for a projected jump in traffic over the next decade.

Eastern U.S. seaports are expected to benefit most from the $5.25 billion widening of the Panama Canal to allow bigger cargo ships and faster passage through the canal's locks. From Charleston, S.C. and Savannah, Ga. to Jacksonville, Fla. and up to New Jersey, port authorities have been dredging their harbors to accommodate larger vessels, and expanding their facilities.

“We are in the middle of one of the largest capital investments in our history. We're going to spend $100 million through the end of this year, and $63 million next year,” says Wade Elliott, senior marketing director for the Port of Tampa.

Tampa's channel, one of the deepest in the Gulf of Mexico at 43 feet, already has attracted new container traffic and bolstered Tampa's position as a major distribution center for companies like Ace Hardware, based in Oak Brook, Ill. and Atlanta-based Home Depot.

Furniture retailer Rooms to Go, based in Seffner, Fla., plans to add 700,000 sq. ft. of warehouse space to the 3.2 million sq. ft. it already holds near the port. In all, more than 40 million sq. ft. of new distribution center space sits in Tampa's development pipeline.

Other ports can scarcely wait for the projected increase in cargo after the Panama Canal expansion is completed in 2014. “[Cargo] volume in the United States this year is down double digits, by 10% to 15% — at some ports higher than that. That's been a tremendous economic hit. It's been a very difficult year,” says Aaron Ellis, spokesman for the American Association of Port Authorities based in Alexandria, Va.

Widening of the Panama Canal will shift more traffic to Eastern U.S. ports, which are closer than long-dominant Southern California ports. “The changes are going to be immense and global,” says Ellis.

The Port of New York/New Jersey has spent more than $2 billion to deepen its harbor to 50 feet and to upgrade its rail terminals, according to a study of ports and global infrastructure by Chicago-based real estate services firm Jones Lang LaSalle. The vacancy rate for industrial warehouse property near the port has risen 100 basis points since late 2007 to 7%, still low compared with other East Coast ports.

In contrast, the vacancy rate at the Port of Savannah is 13%, and 12.1% at the Port of Charleston, notes Jones Lang LaSalle. The Ports of Long Beach and Los Angeles register warehouse vacancy rates of 4.8% and 5.4%, respectively.

In 2008, container volume flowing into the Long Beach port fell 13.2% from 2007 levels, the port study shows. In 2008, net absorption was negative 1.2 million sq. ft., and negative 700,000 sq. ft in the first quarter of 2009.

Despite the setbacks, ports need to invest for the future, says Craig Meyer, managing director and head of industrial brokerage for Jones Lang LaSalle. “Global trade will continue to grow, and these ports have to anticipate traffic not next year or the year after, but 10, 15, 20 years down the road. That's the kind of infrastructure that's got to be built.”

In Progress: Loma Linda Medical Office Building

DEVELOPER: Frauenshuh HealthCare Real Estate Solutions

LOCATION: Loma Linda, Calif.

SIZE: 160,000 sq. ft., five-story medical office project

BUZZ: The $20 million medical office building will be built on the campus of Loma Linda University Medical Center to serve patients in fast-growing Southwest Riverside County. Meanwhile, the 106-bed hospital is already under construction and is also expected to be completed in two years.

PROJECTED COMPLETION: 2011