Amid tariff turmoil, these warehouses are in big demand in L.A.
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As steep tariffs on imports throw Los Angeles-area ports into turmoil and chill industrial property leasing, one rare type of building is suddenly in hot demand — bonded warehouses where goods can be stored without paying tariffs until they are removed.
Key personnel at bonded warehouses have to undergo background checks and the operator must put up a bond to protect potential government duty revenue. The customs bond typically starts at about $100,000.
Tariffs are otherwise assessed as soon as imported products touch American soil and the current 145% tariff rate on Chinese goods and the 10% across-the-board tariffs that apply to nearly all nations are expected to dramatically reduce imports at the ports of Los Angeles and Long Beach over the next few weeks.
But some importers who are still receiving shipments are scrambling to rent space in bonded buildings where they hope to buy time for the tariff tensions to ease, industrial property broker Danny Reume of JLL said.
Key drivers of Los Angeles’ economy — trade and logistics — will be hard hit by the tariffs announced by the Trump administration, economists say.
“There’s been an absolutely crazy increase in demand for bonded space,” Reume said. “Everybody wants to bring their goods here in advance of what they hope is a resolution” of the tariff war.
The importers aim to keep their goods in these warehouses for a month or two until the trade conflict is settled, he said. At worst, the importers expect to take their goods out of the bonded warehouses a little at a time and pay the tariffs as they go, while keeping the rest of their imports away from the tax man.
Unfortunately for importers, only a “tiny” fraction of the roughly 2 billion square feet of industrial property in the region is bonded by U.S. Customs and Border Protection, Reume said.
Typically, bonded warehouses are used by importers that bring in goods from one country before bundling them and shipping them to another country without having to pay tariffs. Importers may also perform some limited assembly or other improvements to goods in bonded warehouses.
Although many importers are canceling orders or sending goods back to China before they’re unloaded, others are electing to bite the bullet and pay to bring their orders ashore because they don’t want to strain their hard-won relationships with huge national retailers by not giving them the goods they promised or trying to raise their wholesale prices, Reume said.
“Suppliers are eating a lot of these tariffs,” he said. They assume the tariff war will ease eventually, though, and if shelves are going bare at some stores because importing has gotten too expensive, the suppliers want to have their products nearby when tariffs are reduced.
“Everybody wants to bring their goods here and store them close in the Southern California market, banking on the fact that this is going to get resolved in the next 30 to 60 days.”
Duties can be deferred for up to five years and are paid based on the rates in effect at the time of withdrawal from a bonded warehouse, which is the main attraction for businesses trying to avoid being financially drained by current tariffs.
“The Trump Administration’s tariff changes are significantly reshaping import costs and supply chain strategies across industries,” French international transportation and logistics company Geodis said in a recent report on bonded warehouses. “With base tariffs on most imports and targeted tariff increases for specific countries, businesses face substantial challenges with cost management and cash flow optimization.”
Warehouse operators who want to get their buildings bonded to serve the surge in demand probably won’t be able to go through the process anytime soon.
The Port of Los Angeles could see a 35% drop in imports in just two weeks following a surge in goods to beat the tariffs.
The application process can take several months, Geodis said. Properties must meet certain physical requirements for ingress and egress, as well as fire safety and security requirements.
Geodis has more than 50 million square feet of warehouses in the U.S., but none of them are bonded — something the company is looking into changing, said Brian Riley, senior vice president of customs brokerage.
“The issue is, how long does that take, versus the need for this if China tariffs were to drop to 10% like all the other reciprocal tariffs,” he said. “Then, I would bet that the interest in bonded warehouses would drop substantially as well.”
Currently, though, “the interest in bonded warehouse has skyrocketed compared to what it was a year ago.” Riley said.
Demand for warehouses used to move goods through Los Angeles County ports is expected to fall if widespread tariffs take effect, potentially damaging the economic vitality of one of the world’s largest industrial real estate markets.
Another way to delay tariff payments is to import goods directly to federally approved foreign trade zones. A key difference with bonded warehouses is that duty prices are typically locked in at the rate applicable at the time of admission to a foreign trade zone, Geodis said. The zones do, however, allow goods to be stored indefinitely.
The overall demand for warehouses used to move goods through Los Angeles County ports is expected to fall as widespread tariffs take effect, potentially damaging the economic vitality of one of the world’s largest industrial real estate markets.
The leasing of buildings used to collect and distribute imported goods has slowed at least temporarily as businesses wait to see whether the tariffs hold at their announced rates or ease through negotiations.
Demand for warehouses used to move goods through Los Angeles County ports is expected to fall if widespread tariffs take effect, potentially damaging the economic vitality of one of the world’s largest industrial real estate markets.
Port officials predict a dramatic drop in trade in the days ahead. Gene Seroka, executive director of the Port of Los Angeles, told the Board of Harbor Commissioners last week that “arrivals will drop by 35% as essentially all shipments out of China for major retailers and manufacturers have ceased, and cargo coming out of Southeast Asia locations is much softer than normal,”
The effect of these tariffs is different from supply shocks that suddenly alter the supply of goods or services, such as natural disasters, wars or disease outbreaks, according to a real estate economist.
“Unlike a true supply shock, higher prices from tariffs will not lead businesses to scramble for additional inventory,” economist Shawn Moura of
real estate trade group NAIOP said in a report.
“Inventory levels were already higher from importers seeking a buffer against tariffs and are likely to trend lower. If companies have not fully worked out where they will get new supply when current inventory is exhausted, near-term shortages may contribute to higher prices, on top of price increases due to tariffs.
“Shortages may come sooner than expected if consumers rush to buy goods before prices fully adjust to the new tariffs,” Moura said. “Disrupted supply chains may also contribute to near-term shortages and delayed deliveries of construction materials.”
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