A tentative agreement between union dockworkers and West Coast port operators appears to have avoided a strike that could have cut into demand for industrial warehouses, North America's hottest commercial property sector.

The Pacific Maritime Association and the International Longshore and Warehouse Union announced late Wednesday that they reached an agreement on a new six-year contract covering workers at all 29 West Coast ports. Both sides must ratify the contract and did not reveal details of the agreement.

Industrial real estate brokers and analysts said the accord could remove a major source of uncertainty that has threatened to reignite pandemic-related supply chain disruptions and further erode demand for warehouses. The industrial market has already started to recede from record occupancy and rent growth amid a slowdown in the broader economy.

The dispute has caused delays in cargo processing amid sporadic work stoppages at the West Coast’s biggest shipping gateways, including the nation’s busiest ports in Los Angeles and Long Beach, as well as others such as Oakland, Seattle and Tacoma. The Port of Seattle reported slowed work over the past week. That has increased demand at some East Coast ports, a dynamic that may ease if the accord is ratified by union workers.

"This settlement should help not only bring some of those importers back to the West Coast, but also help ensure that ports such as Los Angeles and Long Beach will remain the strongest and most relevant ports in the United States," Rustin Mork, a JLL managing director and industrial broker specializing in supply chain issues, told CoStar News. "Groups will continue to expand and diversify across the country to different ports, but it should help keep many shippers here."

Industrial space listed as available for lease across Los Angeles and the Inland Empire combined has increased by about 50%, or 40 million square feet, since the dockworkers contract expired last summer, said Adrian Ponsen, CoStar’s director of U.S. industrial analytics.

"Some of the major eastern and Gulf Coast ports that have been benefiting from troubles on the West Coast may see a short-term dip in import activity," Ponsen said. "But over the long-term, major ports in the Southeast are still likely to achieve the fastest growth in imports because they have more land and labor available to accommodate expansion, as well as the fastest growing local populations."

Los Angeles and Long Beach and the Inland Empire, which combined constitute America's top-ranked industrial hub by square footage, all benefit from the world's largest companies that need to secure available logistics space to not only establish a presence near the ports of Los Angeles and Long Beach, but to distribute products to the region's businesses and 25 million people.

Southern California has about 2 billion square feet of industrial space across Los Angeles, Orange, Riverside and San Bernardino counties, CoStar data shows.

The stalled negotiations provided a boost for ports in New York and New Jersey, Savannah, Georgia, Houston and other ports as importers, worried about the uncertainty of potential work stoppages at ports from California to Washington state, diverted some shipments to the east.

"Leasing and the overall industrial market has softened, and a port strike could have exacerbated that," Mork said. "This hopeful resolution should help avoid a deeper and more significant market downturn."

Port labor issues are only a contributing factor to the slowdown in industrial leasing in Southern California and other West Coast ports, which is driven mostly by softening conditions in the broader economy, Mork said. However, the proposed settlement increases the chances that U.S. industrial real estate markets will rebound from the dip, fueled by the Federal Reserve's decision this week not to raise interest rates that could help turn around the broader economy.

"I wouldn’t put in writing that this settlement will cause a turnaround, but it can only help us strengthen the Southern California industrial market because it will continue to show that these ports are the most relevant in the country for cargo coming from Asia," Mork said. "It’s a positive that should strengthen the market and reduce the likelihood of a major downturn."

Gregg Healy, executive vice president and head of North America industrial for brokerage Savills, agreed that an end to the West Coast labor dispute won't stop decisions by some companies to seek alternative ports.

"This is all about reliability and resiliency," Healy said in an email. "The labor dispute may be resolved for now, but the underlying fear that this could happen again reduces the sense of confidence in port reliability. Other ports will see this as an opportunity to tout their speed and stability."