The 46-page PAGI report finds that while overall industrial real estate in the US remains volatile and slow to grow, most seaport- and airport-related facilities are recovering and backfilling space, spurred on by steady cargo volume growth.
In addition, warehousing and distribution assets surrounding seaports and airports continue to distinguish themselves in terms of investment value, leasing volumes and rental rate premiums, outperforming the overall sector.
The report's 2011 seaport index, a 100-point measure of the performance of industrial real estate markets around the nation’s top cargo ports, found that the Southern California ports of Long Beach and Los Angeles were the nation's best port real estate markets.
Los Angeles topped the index list with a 95.1-point rating, with Long Beach close behind with a 92.8-point rating. Both ports, which each boasted the lowest vacancy rates of the twelve major ports studied at 6.2 percent, were also the only two ports to top 90 points in the 100-point index rating.
The other two West Coast ports studied, Oakland and Seattle/Tacoma, came in at 74.8 points and 81.1 points respectively. Oakland had a vacancy rate of 8.9 percent while Seattle/Tacoma had a vacancy rate of 7.2 percent.
All of the West Coast ports easily surpassed the national general industrial real estate market vacancy rate of 10 percent for 2011.
Other key findings in the 2011 PAGI report include:
- The global economy remains on fragile footing: rising oil and commodity prices, supply chain disruptions and geo-political strife have created challenges for more robust economic growth, but signs of improvement are emerging. Consumer spending is on the rise and hiring will likely continue at a slow but steady pace, ultimately boosting trade activity.
- Trade activity is still on the upswing: trade drives demand for warehouse space near seaports and airports. Industrial real estate markets in close proximity to sea and airports are recovering more quickly from the impacts of the recession than other peer markets, continuing the ‘coast inward’ resurgence that has characterized the period after the economic downturn.
- Preparing for the future: speed is no longer the only burden of successful movement of goods. Ongoing efficiency improvements in shipping technology, including upgrades to intermodal facilities, increased cold storage capacity, double-stack capable rail lines, and larger container ships and airplanes – all will speed up transit times and reduce costs, especially fuel costs. The Panama Canal expansion is driving port and infrastructure-related improvements along both the Gulf and East Coasts as these ports fight to establish future market share once the new set of locks open.
- The growing importance of P3s: In a growing number of US port and airport markets, public private partnerships (P3s) are being considered, if not already formed, to develop, build, maintain and operate both the real estate and operational assets.
- Seaport markets continue to outperform: again advancing ahead of the general industrial market, which has just eclipsed a 10.0 percent vacancy rate in mid-2011, major seaport-related industrial real estate experienced a 50 basis point decline in vacancy over the last year to reach 8.5 percent, but still remains elevated even above 2009 levels. With continued TEU growth, which is expected into 2012, it is anticipated that further gains will be made in overall occupancy.
- Rising energy costs swing into intermodal’s favor: as population density increases, along with rising energy costs and vehicles on the road, the importance of alternative transportation for goods will be paramount. As such, intermodal transportation has a bright and prosperous future ahead. State and local governments would benefit greatly from contributions and investment, along with private capital, especially in the long term.
- Global economic growth is also resulting in greater air cargo movement: volumes are approaching levels last seen in 2007, prior to the start of the recession. Although cargo carriers were focused on downsizing and consolidating operations in 2009 and 2010, these efforts have largely been completed, and the industry appears to be in growth mode once again. As a result, demand for industrial real estate near major US airports is beginning to pick up, and market fundamentals should continue to stabilize through the remainder of 2011, with stronger demand expected in 2012.