Seaports and Real Estate
Despite growth plans and global trade optimism, the economic meltdown has diminished warehouse and distribution space demand around U.S. ports to critically low levels. From 2009 to 2010, average vacancy rates escalated by 1.6 percentage points to 9 percent as tenants shed excess space, consolidated operations, or ceased business altogether. Still, the figure remains below the U.S. national average vacancy rate for industrial real estate of 10.4 percent.
For the second consecutive year, net absorption increased by a negative 2 million square feet for a total negative 3.9 million square feet in 2010. Despite some inventory replenishment, demand has yet to return to most major port markets, and asking rents declined by an average 7.1 percent, with the largest losses in the markets surrounding the ports of Los Angeles, Long Beach, and Charleston. These ports, along with Virginia and Tacoma, posted the highest year-over-year losses from 2008 in total container volumes, demonstrating the correlation between port through-traffic and industrial real estate vacancy rates.
But there are some encouraging long-term opportunities on the horizon, especially for leasing and investment near ports for the heavy-hitting East and West Coast ports, along with the emerging ports of Gulfport, Mississippi; Mobile, Alabama; and Port Manatee, Florida on the Gulf Coast, and Philadelphia on the East. Ports with multimodal capabilities and proximity to large regional population bases, such as Hampton Roads and Savannah, will be in a strong position to grow as trade rebounds.
The Story with Airports
We found a similar story with airports, as real estate around the country's airports was affected by recent economic shockwaves. Global air freight traffic grew at the slowest rate in nearly a year in September, expanding 14.8 percent over last year, but falling 2.1 percent from August. September marked the second straight month-to-month decline in overall air freight traffic, leaving air freight volume 6 percent below the 2010 peak set in May, the International Air Transport Association said. The PAGI report found that as the recession abated, the air cargo industry experienced some improvement in volumes, driven mainly by inventory restocking. But this has yet to result in any push to absorb space surrounding airports.
It's not a secret that diminished global cargo volumes negatively affect the demand for logistics and warehouse space around airports. In fact, average vacancy rates at top U.S. airports are up an aggregate of 80 basis points year-over-year, keeping 2010 net absorption in negative territory. But this year has shown improvement, and we expect the market to be ready to take off again by late 2011.
Top U.S. Airport Markets
Some airport markets, such as JFK in New York and Newark in New Jersey, have remained buoyant due to their proximity to dense populations and low vacancy rates. JFK has the lowest vacancy rate at 3.3 percent, but is the smallest market surveyed considering its constrained location along the water. Anchorage, with a 4.5 percent vacancy rate; LAX with 5.5 percent; and Newark, with 7.8 percent are also dominant. JFK records the highest asking rents, starting at $13.30 per square foot (psf), Anchorage at $11.28 psf, and LAX at $10.59 psf.
Memphis is the world's leading airport in terms of metric tons of container traffic, according to the Airports Council International. The Asian airports of Hong Kong; Shanghai; and Incheon, South Korea follow.
The real estate surrounding Memphis airport remains flat, with relatively unchanged vacancy rates of 15 percent and low rental rates starting at $2.18 psf. While Memphis is the world's leading cargo airport, it was negatively affected by the fall in cargo traffic. However, with cargo volumes healthier than in previous quarters, heavy investment in intermodals, and some strong recent leasing activity, the industrial real estate market surrounding the airport is expected to continue to rebound in the next three to six months.