Investors eye industrial assets in port cities as market fluctuates
As market uncertainties increase, investors are turning to industrial port markets as a safe place to park their capital, with locations in Florida, Southern California and New York/New Jersey leading the way.
Data from JLL shows that port markets posted a 23% year-over-year increase in asking rents in the first quarter, compared to a 16% rise for non-port cities. Miami released a 53.3% year-over-year increase in rent growth, followed by Los Angeles with 45% growth, Orange County with 27%, New York/New Jersey with 26% and Boston with 22.9% to complete the top five.
In addition, 22.1% of total new inventory built in the industrial market during the first quarter was delivered to port markets.
“Pent-up demand from investors and occupiers from the pandemic, as well as the delivery of new buildings to the market, have driven up asking rents,” says John Huguenard, Senior Managing Director, JLL Industrial Co-Leader in Property Markets. capital. “This ultra-competitive environment continues to drive average asking rents in port markets to new heights.”
Coastal cities also offer strong cover for investors looking to lock in long-term NOI growth, according to JLL, despite a price premium of nearly 40 basis points. And CommercialEdge analysts recently estimated that any shrinking pool of industrial buyers is they are unlikely to have an impact on prices until rent growth slows and buyers stop including large rent gains in underwriting.
“Industrial assets in port markets are trading for a premium,” said senior managing director Trent Agnew, JLL’s co-industrial leader in capital markets. “Despite the fact that port markets are more expensive, they still present themselves as a better long-term game for investors. The lack of land available for development, along with other impediments to new supply, are expected to drive real estate fundamentals well beyond 2022.”
Tenants whose operations are closely tied to the ports have demonstrated their commitment to their space by extending leases, causing increases in demand as other tenants seek to enter the field. This is particularly evident in the industrial markets of Los Angeles and Long Beach. Additionally, markets near recently expanded ports are also experiencing the strongest growth in demand for industrial space.
Notably, Amazon’s announced withdrawal from industrial space is likely to offer some relief to tenants in tight port markets like Los Angeles, Orange County (and the nearby Inland Empire) as well as New York. /New Jersey. At the end of May, Bloomberg reported that the recent slowdown in e-commerce sales to pre-COVID levels has left the company with a glut of industrial space, including warehouses in New York, New Jersey, Southern California and Atlanta.