Industrial real estate has been the one of the most sought-after property types nationally, leading to record low vacancies and increased competition among investors and tenants. When it comes to selecting a market for industrial investment, port markets are emerging as the safe bet for investors to park capital due to the positive rental growth profile.
With an average vacancy of 2.8%, port markets were well below the national average of 3.4% for industrial product at the end of the first quarter of 2022. Additionally, looking at new construction rates, 22.1% of total new inventory constructed in the industrial market during the first quarter was delivered in port markets.
“Both pent-up investor and occupier demand from the pandemic along with new buildings being delivered to the market have boosted asking rents,” said Senior Managing Director John Huguenard, JLL’s industrial co-leader in capital markets. “This ultra-competitive environment continues to drive average asking rents in port markets to new highs.”
When it comes to year-over-year rental growth, port markets saw a 23% increase in asking rent, while non-port markets rose 16% comparing the first quarter of 2021 to the first quarter of 2022. Leading the port markets is Miami, with a whopping 53.3% year-over-year increase in rental growth, followed by Los Angeles with 45% growth, Orange County with 27%, New York/New Jersey with 26% and Boston with 22.9 percent to round out the top five.
“The New York and New Jersey Port market has the lowest vacancy rates and one of the strongest year-over-year rent growth stories,” said Managing Director Marc Duval with JLL Capital Markets. “It’s evident with consecutive record setting per-square-foot pricing in our last two port market transactions, 900 Fairmount in Elizabeth and 120 Frontage in Newark, investors are chasing port locations and growth fundamentals. Due to transportation costs rising and the flight to core locations becoming more of a focus, investor demand for port assets is at an all-time high.”
While recent interest rate increases have impacted the sector, the effects on pricing and overall investor demand will not be homogenous across markets. Additionally, these coastal cities represent an attractive opportunity for investors looking to secure long-term NOI growth, despite a near 40-basis point pricing premium.
“Industrial assets in port markets are trading for a premium,” added Senior Managing Director Trent Agnew, JLL’s industrial co-leader in capital markets. “Despite the fact that port markets are more expensive, they still present themselves as a better long-term play for investors. The lack of available land for development, as well as other barriers to new supply, is expected to drive property fundamentals well beyond 2022.”
Tenants with operations that are closely tied to ports have demonstrated commitment to their space by extending leases, causing demand surges as other tenants seek to enter the playing field. This is especially evident in the Los Angeles and Long Beach industrial markets. Additionally, markets near recently expanded ports are also experiencing the strongest growth in demand for industrial space.
“Despite a pandemic and global supply chain disruptions, many ports are seeing their busiest year ever for containers,” said Nick Rita, manager, JLL capital markets industrial research. “Southeast ports are seeing jumps in TEU volume, as congestions hinders other major ports along the West Coast.”
JLL Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether investment sales and advisory, debt advisory, equity advisory or a recapitalization. The firm has more than 3,000 Capital Markets specialists worldwide with offices in nearly 50 countries.
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