As market uncertainties mount, investors are turning to industrial port markets as a safe spot to park capital, with locations in Florida, Southern California and New York/New Jersey leading the way.
JLL data shows that port markets posted a 23% year over year increase in asking rents in the first quarter, as opposed to a 16% uptick for non-port cities. Miami posted a 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.
In addition, 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,” says 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.”
Coastal cities also provide a solid hedge for investors looking to lock in long-term NOI growth, according to JLL, despite a pricing premium of nearly 40-basis points. And analysts from CommercialEdge recently opined that any shrinkage in the industrial buyer pool is unlikely to impact pricing until rent growth cools and buyers cease including big rent gains in underwriting.
“Industrial assets in port markets are trading for a premium,” says 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.
Notably, Amazon’s reported pullback of industrial space is likely to offer tenants some relief in tight port markets like Los Angeles, Orange County (and nearby Inland Empire) as well as New York/New Jersey. In late May, Bloomberg reported that the recent slowdown in e-commerce sales back to pre-COVID levels left the company with a glut of industrial space, including warehouses in New York, New Jersey, Southern California, and Atlanta.