When choosing a market for industrial real estate investment, port markets are emerging as a safe bet for investors to park capital due to their positive rental growth profile, reports JLL Capital Markets.
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. Also, 22.1% of total new inventory built 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 John Huguenard, JLL senior managing director and industrial co-leader in capital markets. “This ultra-competitive environment continues to drive average asking rents in port markets to new highs.”
Leading the top five port markets is Miami, with 53.3% year-over-year increase in rental growth, followed by Los Angeles with 45% growth, Orange County, 27%; New York/New Jersey, 26%; and Boston with 22.9%. Congestion at West Coast ports is driving freight to Southeast ports, JLL notes.
While recent interest rate increases have impacted the sector, the effects on pricing and overall investor demand will not be homogenous across markets. In addition, 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,” said Trent Agnew, also a JLL senior managing director and 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.”