JLL report points to growth in airport markets
Global real estate firm Jones Lang LaSalle (JLL) noted in a recent research report that even through the economic downturn has lowered global cargo levels, as well as lower demand for logistics space around United States airports, airport real estate is potentially well-positioned for future growth.
But JLL’s Ports Airports and Global Infrastructure (PAGI) report points out that while the effects of the recession are slowly ebbing, air cargo volumes are seeing some improvement (due in large part to inventory restocking), although that has yet to translate into “any push in space absorption around airports.”
Vacancy rates at the top U.S. airports, according to JLL, are up an aggregate 80 basis points over the last four quarters (through the second quarter of 2010). And while there are some signs of improvement in 2010, the firm said net absorption in most markets is down, with the ones maintaining market fundamentals—like John F. Kennedy Airport in New York and Newark Liberty in New Jersey—doing so due to being in dense population cores with very tight vacancies.
And with what JLL describes as vacancy currently “cresting” in major U.S. airport industrial markets, true growth may not occur until late 2011 if consumer demand and air cargo volumes remain at present levels. Despite a possible lack of growth until roughly a year from now, JLL head of industrial research Aaron Ahlbum said in a statement that 2010 is proving to be much better than 2009, with more indicators pointing to long-term optimism even with a somewhat unstable short-term outlook.
In an interview with LM, John Carver, head of JLL’s PAGI group, said that from a macro-level, airport—and seaport markets—can be viewed as bellwethers in industrial markets than emanate out from them, because markets tend to “blip” out from airport and seaport markets.
“When things slow down as they did a few years ago and then pick up again, they don’t pick up where they left off,” said Carver. “They sort of [start] out again from the main transportation points. We are telling our clients to watch what is happening in the airport markets and then they will…be able to see the curve coming towards them. The airport markets are a distinct property type from other areas, and companies pay a premium to be within zero-to-1.5 miles from major airports, and there is a reason they pay that.
The similarities between each airport location are much more pronounced than they are between an airport and an area outside of the same airport’s region, noted Carver, as the airport real estate market is a sub-market itself.
This report tracks real estate outside airport gates and off the tarmac and out to a 1.5 mile radius, which JLL considers airport-centric markets. These markets, according to JLL, have been performing better than their counterparts in traditional industrial areas.
“We measure performance in these markets by occupancy—or vacancy—levels,” said Carver. “The vacancy rate around the country is as high as 10-to-12 percent, and in the airport markets it is somewhat lower.”
Of the ten airports referenced in the JLL report, the four highest vacancy rates were Chicago/O’Hare, Indianapolis, Memphis, and Dallas/Ft. Worth, with vacancy rates ranging from 14.4 percent to 19.4 percent.
Part of the reason for these higher vacancy rates is due to an “overbuilding of product” during the last cycle, which will take a while to be absorbed, said Carver.
“The good news is, in a sense, that there will not be any new construction in these areas for a while,” said Carver. “And existing tenants are showing a tendency renew their lease in the air and sea markets.”
What’s more, Carver pointed out it was not until four or five years ago that the real estate community began to understand airports and seaports and hone in on the development opportunities surrounding them. 2006 to 2008 were the big building years in airport especially in Chicago and Dallas, he said.
Transportation hubs are generally where the first opportunities often are and can often be a desirable development location, said Carver. He added this is particularly true in Chicago, Dallas, and Indianapolis, where there is no ocean access. And this is the same case, he said, when it comes to intermodal hubs, too.
“The fewer times cargo is touched, the cheaper it is [for shippers] to distribute and at the points where cargo gets shifted from one transportation mode to another is where you will see real estate clusters with 3PLs and package companies, among others,” said Carver. “The tendency has been to build facilities around those transportation modes in metropolitan areas which was the norm 15-to-20 years ago. So now, it so happens a lot of major cities are also major transportation hubs but within those cities you will see development around intermodal, airports, or seaports.”
About the AuthorJeff Berman, Group News Editor Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman
Subscribe to Logistics Management Magazine!Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your entire logistics operation.
Start your FREE subscription today!
2016 State of Logistics: Third-party logistics 2016 State of Logistics: Ocean freight View More From this Issue