While the economic downturn caused global cargo levels to drop and the demand for logistics space around the nation’s airports to decrease, airport real estate is still poised for take off in 2011, according to a new report from Jones Lang LaSalle. As the recession recedes, the air cargo industry has experienced improvement in volumes, mainly driven by inventory restocking, but this has yet to result in any push in space absorption around airports.
“It’s no secret that the decrease in global cargo volumes has negatively affected the demand for logistics and warehouse space around airports,” says John Carver, head of the Ports Airports and Global Infrastructure (PAGI) group at Jones Lang LaSalle. “These statistics have not helped vacancy rates at the top U.S. airports, which are up an aggregate of 80 basis points year-over-year, keeping 2010 net absorption in negative territory. That said, there has been some improvement this year and we expect that by late 2011the market will be ready to take off again.”
According to Carver, in August 2009, there was a bounce in global cargo volumes on the back of re-stocking. “However, figures just released from the International Air Transportation Association (IATA) confirm that they have fallen again, dampening the possible growth that could bring the market back to life this year.”
Some airport markets such as JKF in New York and Newark in New Jersey have remained buoyant due to their proximity to dense populations and low vacancy rates, according to the report, which analyzed 11 of the top airport hubs in the United States.
JFK has the lowest vacancy rates at 3.3% but it is the smallest market surveyed. Other dominant markets include Anchorage with 4.5%, LAX at 5.5% and Newark at 7.8%. This in turn follows with the highest asking rents starting with JFK at $13.30 per square foot (psf), Anchorage at $11.28 psf and LAX at $10.59 psf.
Memphis, headquarters to FedEx, is the world’s leading airport in terms of metric tones of container traffic according to the Airports Council International; it is followed by the Asian airports such as Hong Kong, Shanghai and Incheon in South Korea. The real estate surrounding Memphis airport remains flat with vacancy rates at 15%, relatively unchanged from this time last year and low rental rates at $2.18 psf. With cargo volumes healthier than in previous quarters, heavy investment in intermodals and some strong recent leasing activity, the industrial real estate market surrounding the airport is expected to begin to rebound in the next 3-6 months.
Meanwhile the Dallas Forth Worth airport has experienced industrial vacancy increase with current figures standing at 19.4%. This is the highest figure of all the 11 markets analyzed in the study and is due to an abundance of new development rather than a lack of industrial real estate demand.
“The most successful airports in the future will likely expand their focus to include more multi-modal capabilities and partner to create new development that spotlights integrated logistics or distribution functionality,” says Aaron Ahlburn, who heads industrial research at Jones Lang LaSalle. “It is expected that vacancy levels are cresting in major U.S. airport industrial markets, but true growth may not be realized until late 2011 if consumer demand falters and air cargo numbers continue to fall. Regardless, 2010 is proving to be much better than 2009, with more indicators pointing toward long-term optimism even if the short run outlook is somewhat unstable.”