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Seaports Prove to be Safe Harbors for U.S. Industrial Real Estate Sector, Despite a Turbulent Global Economy

10/18/2012

 

Seaports Prove to be Safe Harbors for U.S. Industrial Real Estate Sector, Despite a Turbulent Global Economy

Port of New York and New Jersey tops Jones Lang LaSalle index for first time in four years

HASBROUCK HEIGHTS, N.J., Oct. 18, 2012 —Competition for market share of inbound shipping remains fierce among U.S. ports, especially as the East Coast gears up for an expanded Panama Canal and trade flows continue to shift among developed and emerging countries, according to Jones Lang LaSalle’s fourth annual seaport report.

For the first time in its four-year history, the report, which ranks ports on terminal operation and real estate market factors*, has rated the Port of New York and New Jersey at the top of its list, citing the port’s very large and quickly growing container volume, its excellent rail connectivity, and near-term plans for post-Panamax readiness.

“The Port of New York and New Jersey distinguishes itself from other seaport areas in the country because of the significant amount of space currently under construction and in the development pipeline,” said David Knee, Managing Director for Jones Lang LaSalle’s Industrial Practice in New Jersey. “There is also a tremendous demand for modern, Class A space, and incentive programs such as the Urban Transit Hub and Grow New Jersey are fuelling the positive growth experienced here.”

As of the second quarter, there were three projects totaling 934,000 square feet under construction in the Port of New York and New Jersey (80 percent preleased). There are also two additional spec facilities totaling 614,000 square feet that were recently announced, and 14 facilities amounting to about 7.1 million square feet are currently proposed.

The tremendous amount of capital investment being made to the Port of New York and New Jersey is another reason why the area tops Jones Lang LaSalle’s Index. In the most prominent effort, the Bayonne Bridge is being raised from a clearance height of 151 feet to 215 feet tofacilitate access by post-Panamax cargo vessels at a cost of $1 billion with an expected completion date in the fall of 2015. Other projects include the dredging of the Kill Van Kull and Newark Bay channels, the ExpressRail project, which will allow for double-stacked rail service between the port and the Midwest, and Global Terminal & Container Services’ expansion of the Global Terminal Port Jersey in Bayonne by developing 70 acres to accommodate a new container terminal.

“These expansive and forward-thinking projects are preparing the Port of New York and New Jersey to be a leading choice for businesses well into the future,” said Bob Silverman, a Senior Vice President with Jones Lang LaSalle’s Supply Chain & Logistics Solutions group. “Industries requiring rapid ship-to-shore delivery can rely on these properties that are within the heart of a prime transportation corridor.”

The Port Index: opportunities ahead

As reported in the firm’s earlier studies, commercial real estate surrounding major U.S. seaports continues to outperform the broader industrial market. The report, which analyzes the health of major domestic container seaports and their surrounding real estate, also uncovers that:

  • Exports are creating inland development opportunities – U.S. exports are now creating back-haul opportunities and are driving new connections between domestic maritime ports, inland destinations and their surrounding distribution real estate markets
     
  • Investment is pouring into ports At least $13 billion of public investment is earmarked for port development in the next decade
     
  • Limited options are available for large space users Only 20 blocks of space are available for users requiring 250,000 SF within five miles of a major U.S. port

 

“Developers, investment interests and supply chain executives remain optimistic about our nation’s seaports,” said John Carver, Head of Jones Lang LaSalle’s Ports Airports and Global Infrastructure (PAGI) group. “Influenced by an evolving maritime logistics industry, global and trade transformations such as the extension of the Panama Canal and growth of U.S. exports, they see a bright long-term future. Capital is being poured into seaport infrastructure from both the private and public sectors, responding to increased demand for port-centric warehouse and distribution space.”

Ports like Seattle, with strong demographics and a sizeable consumer base within a 24-hour trucking window have remained high on the Index. Similarly, others that are competitive shipping destinations, such as Houston, Miami and Baltimore, are moving to re-establish more solid industrial leasing and investment conditions. Ports that may not benefit from immediate large populations such as Hampton Roads, Jacksonville, Savannah and Charleston remain important throughput hubs to move goods and materials into other parts of the country.

East Coast ports such as Savannah, Charleston, Jacksonville and Baltimore have higher vacancy rates in their surrounding port markets, but have experienced the fastest growth in occupancy over the last 18 months. “We expect development to remain cautious as these markets continue to strengthen over the coming quarters,” said Ahlburn.

Many port markets that experienced significant ‘big box’ development prior to the downturn have not yet been able to burn off their excess construction. Houston, Charleston, Savannah and Jacksonville all have double-digit vacancy rates.

But there are fewer than 10 existing warehouse or distribution facilities of more than 500,000 square feet within a 15-mile radius surrounding the major seaports, according to the report, and fewer than 60 blocks greater than 250,000 square feet. For large users in markets such as Southern California or the Northeast, that means transporting cargo to inland destinations (inland ports) or bidding against other tenants for space.

“This not only provides opportunities to develop smaller distribution centers or redevelop old or obsolete product, but also to evaluate supply chain requirements, adapt potential transportation routes, and assess competitive drayage options,” concluded Carver.

*We based the index on 25 measurable performance metrics, divided into two major categories: terminal operating factors and the corresponding real estate market factors. The resulting index score is then a combination of the performance indicators, providing a subjective measure of a port’s value to Jones Lang LaSalle clients and their customers. For more details on methodology please click

About Jones Lang LaSalle

Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firmoffers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2011 global revenue of $3.6 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices.  The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 2.1 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with $47.2 billion of assets under management. For further information, please visitwww.joneslanglasalle.com.

10/18/2012 - 10:55

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Jones Lang LaSalle

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