From an investor’s perspective, the markets we like have strong trade ties to regions expected to experience faster than average growth over the next decade and markets that have key success factors for e-commerce distribution.
Miami, with its deep connections to South America and Central America, scores the highest in our index score and is the market we feel will provide the most opportunities to capitalize on air-cargo related demand. The airport and surrounding businesses control the food and flower trade and the lack of a single dominant carrier makes room for lots of competition and demand for real estate. The market’s biggest challenge is and will continue to be land constraints. With jet fuel prices as high as they are, air cargo flows will remain somewhat precarious so it will be important that real estate costs do not crowd out the profits of industrial users in the market.
Chicago scores second highest in our index. And although growth in cargo volumes has been lackluster over the last 18 months, the airport and the surrounding market have a number of enduring strengths. First, the airport is a major international gateway, and with that comes diversification in air carriers. In 2011, 44 carriers moved at least 1,000 metric tons, a mark bested only by Miami with 50. Added to this are Chicago’s large population base, central geographic location, complimentary rail assets and enormous industrial market. These all combine for excellent demand generation near O’Hare Airport. One concern for the market is the prevalence of obsolete space. Significant demand exists for modern space near the airport, but rents are not currently high enough to justify demolition and redevelopment.
Memphis is another market with huge upside potential in the long term. It is the prototypical integrator-dominated market with over 99 percent of the cargo volume carried by FedEx. The industrial real estate market exists for the most part within a 15 minute drive of the airport and over a third of the industrial space is ‘big box.’ This success of this market is all about connectivity; between the massive confluence of class I rail lines and FedEx’s ‘SuperHub,’ Memphis is in the distribution sweet spot. FedEx continues to offer better and more complete service to businesses, acting as a ‘super-3PL’ able to deliver on all aspects of the supply chain. Memphis’ superior connectivity makes it an ideal place to conduct e-commerce and traditional distribution. The market’s biggest challenge is that land availability is relatively unconstrained and that has led the market to one of the highest vacancy rates in our study, and a higher equilibrium vacancy rate in the long term.
Senior Director, Research
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