Industrial real estate near airports in the nation’s most densely populated areas could be attractive investments for 2023.
With transportation accounting for up to 70% of overall supply chain costs, businesses are increasingly locating their distribution centers closer to airports, according to CBRE Supply Chain Advisory.
Many companies also have brought manufacturing back to the U.S. to reduce their reliance on imported goods. That trend is creating another catalyst for demand in airport markets. That’s resulting in rents that are 18.8% higher than the typical industrial property, according to CBRE.
Airports commanding the highest rents are Los Angeles International Airport, John F. Kennedy International Airport in New York City, Miami International Airport, O’Hare International Airport in Chicago and Philadelphia International Airport.
The five airports serve densely populated markets that lack developable land, which contributes to rent premiums of 24% or more at properties within a five-mile radius. Rent growth is expected to speed up because of the limited supply of industrial properties and increasing transportation costs.
While e-commerce seems like the logical reason demand for industrial properties near airports is rising, it accounts for less than 4% of airport leasing. Third-party logistics (3PL) companies accounted for the bulk (42.7%) of leasing near airports through August, followed by retail and wholesale (32.2%).
Although industrial properties near airports are expected to fare well this year, CBRE expects overall industrial leasing activity to decline in 2023 as tenants delay expansion plans and the post-pandemic need to stock additional inventory diminishes. Even so, vacancy rates are expected to remain well below the 10-year average and create another year of double-digit rent growth.
Industrial real estate can be a great investment. Investors can achieve higher rental yields, lower maintenance costs and longer rental terms that produce stable cash flow. But the industrial real estate sector is experiencing rapid growth — a record 661 million square feet of industrial space was under construction in the third quarter, nearly double the amount since 2020 — so there is concern about an oversupply of warehouses and storage facilities in the future.
While buying industrial properties is out of reach for many people, everyday investors can afford to buy shares in industrial real estate investment trusts (REITs). Industrial companies require specialized real estate to move and store products, so an array of property types ranging from cold storage and cannabis-related real estate to logistics properties is available.
Prologis, for example, is a global leader in logistics real estate with a market capitalization of $117.5 billion, while Innovative Industrial Properties focuses on real estate for companies involved in the medical cannabis industry.
