To put it bluntly, 2009 was one of the worst years for the industrial real estate market. Record levels of industrial space were vacated, and the national industrial availability rate surpassed its previous historic high of 11.8 percent, which was reached in early 2004. The outlook remains uncertain, but 2010 is shaping up to be a better year — not necessarily a great year, but a better one. Strong export activity and increased intermodal transport use are emerging trends that will play a significant role in industrial performance in the coming year and beyond.
Trade levels have rebounded, but export growth has so far outperformed import growth. According to the latest monthly trade data, export growth that began in the second quarter of 2009 has reversed 36 percent of the recession-related losses. Imports, which also began growing in the second quarter, have erased only 25 percent of their decline. U.S. goods exports have also increased for 6 consecutive months (through October 2009), while imports have grown for only 4 of these months. This strong export performance is expected to continue. The dollar remains low, making American-made goods relatively inexpensive for foreign consumers. Furthermore, global demand appears to be strong, judging from the latest global manufacturing and consumption data.
While, overall, the United States imports more goods than it exports, some ports tend to handle more incoming trade traffic, and others experience more outgoing export traffic. Some ports, such as Los Angeles (the nation's largest port facility), are geared more toward incoming import traffic. New York and Savannah, Georgia, on the other hand, have a concentration of outgoing export activity. Given the stronger expected performance of export growth, the more export-oriented ports will likely fare better in terms of demand for industrial real estate space. The ports of Los Angeles and Oakland are a case in point. In the last year, the TW Warehouse Rent Index declined 13.2 percent in Los Angeles, where import traffic represents almost 80 percent of all container traffic. The nearby port of Oakland, California, however, has a greater share of export activity and has experienced less severe rent declines.
Large intermodal projects are expected in coming years, including the Memphis Regional Intermodal Terminal, which is scheduled to open in January 2012 in Rossville, Tennessee. The facility will be used by Norfolk Southern to improve the ease of switching cargo between truck and rail. It is expected to serve 327,000 containers and trailers annually. The facility is part of Norfolk Southern's Crescent Corridor initiative, a 2,500-mile, $2.5 billion public-private rail network linking the Southeastern and Northeastern United States that is designed to take 1 million long-haul trucks off the road.
Given that we are living in uncertain times, investing in industrial real estate from a macro-thematic approach is smart. Strong export growth and increased intermodal activity will continue through 2010, which bodes well for an earlier recovery for regions and facilities geared toward these activities.
— Luciana Suran is an economist with CB Richard Ellis Econometric Advisors in Boston.