Speaking at the Port of Baltimore on Nov. 10, President Joe Biden touted the now passed $1 trillion infrastructure bill as a “once-in-a-generation investment” designed to help us push past the COVID-19 pandemic. The $17 billion earmarked specifically for port improvements is welcome news as on Nov. 15, the day the bill was signed, 90 container ships carrying goods valued at $85 billion were still waiting to dock off the coast of California.
Bill Prutting of JLL Capital Markets
Throughout the pandemic, the transportation infrastructure and labor supply for the East Coast and the Mid-Atlantic specifically have demonstrated efficiency and productivity. The two main ports — the Port of Virginia and Port of Baltimore — processed record container volumes of imports and exports through cargo ship, rail and barge at record “turn times” of under one hour, meeting and overcoming many of the challenges within the supply chain.
Connecting the dots
As we approach the 2021 gift-giving season and beyond, it is crucial to focus on the “why I should care” factor. The Port of Virginia for example, which by 2024 will be the only 55-foot-deep port on the East Coast, experiences cargo movements that occur 64 percent by truck, which is nearly double the next most-used mode (34 percent by rail). The rest is transported by barge via the Richmond Marine terminal.
This correlates almost perfectly with the federal infrastructure funding that will occur in the Mid-Atlantic over the next five years. Sixty seven percent (or $12.2 billion) is earmarked for transportation improvements, including $1.1 billion for bridges and $1.9 billion for waterway infrastructure to aid our ports. This will drive efficiency in the movement of goods from the ports to warehouses to wholesalers/retailers, as well as on a direct-to-consumer/last-mile delivery basis.
As the cost of warehouse space represents only 8 percent to 10 percent of every dollar spent along the supply chain, the bill’s $18 billion allocation to the Mid-Atlantic ($8.7 billion to Virginia, $6.3 billion to Maryland and $3 billion to Washington, D.C.) creates the perfect alignment of interests with employers and the all-important labor, from truck drivers to warehouse employees.
The bill provides a catalyst for investors and lenders making capital allocation and investment decisions regarding the Mid-Atlantic industrial based upon how they anticipate it will perform for the next 10 to 20 years, and the response to date is that the Mid-Atlantic is a fortress industrial investment market for institutional capital.
Snapshot of a region
Like most industrial markets nationally, the low single-digit vacancy experienced in most developed industrial markets exists throughout every node of the nearly 500 million-square-foot Mid-Atlantic (Maryland, Virginia, West Virginia and Washington, D.C.,) industrial market, with the Hampton Roads region boasting a 1.9 percent vacancy rate, according to JLL research.
Favorable, yet still challenging labor availability and transportation dynamics, which comprises $0.90 of every supply dollar spent, remain the primary drivers for the favorable performance the of Mid-Atlantic industrial market.
The events of the last 18 months speak to the resilience and future of many industrial markets. The still-lasting effects of breaks and inefficiencies in the supply chain have demonstrated why numerous Fortune 500 companies, which leverage the ability to reach 40 percent of the U.S. population within a one-day truck trip, have relocated to or expanded within the Mid-Atlantic.
While past performance is no indication of future results as the saying goes, we believe that the best is yet to come for Mid-Atlantic industrial.
— By Bill Prutting, Senior Managing Director of JLL Capital Markets. This article originally appeared in the November 2021 issue of Southeast Real Estate Business.