Airport-close warehouses command higher rents as online shopping booms
Warehouse space has gotten hard to find near Southern California’s two main international airports, driving up rent for logistics firms and retailers trying to keep up with a boom in online shopping.
As a result, industrial landlords near Los Angeles and Ontario international airports are commanding some of the biggest “rent premiums” in the country, a recent analysis by commercial brokerage CBRE says.
Buildings with at least 75,000 square feet within five miles of LAX commanded rents that were 12.9% above the average for the L.A. market as a whole last year.
And space within about three miles of Ontario International Airport was renting 12.2% above the average for the Inland Empire market.
Those two areas had the fourth- and fifth-highest rent premiums in the nation, right after buildings near Chicago O’Hare, Oakland and Dallas Fort Worth international airports.
The O’Hare submarket is the priciest in the nation, with a 47% premium over the average rent for the Chicago warehouse market, CBRE analysts reported.
Oakland’s airport market is second in the nation, with a 32% rent premium, followed by DFW, where “mid-cities” landlords collect 22.1% more rent than the typical Dallas-area warehouse owner.
On average, industrial and logistics markets near major U.S. cargo airports are commanding a 13% rent premium over the broader market, the CBRE report said.
“The e-commerce phenomenon got compressed from a five-year window to a six-month window,” said Tres Reid, a CBRE executive vice president based in El Segundo. “You got a lot of activity in the industrial world, and a lot of it surrounded the airports.”
Online shopping totaled from $792 billion to $861 billion last year, according to estimates by the U.S. Census Bureau and online shopping research firm Digital Commerce 360. That’s up between 32% to 44% from 2019.
With e-commerce booming, industrial property emerged as the nation’s most sought-after real estate sector, especially in congested, urban areas close to homes and businesses.
For example, Amazon – the biggest industrial space consumer in both the region and the nation — tripled its number of “last-mile” delivery hubs in Southern California from nine to 32 last year and added 5.3 million square feet to its warehouse network.
Nationwide, Amazon boosted its logistics network 50% in 2020, the company reported in February.
Walmart has unveiled plans to create 100 logistics hubs at the back or adjacent to existing stores. And a host of other retailers — from apparel to home-improvement — are expanding their delivery capacity.
Transportation and warehouse employment also is up as a result of this growth, climbing 7% in the region to nearly 409,000 jobs as of February, state employment figures show.
“We’re all sitting at home hitting buy, buy, buy,” Reid said. “Trying to find a building right now is pretty hard to do.”
Airport-adjacent buildings are more in demand by companies handling products from overseas, the CBRE report said.
“Shippers and logistics operators use air cargo to quickly import perishable or high-cost goods from distant locations, such as smartphones from China, salmon from Scotland and roses from Ecuador,” the report said.
Third-party logistics operators were the most active occupiers of airport-close industrial space in 2020, accounting for 29.6% of total leasing in airport submarkets, the CBRE report said.
Retailers and wholesalers were the second-biggest group, accounting for 24.4% of space occupied last year, followed by e-commerce companies at 16.0%.
The trend is projected to continue, with demand and rent at airport-adjacent buildings “set to further take flight” in the years ahead, the report said.