Construction will begin this year on a major new cargo facility at Chicago’s O’Hare Airport. Last year, a nearly-as-huge facility leased by Centurion Air Cargo opened at Miami International Airport.
These impressive projects are among the rare on-airport cargo facilities being built despite an abundance of outdated cargo facilities across the U.S. Industry observers say there are multiple reasons for this – and they are the same factors affecting the industry as a whole. These include modal shifts and less dependence on freighters.
“There is less of an immediate need for air cargo facilities in the U.S.,” says Dan Muscatello, managing director, cargo and logistics for Landrum & Brown, an airport and aviation planning firm. “Airlines are becoming smarter about cargo, and that’s because they are smarter about passengers.”
Muscatello says increased use of wide-bodies by airlines is creating overcapacity in cargo facilities and that in turn is changing the nature of airport infrastructure requirements.
“A few years back, we were talking about how to accommodate freighter parking at airports,” he says. “In many cases, this is not an issue because belly capacity is being used more effectively. Most airports have cut back, but there is still a need to replace aging infrastructure.”
Aeroterm, a Maryland-based airport real estate company, is the developer of the Chicago project and co-developer of the Miami project. Erin Gruver, executive vice president, acquisitions and development for Aeroterm, says most of the new facility opportunities are coming at gateway airports.
The Northeast Cargo Center at O’Hare will be developed in three phases and will eventually total 820,000 square feet (76,180 square meters). A groundbreaking ceremony was held in November 2013 and construction is scheduled to begin in earnest this spring. The first phase, which will be about half of the planned square footage, is due for completion in 2015. The facility will have 15 aircraft positions, and Gruver says it will be the first cargo village designed to handle Boeing 747-8 freighters.
“To our knowledge, it’s the largest [airfreight} project under construction,” Gruver says. “It’s going to position O’Hare for the next 20, 30 and 40 years.”
Aeroterm and the Bristol Group also developed an 800,000-square-foot (74,322-square-meter) facility at Miami International Airport, which opened in 2013 and is being leased by Centurion Air Cargo. That facility includes 150,000 square feet (13,935 square meters) of refrigerated space.
Aeroterm is also developing the 500,000-square-foot (46,451-square-meter) DHL Forwarding facility at O’Hare, that company’s largest global forwarding center in North America. Aeroterm expects to complete that building by November.
“There are also other gateways that have an interest in keeping pace with these two,” Gruver says. “We are focused on the larger gateway airports because there are more opportunities there.”
Gruver says Aeroterm is in discussions with several airports about potential projects to replace outdated cargo facilities. He says the primary drivers for airport cargo facility construction are now cargo handlers.
“We’ve seen a shift from the airlines developing cargo facilities to the airlines wanting cargo handlers to occupy the facilities and then they contract with handlers for movement of freight. Handlers have a need for new and efficient facilities that use green measures to reduce utility costs.”
Shawn McWhorter, president of Nippon Cargo Airlines Americas, says many airlines no longer want to own cargo facilities and this clashes with the policies of some airports that have long-standing rules that only airlines can lease space on airport property. That puts airlines in a tough position, he says.
“Airports are having to become more accommodating to what the professional ground handlers want,” McWhorter says.
Dallas/Fort Worth International Airport is among the airports with good potential for cargo facility expansions, he says.
“Places like Dallas, where we just started operating, have a very good business model,” McWhorter says. “There is a lot of available real estate, and they are looking for more handling operations. As a big airline, I want a variable cost solution and want multiple options on who can handle my cargo at the airport. The role of the airport needs to be the enabler.”
Real estate services provider CBRE manages about a million square feet of airfreight cargo space around JFK. Frank Liggio, a CBRE vice president, says there is little vacancy at air cargo facilities around JFK with occupancy rates in the low to mid 90s. However, he says the end users are having difficulty making money.
“Most of the companies that are moving around are trying to upgrade their facilities to something of quality,” Liggio says. “Most of the people who operate at JFK are doing so with deficits or are flat. They are all trying to maximize their space and get the best floor area where they can get cargo in and out.”
CBRE is managing something rare: a new air cargo facility near JFK, which is opening during the first quarter of 2014. Not surprisingly, the 132,000-square-foot building is attracting considerable interest.
While San Francisco International Airport is not handling as much air cargo as it once did, demand for space near the airport is still high. Jason Cranston, Northern California managing director for commercial real estate company Cassidy Turley, says real estate around the San Francisco airport has always been in high demand and it will continue to be hard to locate “functional products” that are suitable for airfreight users. He says there is no land to construct new buildings and the number of existing buildings continues to dwindle because of redevelopment and restrictive city zoning codes.
“Looking into the near future, developers will have to assemble parcels of land, demolish older products and build new, which equates to very high rental rates,” Cranston says.
The co-author of an annual report on airport real estate says that side of the business has been resilient even though air cargo in general has been flat. New cargo facilities are much more functional, he says.
“What we have seen in the industrial real estate market in general has been a move toward a more efficient, more functional product and the air cargo market in general has been following along with that,” says Aaron Ahlburn, director of industrial property real estate for Jones Lang LaSalle, an one of the authors of the firm’s annual U.S Airport Outlook, which includes information on the top 12 airfreight markets.
JLL’s 2013 report pegged Miami, Chicago and Memphis as being the markets having the greatest long-term potential for cargo growth. Ahlburn says much of the air cargo construction in the U.S. is being driven by demand from the perishables and pharmaceutical markets.
The term modal shift, which continues to seep into the discussion of airfreight prospects, is also believed by some to have an affect on future cargo facility development. Landrum & Brown’s Muscatello says the development of more sophisticated environmental containers is allowing more freight to move to ships. He also notes that with some migration of manufacturing back to North America and Europe from Asia, there is some shift to trucking.