In an effort more accurately represent industrial trends and identify new high-activity markets in the sector, EA recently decided to add four markets to our Tier I coverage starting with our Q1 2021 historical and forecast release. Charleston, Stockton, and El Paso were previously covered as part of our Tier II set of markets, while Savannah is a market that was previously not covered by EA.
The decision to move these markets into Tier I is largely a reflection of their increasing importance in the industrial sector overall and an acknowledgment of heightened industrial leasing and construction activity in each of these markets over the last several years. The industrial sectors in Savannah and Charleston have each grown steadily over the past decade, benefitting from rapid expansions of the ports in both markets. They now rank as the 2nd and 4th largest seaports on the East Coast in terms of container volume and are poised for continued expansion in upcoming years as the global economy and global trade rebound from the COVID-19 pandemic. This, in turn, has spurred construction of industrial space in these markets, with the total industrial stock in Savannah and Charleston rising 56.3% and 32.6%, respectively, over the last decade.
Industrial sector activity has also benefitted from international trade volume between the U.S. and Mexico, which has grown rapidly in recent decades following the North American Free Trade Agreement and the recently enacted United States-Mexico-Canada Agreement. As a result, Texas has emerged as the top exporting state in the U.S. and the 2nd largest importing state behind California. El Paso’s location on the U.S.-Mexico border places it in proximity with major manufacturing in Northern Mexico and makes it a key hub for trade volume between the two countries. As a result, El Paso has experienced significant demand for industrial space, particularly in the last five years where availability in the market has declined by over 640 basis points and rents have grown nearly 40%.
Stockton has also experienced surging activity in recent years, with industrial rents in the area doubling over the last five years. Stockton is less than 100 miles from Oakland, San Francisco, Sacramento, and San Jose, making it a prime location for logistics servicing the Northern California region. Because e-commerce and last-mile logistics remain an important driver of industrial activity, Stockton’s location near multiple major population centers makes it an attractive market for warehousing. EA expects that e-commerce will continue to gain share in the retail space over the next decade, and Stockton’s industrial sector is likely to continue to expand as a result. In addition, Stockton serves as a low-cost alternative for construction of new space compared to other major industrial markets in the region where land prices are typically higher.
Methodologically, EA’s recent switch to EA asking rents in Q4 2020 opened the door to adding all these markets as Tier I markets. The previous hedonic method used in the TW Rent Index required more data observations to calculate accurately, which made it difficult to establish a TW rent history that was stable in Charleston, El Paso, and Stockton. As a result, these markets were kept as Tier II markets where we only report the average net asking rents. Using the repeat rent-based EA asking rent methodology, EA was able to create reliable rent series for these new markets, which facilitated the switch to Tier I this quarter.
For our internal and external clients, this move comes will all the extensive data and forecasting capabilities associated with Tier I markets, including submarket-level detail, historical data by property subtype, and history and forecasts of our EA Asking Rent series. Going forward, this process of identifying and reclassifying emerging markets will be an ongoing part of EA’s service, as we continue to strive for the most accurate representation of industrial trends.