industrial logistics & transportation solutions · 2017-02-28 · transportation solutions...

BIG-BOXMarket Report

2016 Year-End Review & Outlook

North America Report

INDUSTRIAL LOGISTICS& TRANSPORTATION SOLUTIONS

2 A Colliers International publication

32016 Year-End Review & Outlook | Big-Box Market Report

Welcome to the third edition of the Colliers International Logistics & Transportation Solutions Group Big-Box Market Report. A year-end recap of 2016 with a look ahead at 2017, this report studies big-box activity in North America and six of its major distribution markets:

> Atlanta, GA > Chicago, IL > Dallas, TX > Greater Los Angeles, CA > New Jersey, Lehigh Valley/Eastern PA > Toronto, ON

Fueled by the engine of e-commerce, 2016 finished as the strongest year ever for big-box development and leasing. We continued to see greater demand versus development with 87.4 million square feet (MSF) developed and 104.8 MSF leased. It was truly a great year for all involved in the industrial real estate sector!

Colliers International’s Logistics & Transportation Solutions Group (L&T) includes 70 members in North America, London and Mexico. Our members are hand-picked for their knowledge, experience and commitment to adding supply chain expertise to their real estate transaction management skills.

In 2016 alone, L&T brokers toured the Port of Virginia, the Port of Rotterdam, the BNSF intermodal yard in Memphis and FedEx’s world headquarters. The group also held a joint conference in Amsterdam with our European counterparts and participated in supply chain training at Georgia Tech.

L&T’s goal and the objective of this report is to bring thought leadership and supply chain knowledge to investors and occupiers as we all execute our business plans for the next few years.

Best regards,

JACK ROSENBERGNational Director,Logistics & Transportation Solutions Group

DWIGHT HOTCHKISSNational Director,Industrial | USA

A NOTE FROM OUR LEADERS

JAMES BREEZENational Director,Industrial Research | USA


Service in Motion 7

North American Overview 8

North America Market Reports

1. Atlanta, GA 10

2. Chicago, IL 11

3. Dallas, TX 12

4. Greater Los Angeles, CA 13

5. New Jersey, Lehigh Valley/Eastern PA 14

6. Toronto, ON 15

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Contents


> What constitutes abig-box building?• 300,000 SF or larger industrial buildings• Primarily used for distribution• Ceiling heights of 28’ clear or greater• Pre-cast or tilt-up concrete construction


More

SIOR membersthan any o ther f i rm in the U.S.

517professionalsin the U.S.

Ranked in the top

3in the U.S.for industrial transactions

-Real Capital Analytics

COLLIERS INDUSTRIAL

> The Colliers Logistics & Transportation Solutions Group understandsthat doing business in an interconnected world requires creative, long-term, dynamic real estate decisions. Our industry experts work as a team to integrate transportation insight, real estate expertise and effective market research into a single platform.


Service in MotionColliers’ Logistics & Transportation Solutions Group delivers advisory,brokerage and management services to domestic and international clients, targeting the expanding relationship between goods movement and real estate.

Our industry specialists understand the issues that shape and drive the transportation industry: skyrocketing energy, transportation and laborcosts; heightened security needs; stringent environmental requirements; and profound changes in global supply chains. Our experience, talent and insight help us address these issues through flexible and efficient industrial real estate solutions.

Whether researching new advances or issues, participating in industryorganizations or taking the lead in trade conferences, our specialistsimmerse themselves in the business of the transportation industry and connect Colliers to the global transportation community.

Built upon the principles of specialization and innovation—coupled with a global reach and local knowledge—Colliers’ Logistics & Transportation Solutions Group delivers high-impact results thanks to our expertise in logistics and commercial real estate.


> Demand for big-box properties remains exceptionally strong with only 171 of 2,064 existing buildings currently 100% vacant.

> Record levels of new construction in Q4 2016 increased vacancy rates to 7.7% at year-end, up 1.2 percentage points compared to the previous quarter and 0.2 percentage points compared to the previous year.

> 105 MSF were leased in 2016, up 9.6% from the previous year.

> Effective rents reached $4.66 per square foot/year net lease (PSF/YR NNN) in 2016, up 10.9% compared to 2015. Despite the increase, effective rents leveled off in Q4 due to higher amounts of vacant space on the market.

> 87 MSF of new construction were completed in 2016 (67% speculative) versus 65 MSF in 2015.

> Strong interest from institutional capital kept cap rates low at 5.3%, even though overall transaction levels declined last year.

> With more than 75 MSF currently under construction, vacancies should be stable in 2017 and activity will likely remain robust for the foreseeable future.

BIG-BOX HISTORICAL STATISTICS - >300,000 SF

The core North American big-box sector finished 2016 with record fundamentals, including all-time highs in annual net absorption, leasing activity, product in development and construction completions.

The supply chain renaissance being driven by e-commerce continues to push retailers, wholesalers and third-party logistics companies into newer and larger fulfillment centers in core markets throughout North America. In 2016, robust demand created record levels of development, which is now in equilibrium with absorption and providing a healthy amount of options for occupiers.

In 2017, robust development will likely keep vacant inventory in line with the current rate, which will, in turn, slow the growth of effective rents for the foreseeable future and provide prospective tenants with more options at a stabilized cost. On the heels of the all-time-low 5.3% capitalization rate (cap rate) in 2016, we expect low cap rates to continue in 2017 thanks to the popularity of industrial big-box product with domestic and international investors.

With key demand drivers intact, we expect that strong big-box fundamentals will continue in 2017. It’s clear that e-commerce will endure as a driving force of the industrial real estate market for years to come. Yet in many ways, such as supply chain management, e-commerce is still in its infancy and there is still plenty of room for even greater impact on the industrial market.

But we also must consider the impacts from likely changes in policy direction from Washington. In the short term, factors including tax cuts, lower regulations and greater infrastructure and military spending could provide an additional boost for industrial real estate. Longer term, shifts in trade policies could cloud the outlook for industrial product. However, the process for changing existing trade agreements has not even started yet, and any such changes will take a while to trickle down to industrial real estate demand. Accordingly, occupiers will still need to seek the right locations, inventory levels and building amenities to compete in North America’s burgeoning “need-it-now” economy.

KEY TAKEAWAYS

Q4 2015 Q3 2016 Q4 2016

# of Buildings 1,934 2,018 2,064

Total Inventory (SF) 1,080,402,297 1,134,215,035 1,159,674,682

Under Construction 73,343,799 75,438,437 75,711,280

Construction Deliveries 14,359,734 17,268,741 25,459,647

Vacancy Rate (%) 7.5% 6.5% 7.7%

Leasing Activity (SF) 23,665,041 24,462,997 22,843,095

Net Absorption (SF) 15,910,576 26,021,207 12,846,912

Net Effective Rent $4.28 $4.50 $4.66

BIG-BOX MARKET INDICATORS

4.6

58.5

4.3

28.9

0.0

15.0

30.0

45.0

60.0

2010 2011 2012 2013 2014 2015 2016

Spec Construction Deliveries (SF)

BTS Construction Deliveries (SF)

Market Report

NORTH AMERICA2016

NET EFFECTIVE RENT$4.66 PSF/YR

INVENTORY AND VACANCIES BY SIZEINVENTORY/VACANCIES

300,000–499,999 SF 1,162/107500,000–749,999 SF 499/41750,000+ SF 403/23

$3.81$4.66

7.9%

5.3%

$0.00

$2.00

$4.00

$6.00

$8.00

2010 2011 2012 2013 2014 2015 20160.0%2.0%4.0%6.0%8.0%10.0%

Cap Rate (%)

Colliers Office Locations

Featured Distribution Markets

ATLANTA, GAAvg. Rental Rate: $3.15Big-Box Vacancies: 56

Big-Box Vacancy Rate: 14.2%Net Absorption: 9,805,386 SF

2016

DALLAS, TXAvg. Rental Rate: $3.51Big-Box Vacancies: 36


2016

GREATER LOS ANGELES, CAAvg. Rental Rate: $5.40Big-Box Vacancies: 25


2016

NEW JERSEY, LEHIGH VALLEY/EASTERN PA

Avg. Rental Rate: $4.98Big-Box Vacancies: 16


2016

TORONTO, ONAvg. Rental Rate: $6.50Big-Box Vacancies: 16


2016CHICAGO, IL

Avg. Rental Rate: $4.43Big-Box Vacancies: 22


2016

SnapshotMAJOR NORTH AMERICAN

DISTRIBUTION MARKETS


ATLA

NTA

BIG-BOX MARKET INDICATORS KEY TAKEAWAYS

Market Report

ATLANTA, GA2016

> Atlanta big-box fundamentals were strong in 2016, despite a record level of new construction that increased the vacancy rate significantly at year-end.

> There are 200 big-box buildings in Atlanta, totaling 116 MSF.

> An impressive 27 big-box buildings totaling 17 MSF were added to the inventory in the past year.

> Effective rents ascended to $3.15 PSF/YR NNN—a post-recession high for the market.

> Strong demand created nearly 10 MSF of occupancy gains in 2016.

> Product under construction temporarily declined to just over 7 MSF at year-end 2016 as developers waited for the large amount of recent deliveries to absorb.

> Cap rates continued to decline, finishing 2016 at 5.9%.

> The rise in vacancy is likely temporary, with more than 4 MSF of leased big-box product set to occupy in early 2017 and an additional 16 MSF of requirements in the market.


Q4 2015 Q3 2016 Q4 2016

# of Buildings 173 189 200

Total Inventory (SF) 99,018,491 109,988,572 115,941,238



Vacancy Rate (%) 9.4% 11.0% 14.2%


Net Absorption (SF) -43,520 1,628,799 1,547,185


Tenant Size (SF) Address City Lease TypeUPS 1,200,000 Charlie Brown Field Atlanta Build-to-SuitDollar General 1,200,000 120 Jackson Road Jackson Build-to-SuitWilliams-Sonoma 1,074,596 11510 Lewis Braselton Boulevard Braselton New Lease

HIGHLIGHTED BIG-BOX LEASE TRANSACTIONS - Q3-Q4 2016

Buyer Size (SF) Address City Sale Type Sale Price (PSF)Global Logistics Properties 1,074,596 11510 Lewis Braselton Boulevard Braselton Investor $89M ($82.47)Deutsche Bank AG 1,129,750 1000 Logistics Center Drive Fairburn Investor $77M ($68.38)

CBRE Global Investors 987,840 6000 Shannon Way Union City Investor $63M ($63.57)

HIGHLIGHTED BIG-BOX SALE TRANSACTIONS - Q3-Q4 2016



300,000–499,999 SF 102/33500,000–749,999 SF 51/15750,000+ SF 47/8

0.0

12.4

1.5 4.60.0

5.0

10.0

15.0

20.0

2010 2011 2012 2013 2014 2015 2016

Spec Construction Deliveries (MSF)

BTS Construction Deliveries (MSF)

$2.76 $3.05

8.7%

5.9%

$0.00

$2.00

$4.00

$6.00

$8.00

2010 2011 2012 2013 2014 2015 20160.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Cap Rate (%)

*Annual effective rents are a weighted average of all signed leases from that year


CHICAGO

KEY TAKEAWAYS


Tenant Size (SF) Address City Lease TypeUndisclosed Consumer Products Company 1,507,545 RidgePort Logistics Center Wilmington Build-to-SuitMars Corporation 1,388,000 4005 Cedar Creek Drive Elwood Build-to-Suit

Georgia Pacific 1,022,544 21705-21707 W. Mississippi Road Elwood Build-to-Suit



Buyer Size (SF) Address City Sale Type Sale Price (PSF)Parking Company of America 1,289,463 5370-5585 S. Archer Avenue

& 5333 S. Laramie AvenueChicago User $50M ($38.78)

Griffin Capital Essential Asset REIT 978,120 1650 Macom Drive DeKalb Investor $69M ($70.91)

Hillwood Investment 915,643 18801 Oak Park Avenue Tinley Park Investor $45M ($48.87)

> E-commerce is driving demand in the Chicago market with Amazon leading the way. The e-commerce giant signed 30.0% of the new big-box leases in Chicago in 2016.

> There are 300 big-box buildings in Chicago, totaling 167 MSF.

> Drawn by the population of nearly 41 million people in a 250-mile radius of Chicago’s industrial core, occupiers continue to move into the market in droves. This level of demand created nearly 13 MSF of occupancy gains for 2016.

> A record 14 MSF were completed in 2016 (57% speculative), with a majority of the space in the Interstate 80 Joliet Corridor.

> Cap rates for big-box buildings have remained under 6% since 2014, finishing 2016 at 5%.

> Effective rental rates rose each quarter in 2016, finishing Q4 at $4.43 PSF/YR NNN. For the year, effective rents averaged $4.35 PSF/YR NNN.

> The need for modern distribution facilities boosted product under construction to 17 MSF—the most for a core big-box market at year-end. Despite the new development, strong leasing is likely to keep vacancies stable for the foreseeable future.


Q4 2015 Q3 2016 Q4 2016





Vacancy Rate (%) 8.4% 7.2% 8.5%




0.0

7.9

1.5

5.9

0.0

2.0

4.0

6.0

8.0

2010 2011 2012 2013 2014 2015 2016



$2.97

$4.35

7.2%5.0%

$0.00

$2.00

$4.00

$6.00

$8.00

2010 2011 2012 2013 2014 2015 20160.0%

2.0%

4.0%

6.0%

8.0%

Cap Rate (%)


Market Report

CHICAGO, IL2016



300,000–499,999 SF 170/18500,000–749,999 SF 78/3750,000+ SF 52/1


DALL

AS

KEY TAKEAWAYS


Tenant Size (SF) Address City Lease TypeLego Systems 1,440,000 5600 Mark IV Parkway Fort Worth New LeaseNFI 1,128,227 501 W. Danieldale Road DeSoto New LeaseAmazon 1,052,380 2701 Bethel Road Coppell New Lease

Q4 2015 Q3 2016 Q4 2016





Vacancy Rate (%) 10.5% 7.3% 9.4%





Buyer Size (SF) Address City Sale Type Sale Price (PSF)Sealy & Company 615,005 6601 Oak Grove Fort Worth Investor $32M ($52.00)STAG Industrial 420,000 1650 S. U.S. Highway 67 Cedar Hill Investor $19M ($46.00)

Industrial Property Trust 567,696 1200 Lakeside Parkway Flower Mound Investor $52M ($92.00)


> Dallas-Fort Worth’s central location, thriving economy and proximity to 26 million people within a 250-mile radius continues to drive big-box demand.

> There are 303 big-box buildings in Dallas-Fort Worth, totaling 165 MSF.

> More than 13 MSF completed construction in 2016 (86% speculative).

> 16.5 MSF of new leasing activity was driven by four transactions of more than 1 MSF, including two signed by Amazon.

> Vacancy rates declined an impressive 1.1% in 2016, finishing the year at 9.4%.

> Robust leasing activity created nearly 14 MSF of occupancy gains in 2016.

> Strong demand from institutional capital kept cap rates low at 6%.

> The pace of development is not likely to slow any time soon. Nearly 14 MSF is under construction, which will make 2017 the fourth consecutive year of more than 10 MSF in new construction hitting the market.


0.0

11.4

0.4 1.90.0

3.0

6.0

9.0

12.0

2010 2011 2012 2013 2014 2015 2016



$3.19 $3.51

8.5%

6.0%

$0.00

$2.00

$4.00

$6.00

$8.00

2010 2011 2012 2013 2014 2015 20160.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Cap Rate (%)


Market Report

DALLAS, TX2016



300,000–499,999 SF 170/25500,000–749,999 SF 81/7750,000+ SF 52/4


GREATER LOS ANGELES

KEY TAKEAWAYS> Greater Los Angeles fundamentals continue to benefit from a large,

growing population. More than 28 million people live within a 250-mile radius of the Greater Los Angeles core. Proximity to the major ports of Los Angeles and Long Beach is another key driver.

> There are 684 big-box buildings in Greater Los Angeles, totaling 375 MSF—by far the most in North America.

> A majority of the nearly 18 MSF delivered in 2016 were pre-leased, a significant factor in the region’s low vacancies.

> More than 31 MSF in new leasing activity marked an all-time record for the market.

> Despite a large volume of new development, the overall vacancy rate declined 0.7 percentage points to 3.8% at year-end 2016.

> Cap rates finished 2016 at 4.3%, the lowest of the core North American markets.

> Strong tenant demand should continue to put upward pressure on effective rents and keep absorption positive for the foreseeable future.


Tenant Size (SF) Address City Lease TypeWayfair 1,224,874 3300 Indian Avenue Perris New LeaseFloor & Décor 1,103,000 24101 Iris Avenue Moreno Valley New LeaseAmazon 1,102,639 555 Orange Show Road San Bernardino New Lease


Buyer Size (SF) Address City Sale Type Sale Price (PSF)Ashley Furniture 1,013,331 2250 Lugonia Avenue Redlands User $79M ($78.00)Goodman Birtcher 981,356 10150 Lower Azusa Road El Monte Investor $93M ($94.26)Morgan Stanley 727,300 12015 Mora Drive Santa Fe Springs Investor $50M ($86.94)


Market Report

GREATERLOS ANGELES, CA

2016



300,000–499,999 SF 407/13500,000–749,999 SF 151/8750,000+ SF 126/4


Q4 2015 Q3 2016 Q4 2016





Vacancy Rate (%) 4.5% 4.2% 3.8%




3.67.2

0.4

10.6

0.0

3.0

6.0

9.0

12.0

2010 2011 2012 2013 2014 2015 2016



$4.96 $5.40

7.5%

4.3%

$0.00

$2.00

$4.00

$6.00

$8.00

2010 2011 2012 2013 2014 2015 20160.0%

2.0%

4.0%

6.0%

8.0%

Cap Rate (%)



NEW

JER

SEY,

LEH

IGH

VAL

LEY/

EAST

ERN

PA > Proximity to consumers remains the top demand driver for the New Jersey, Lehigh Valley/Eastern Pennsylvania market, as more than 61 million people live within 250 miles of the core.

> There are 300 big-box buildings in region, totaling 185 MSF.

> In 2016, 33 big-box buildings totaling 22 MSF were added to the inventory.

> Vacancy rates declined significantly in 2016 to 5.9%—much lower than the 9% total at year-end 2015.

> At 32 MSF, the market saw the most leasing activity in 2016 of any core North American market. This strong leasing activity led to nearly 24 MSF of occupancy gains in 2016.

> Nearly 22 MSF completed construction in 2016, a large majority of which was speculative (74%).

> Cap rates for big-box buildings continue to decline, finishing 2016 at 5.8%.

> The market’s proximity to the largest population concentration in the nation should keep demand strong and fundamentals sound for the foreseeable future.

KEY TAKEAWAYS

Q4 2015 Q3 2016 Q4 2016





Vacancy Rate (%) 9.0% 4.3% 5.9%






Tenant Size (SF) Address City Lease TypeWayfair 1,240,967 Station Road Cranbury, NJ New LeaseStarbucks 1,200,000 1605 Bartlett Drive Manchester, PA New LeaseMattel 1,002,000 575 Old Forge Road Jonestown, PA New Lease


Buyer Size (SF) Address City Sale Type Sale Price (PSF)Exeter Property Group 1,369,000 2086 Corporate Center Drive W Tobyhanna, PA Investor $73M ($52.96)AEW Capital Management 785,400 325 S. Salem Church Road York, PA Investor $60M ($76.39)

RREEF Management LLC 600,600 401 Cabot Drive Hamilton, NJ Investor $54M ($89.58)


1.0

16.1

0.55.5

0.0

5.0

10.0

15.0

20.0

2010 2011 2012 2013 2014 2015 2016

Spec Construction Deliveries (SF)

BTS Construction Deliveries (SF)

$3.59

$6.157.7%

5.8%

$0.00

$2.00

$4.00

$6.00

$8.00

2010 2011 2012 2013 2014 2015 20160.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Cap Rate (%)


Market Report

NEW JERSEY, LEHIGH VALLEY/EASTERN PA2016



300,000–499,999 SF 130/9500,000–749,999 SF 89/4750,000+ SF 81/3


TORO

NTO

Market Report

TORONTO, ON2016


> E-commerce remains a dominating factor for demand in Toronto, the largest big-box market in Canada.

> Notable recent e-commerce leasing transactions include: IKEA (400,000 SF), FedEx (400,00 SF), Amazon (870,000 SF) and Costco (600,000 SF).

> The growing gap between the CAD/USD ($0.76) is helping fuel U.S. investment from both development and tenant demand in the Toronto industrial market.

> Cap rates for big-box buildings continued to decline, finishing 2016 at 5.3%.

> Toronto posted more than 1 MSF of occupancy gains in 2016, keeping the vacancy rate low at 4.7%.

> Nearly 4 MSF completed construction in 2016, 89% of which was speculative.

> Developers are bullish on Toronto with nearly 6 MSF under construction, significantly higher than at year-end 2015.

> The combination of below-average absorption in 2016 and several million square feet scheduled for delivery in 2017 will present strategic opportunities for big-box tenants in the coming year.

NET EFFECTIVE RENT$6.50 (CAD) PSF/YR


300,000–499,999 SF 183/9500,000–749,999 SF 49/4750,000+ SF 45/3

KEY TAKEAWAYS BIG-BOX MARKET INDICATORS

Q4 2015 Q3 2016 Q4 2016




Construction Deliveries 640,864 1,266,433 0

Vacancy Rate (%) 3.3% 5.2% 4.7%

Leasing Activity (SF) 1,512,122 0 439,330

Net Absorption (SF) 1,217,966 1,257,998 39,686


Tenant Size (SF) Address City Lease TypeAmazon 870,000 8050 Heritage Road Brampton New LeaseCostco 600,000 100 Line Drive Vaughn Build-to-SuitRoyal Buildings Products 440,000 91 Royal Group Crescent Woodbridge New Lease


Buyer Size (SF) Address City Sale Type Sale Price (PSF)Crombie REIT 794,000 8265 Huntington Road Vaughan Investor $56M ($70.87)DuPont Fabros Technology 670,500 1 Century Place Vaughan User $54M ($80.91)

Bentall Kennedy 568,000 12333 Airport Road Caledon Investor $65M ($114.33)


0.0

3.4

0.0 0.40.0

1.0

2.0

3.0

4.0

2010 2011 2012 2013 2014 2015 2016



$5.40 $6.507.80%

5.25%

$0.00

$2.00

$4.00

$6.00

$8.00

2010 2011 2012 2013 2014 2015 20160.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Cap Rate (%)



Copyright © 2017 Colliers International.

The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

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industrial logistics & transportation solutions · 2017-02-28 · transportation solutions...

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