industrial market overview · 4q10 2q11 4q11 2q12 4q12 2q13 4q13 2q14 4q14 2q15 4q15 deliveries...
TRANSCRIPT
Presented to:
INDUSTRIAL MARKET OVERVIEW
March 10, 2016
2
• National Industrial Market
• Chicago Industrial Market
• Chicago Industrial Submarkets
• Broker Q&A
Table of Contents
National Industrial Market
4 Source: CoStar, NGKF
U.S. Industrial MarketVacancy Still Falling
5%
6%
7%
8%
9%
10%
11%
12%
13%
-150
-100
-50
0
50
100
150
200
250
'00 '05 '10 '15
% V
acan
t
SF A
bsor
bed/
Com
plet
ed (m
illio
ns)
SF Absorbed SF Completed % Vacant
Absorption of 216M SF in 2015 is the most since at leas 2000.
Absorption has exceeded completions every year since 2010.
Over past five years, absorption = 797M SF, completions = 469M SF.
Vacancy lowest since 2000-Q4.
5
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Source: CoStar, NGKF
Industrial Pipeline Low But Ramping UpSF Under Construction as % of Inventory, End of Quarter
Construction ended Q4 at 179.5M SF, close to pre-recession peak of 182.3M SF in 2007-Q3.
Inland Empire led all markets with 26.8M SF underway, followed by Dallas with 20.7M SF, Atlanta with 18.3M SF and Chicago with 9.8M SF.
As % of inventory, construction was highest in Inland Empire at 5.4% versus U.S. average of 1.3%. Chicago was down the list at 0.9% (24th place).
Recessions
6 Source: CoStar, NGKF
$4.00
$4.20
$4.40
$4.60
$4.80
$5.00
$5.20
$5.40
$5.60
$5.80
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Rent Almost at New PeakAsking Rent/SF, NNN, for Space Available End of Quarter
Asking rent ended Q4 at $5.68, one cent below prior peak of $5.69 in 2008-Q1.
Rents rose at double-digit pace last year in seven markets, led by Oakland-East Bay @ 18.5%. Five of the seven markets are in California. Other two are Nashville and Long Island.
Recessions
7
-1% 1% 3% 5% 7% 9% 11% 13% 15%
Los Angeles
Orange Co., CA
Elkhart/Goshen, IN
Denver
Long Island
Inland Empire, CA
Miami
San Diego
Seattle
Houston
Salt Lake City
Portland
Palm Beach
South Bend, IN
Oakland/East Bay
Kansas City
Minneapolis
Austin
Columbus
Cincinnati
Nashville
Detroit
San Antonio
Broward Co., FL
U.S. Average
Lowest
0% 5% 10% 15%
Raleigh/Durham
Milwaukee
St. Louis
Dallas
Orlando
Fresno
Cleveland
Tampa Bay
Central PA
Las Vegas
Chicago
Atlanta
Jacksonville
Silicon Valley
Pittsburgh
Indianapolis
Charlotte
Philadelphia
Washington, DC
Boston
Baltimore
Memphis
Sacramento
Northern NJ
Phoenix
Highest
Source: CoStar, NGKF
Industrial Vacancy Rates by Market 2015-Q4Los Angeles Lowest, Phoenix Highest
8
$0 $5 $10 $15 $20
Silicon Valley
San Diego
Orange Co., CA
Oakland/East Bay
Long Island
Portland
Austin
Palm Beach
Washington, DC
Broward Co., FL
Denver
Los Angeles
Seattle
Boston
Las Vegas
Miami
Phoenix
Houston
Northern NJ
Minneapolis
U.S. Average
Raleigh/Durham
San Antonio
Orlando
Inland Empire, CA
Highest
$0 $2 $4 $6
Baltimore
Sacramento
Salt Lake City
Dallas
Chicago
Philadelphia
Pittsburgh
Fresno
Detroit
Tampa Bay
Milwaukee
Kansas City
Atlanta
Jacksonville
Nashville
St. Louis
Central PA
Cleveland
Charlotte
Indianapolis
Cincinnati
Columbus
South Bend, IN
Memphis
Elkhart/Goshen, IN
Lowest
Source: CoStar, NGKF
Industrial Asking Rates by Market 2015-Q4“Cheap” Chicago Rents Related to Size, Age
9
0% 5% 10% 15% 20%
Oakland/East Bay
Inland Empire, CA
Silicon Valley
San Diego
Nashville
Orange Co., CA
Long Island
Palm Beach
Jacksonville
Raleigh/Durham
Miami
Las Vegas
Milwaukee
St. Louis
Orlando
Houston
Indianapolis
Phoenix
Chicago
Columbus
Broward Co., FL
Sacramento
Memphis
Atlanta
U.S. Average
Highest
-15% -10% -5% 0% 5%
Charlotte
Tampa Bay
Central PA
Boston
Seattle
Philadelphia
Salt Lake City
Cincinnati
Baltimore
Los Angeles
Detroit
Minneapolis
Denver
Washington, DC
Northern NJ
Austin
Dallas
Elkhart/Goshen, IN
Cleveland
South Bend, IN
San Antonio
Fresno
Kansas City
Pittsburgh
Portland
Lowest
Source: CoStar, NGKF
Industrial Asking Rates % Change 2015Chicago Rent Growth Above Average
10
0 5 10 15 20
Dallas
Inland Empire, CA
Chicago
Atlanta
Detroit
Houston
Memphis
Los Angeles
Central PA
Northern NJ
Philadelphia
Phoenix
Indianapolis
Oakland/East Bay
Washington, DC
Charlotte
Seattle
San Diego
Kansas City
Columbus
Nashville
Las Vegas
Miami
Cincinnati
Denver
Million SF
Highest
0 1 2 3 4
Minneapolis
Austin
Orange Co., CA
St. Louis
Raleigh/Durham
Jacksonville
Tampa Bay
Sacramento
Broward Co., FL
Cleveland
Orlando
Long Island
San Antonio
Salt Lake City
Portland
Boston
Pittsburgh
Palm Beach
Baltimore
Silicon Valley
Elkhart/Goshen, IN
Fresno
South Bend, IN
Milwaukee
Million SF
Lowest
Source: CoStar, NGKF
Industrial Absorption by Market 2015Chicago #3… Detroit #5!
11
0 5 10 15 20 25 30
Inland Empire, CA
Dallas
Atlanta
Chicago
Houston
Central PA
Kansas City
Philadelphia
Columbus
Washington, DC
Denver
Portland
Cincinnati
St. Louis
Detroit
Northern NJ
Los Angeles
Phoenix
Charlotte
Minneapolis
Oakland/East Bay
Las Vegas
San Antonio
Tampa Bay
Baltimore
Million SF
Highest
0.0 0.5 1.0 1.5 2.0
Salt Lake City
Memphis
Nashville
Seattle
Pittsburgh
Austin
Miami
Orlando
Cleveland
Raleigh/Durham
Indianapolis
Silicon Valley
Jacksonville
Broward Co., FL
South Bend, IN
San Diego
Milwaukee
Boston
Orange Co., CA
Palm Beach
Fresno
Elkhart/Goshen, IN
Long Island
Sacramento
Million SF
Lowest
Source: CoStar, NGKF
Industrial Under Construction by Market 2015-Q4Chicago Among Highest Construction Markets
12
NGKF Industrial Momentum Index, 2015-Q4Evaluation Criteria
Factor # Factor Group Weighting
Factor Weighting Data Source
DEMOGRAPHICS 151 Pop Change 2015-2020 1 ESRI, NGKF2 Pop % Change 2015-2020 2 ESRI, NGKF3 Millennials Change 2015-2020 2 ESRI, NGKF4 Millennials % Change 2015-2020 3 ESRI, NGKF5 Bachelors Degree, 2015 2 ESRI, NGKF
ECONOMICS 156 Emp % Change From Prior Peak 3 Bureau of Labor Statistics, NGKF7 Emp % Change YoY 3 Bureau of Labor Statistics, NGKF8 Emp Change 2015-2020 2 Moody’s, NGKF9 Emp % Change 2015-2020 3 Moody's, NGKF
REAL ESTATE 7010 Vacancy Change Past 4 Quarters (bps) 2 CoStar, NGKF11 Rent Change Past 4 Quarters 3 CoStar, NGKF12 Absorption as % of Occupied SF 2 CoStar, NGKF13 Construction as % of Total SF 3 CoStar, NGKF
13
RANK CITY
1 Inland Empire, CA
2 Austin
3 Atlanta
4 Las Vegas
5 Dallas
6 Oakland/East Bay
7 Raleigh/Durham
8 San Diego
9 Houston
10 Nashville
11 Phoenix
NGKF Industrial Momentum Index, 2015-Q4What’s Hot, What’s Not
RANK CITY
12 Memphis
13 Denver
14 Jacksonville
15 Orlando
16 Silicon Valley
17 Columbus
18 Broward Co., FL
19 Charlotte
20 San Antonio
21 Washington, DC
22 Miami
RANK CITY
23 Detroit
24 Indianapolis
25 Central PA
26 Orange Co., CA
27 Tampa Bay
28 Seattle
29 Chicago
30 Salt Lake City
31 Cincinnati
32 Kansas City
33 St. Louis
RANK CITY
34 Sacramento
35 Minneapolis
36 Boston
37 Northern NJ
38 Philadelphia
39 Baltimore
40 Los Angeles
41 Portland
42 Milwaukee
43 Cleveland
44 Pittsburgh
14
0
100
200
300
400
500
600
700
800
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
'01 '03 '05 '07 '09 '11 '13 '15
Quarterly Cap Rates & Spread to 10-Year Treasury Yield
Cap Rate (L axis) Spread (R axis)
Cap Rate BPS
$0
$5
$10
$15
$20
$25
'01 '03 '05 '07 '09 '11 '13 '15
Industrial Investment by Year
Billions
Industrial Sales Rising, Cap Rates Sinking2015 Sales Up 30%, Cap Rate Down 40 BPS from 2014
Source: Real Capital Analytics, NGKF
Chicago Industrial Market
16
Source: NGKF
4%
6%
8%
10%
12%
14%
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
4Q05 4Q06 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 4Q14 4Q15
Average Asking Rent (Price/SF) Vacancy (%)
Asking Rent and Vacancy
-3
-1
1
3
5
7
4Q05 4Q06 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 4Q14 4Q15
Net AbsorptionSquare Feet, Millions
• Demand has shown sustained improvement since the recession in 2009. During that time, 70.3 million square feet of absorption has brought vacancy down 410 basis points to a near-historic low of 7.9%.
• As a result of this demand and a robust investment environment, rents have increased 15.3% since 2012 to $4.97/SF.
Market Conditions Chicago, IL
17
Source: NGKF
• A majority of the market activity has been driven by demand for general industrial and warehouse/distribution properties.
• That has become more pronounced for warehouse/distribution facilities in the past year
• The market’s smallest properties have been the most vulnerable to economic swings.
• Large properties experienced the greatest growth in absorption in 2015.
-5
0
5
10
15
20
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
SF m
illio
ns
General industrial Incubator R&D/Flex Warehouse/Distribution
-13
-8
-3
2
7
12
17
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
SF m
illio
ns
0-499,000 500-749,000 750,000-999,000 1 million+
Annual absorption by property type Annual absorption by property size
Market Segmentation Chicago, IL
18
Source: NGKF
4%
6%
8%
10%
12%
14%
0.0
1.5
3.0
4.5
6.0
7.5
4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15
Deliveries (SF) Vacancy Rate (%)
Construction deliveries & vacancySquare Feet, Millions
• To keep up with demand, the market has added 44.6 million square feet of new supply since 2010, an expansion of 6.8%.
• Even with this growth in inventory, demand is still outpacing supply and the market has tightened by 350 basis points during that time.
• 6.1 million SF delivered in Q4
New Construction Chicago, IL
19
• 2016 Pipeline
• 3.2 million SF will come online this quarter
• 12.9 million SF will break ground in 2016
84%
16%
Q1 Deliveries
SpeculativeBuild-to-Suit
69%
29%
2%
2016 Pipeline
SpeculativeBuild-to-suitBuilding addition
Construction PipelineChicago, IL
Chicago Industrial Submarkets
21
Source: NGKF
• O’Hare’s proximity to the airport and access to most of the region’s major interstates has made it extremely popular in recent years.
• The O’Hare submarket has experienced three consecutive years of strong absorption. 1.6 million square feet was absorbed in 2015 and vacancy declined 110 basis points to 6.1%.
• Vacancy down 670 basis points from its peak of 12.8% set in early-2010.
• Construction deliveries approached 1.2 million square feet in 2015, a post-recession record for the submarket. One development was completed during the fourth quarter, a 185,000-square-foot distribution facility at 340 County Line Road in Bensenville.
O’Hare Submarket
22
Source: NGKF
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
-1.2
-0.6
0.0
0.6
1.2
1.8
2009 2010 2011 2012 2013 2014 2015
Milli
ons
Vacancy, Absorption, and Deliveries
Net Absorption Deliveries Vacancy rate
• Supply and demand fundamentals have been strong in the I-55 Corridor. Since 2011 absorption has totaled almost 7.0 million square feet and 8.0 million square feet of new stock has come online.
• In 2015 alone, over 1.8 million square feet of space came off the market and as a result, vacancy declined 90 basis points to 8.4%.
• Over 1.8M square feet is under construction all of which are being built on a speculative basis.
I‐55 Submarket
23
Source: NGKF
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
-0.6
-0.1
0.4
0.9
1.4
1.9
2.4
2009 2010 2011 2012 2013 2014 2015
Milli
ons
Vacancy, Absorption, and Deliveries
Net Absorption Deliveries Vacancy rate
• I-80 is one of the most active industrial submarkets in Chicago. Since 2011 absorption has totaled over 10.7 million square feet and 9.6 million square feet of new stock has come online.
• In 2015 alone, an impressive 4.1 million square feet of space came off the market and as a result, vacancy declined 210 basis points to 8.3%.
• Supply is catching up with demand. In 2015, 4.3 million square feet of new space was added to the submarket’s inventory.
• Over 5.9 million square feet is under construction, 39% of the total construction stock across the market
I‐80 Submarket
24
• The I-90 Elgin corridor, which makes up the western portion of the Northwest submarket, experienced significant growth in the latter half of 2015.
• 257,000 square feet of absorption in Q3 and Q4 2015 balanced out the negative absorption that occurred in the first half of 2015 and the year closed with a near even absorption of negative 380 square feet.
• Even with flat absorption, the addition of over 1.4 million square feet of new construction in 2015 caused the vacancy rate to increase by 220 basis points to 12.5%.
• Sales activity was strong in the final months of 2015 with a total of over 550,000 square feet, across four buildings, trading hands.
• With 410,000 square feet of product currently under construction, we can expect more supply coming online in the near term
1 2 3 4 5 6 7 8 9 101112 131415 161718 1920 212223 242526 2728
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
-0.8
-0.5
-0.2
0.1
0.4
0.7
1.0
2009 2010 2011 2012 2013 2014 2015
Mill
ions
Vacancy, Absorption, and Deliveries
Net Absorption Deliveries Vacancy
I‐90 Elgin Submarket
25
• Since peaking at 10.0% in mid-2010, vacancy in the Southeast Wisconsin submarket has improved significantly. In the last two years alone, over 5.2 million square feet of absorption created a historically tight market where up until this quarter vacancy rose above 5.0% only once in nine quarters.
• Last quarter when three projects delivered a total of 1.6 million to the market, making a total of 5.8 million square feet of new supply in the past two years.
• With this new spec supply coming online, even with modest absorption of 22,000 square feet, the vacancy rate rose 290 basis points to 7.7% in Q4 2015.
• Healthy demand and tight conditions suggest that the market will be able to handle the new supply that has come online and as tenants consume the new space; we will see vacancy rebound in the coming quarters.
2%
4%
6%
8%
10%
12%2006 Q1 2006 Q2 2006 Q3 2006 Q4 2007 Q1 2007 Q2 2007 Q3
0.0
0.8
1.6
2.4
3.2
4.0
2009 2010 2011 2012 2013 2014 2015
Milli
ons
Vacancy, Absorption, and Deliveries
Net Absorption SF Total Deliveries SF Vacant Percent Total
Southeast Wisconsin Submarket
Broker Q&A