mid-year 2017bentallkennedy.com/...real_estate_mid-year_us_2017.pdf · global economy u.s....

mid-year 2017

PROPERTY MARKETS

Fundamentals are more balanced between supply and demand. Rent growth is show-ing late-cycle fatigue in some sectors.

CAPITAL MARKETS

Transaction activity has fallen from peak levels, but remains high. Low interest rates are tempering upward pressure on yields.

ECONOMY

Despite a slow start to 2017 and the unset-tled political environment, the U.S. econo-my continues to expand at a modest pace.

UNITED STATES

ContentsGlobal Economy

U.S. Economy

Capital Markets

Apartment

Office

Retail

Industrial

1

2

4

6

8

10

12

Key

BENTALL KENNEDY RESEARCH SENTIMENT

Positive < > Negative

PROPERTY TYPE METRICS

VACANCY / AVAILABILITY

NET ABSORPTION

NET COMPLETIONS

RENT

U.S. PERSPECTIVE | MID-YEAR 2017 1

Global Economy

OIL PRICES FAILING TO SUSTAIN A RECOVERY

Sources: IMF | U.S. Energy Information Administration, Reuters (WTI Spot Price); June 2017 value = week of 6/16

♦ The U.S. and Canadian economies are poised for improved growth in 2017-18, and will lead many other industrialized nations.

♦ Europe provides upside as the French and, potentially, German elections favor status quo. “Free money” policies are finally having the desired effect on growth.

♦ German industrial production is strong and business and consumer confidence in the Euro-Area are near multi-year highs.

♦ Headwinds persist, however, as geopolitical uncertainty and recent terrorist attacks weigh on growth. Tourism in Europe has ebbed and flowed.

♦ China posted modestly better than expected GDP growth in 17Q1 of 6.9%, aided by government spending and export growth. Risks remain and Moody’s recently downgraded China’s credit rating due to rising debt levels.

♦ Oil prices have trended lower in 2017 as OPEC production cuts have been offset by Non-OPEC production and sluggish global oil consumption.

♦ Cheap oil remains a headwind for oil exporting countries, but benefits consumer driven econo-mies, namely the U.S.

2010 2011 2012 2013 20152014 2016 2017

WT

I Sp

ot

Pri

ce ($

/bar

rel)

100

120

50

70

20

80

30

90

40

110

60

Growth on more solid footing across regions

12.7% DECREASE IN OIL PRICES, FROM $51.91 TO $45.30 Week of 12/16/16 vs 6/16/17

A POSITIVE OUTLOOK FOR THE U.S. AND CANADA

2011 - 15 Avg. 2016 2017 Fcst. 2018 Fcst.

An

nu

al R

eal G

DP

Gro

wth

(%)

2.25

2.75

1.00

1.50

0.25

0.00

1.75

0.50

2.00

0.75

2.50

1.25

Euro Area

Canada

United Kingdom

United States

U.S. EconomyU.S. PERSPECTIVE | MID-YEAR 2017 2

Major indicators showing the U.S. expansion has legs

♦ U.S. GDP growth was slow out of the gates in 17Q1, but should improve as the year progresses. Still our expectation for upper 2.0%-range growth in 2017 has moderated.

♦ The post election climate is more unsettled than anticipated. Increased government spending and tax and regulatory reform are likely to take some time. Policy uncertainty will be a persistent drag on growth.

♦ The U.S. dollar remains strong, but has come down from its post-election bounce. A cheaper dollar may support a resurgence in U.S. exports.

♦ Corporate earnings and profits are showing signs of strength aided by a healthy domestic consumer and improving conditions in Europe.

♦ Industrial production is at its highest level in more than two years. Car sales have taken a step back, however, presenting a potential headwind.

♦ Major indicators such as the ISM indices point to expansionary conditions for both manufacturing and non-manufacturing sectors.

PROJECTED 2017 GDP GROWTHWSJ Economic Survey - May 2017

2.2%

ISM INDICES POINT TO CONTINUED ECONOMIC EXPANSION

U.S. GROWTH EXPECTED TO IMPROVE SLIGHTLY

Government

Net Exports

Inventories

Residential Investment

Nonres. Investment

Consumption

WSJ Survey

Total

5-Year Average

Sources: U.S. Bureau of Economic Analysis, Dow Jones (WSJ Economic Survey, May 2017) | Institute for Supply Management

2000 2003 2006 2009 20132001 2004 2007 2010 20142002

ISM Non Manufacturing Index

ISM Manufacturing Index

2005 2008 2011 20152012 2016 2017

ISM

Ind

ex (>

50

is e

xpan

sio

nar

y)U

.S. R

eal G

DP

Gro

wth

(%, S

AA

R)

55

3

65

5

30

-2

-4

40

0

45

1

50

2

60

4

35

-1

-3

2013Q1

2013Q2

2013Q3

2013Q4

2014Q1

2014Q2

2014Q3

2014Q4

2015Q1

2015Q2

2015Q3

2015Q4

2016Q1

2016Q2

2016Q3

2016Q4

2017Q1

2017 P

roj.

2018 P

roj.


♦ Job growth is encouraging despite recent moderation due to the maturing business cycle and a labor market that is near full employment.

♦ Even with a slower rate of growth the economy produced nearly 2.2 million jobs over the past year. Knowledge-based sectors continue to perform well.

♦ Unemployment is now below its prerecession trough and strengthening wage growth is increasingly evident.

♦ In addition to wage growth and low oil prices, U.S. consumers benefit from the wealth effects created by record stock prices and home values.

♦ Younger workers have seen their job prospects brighten markedly, which should induce healthy household formation and housing demand in the quarters ahead.

♦ Low unemployment, rising labor costs, and affordable housing shortages are negatively impacting growth in some metro areas.

♦ In particular, markets in California have lost momentum, although growth in San Francisco and Oakland still outpaces the nation. Major northeast markets are among those that have gained momentum recently.

STARK DIFFERENCES IN METRO MOMENTUM AND GROWTH

Dallas-Ft. Worth

San Francisco

Minneapolis

Boston

New York

Oakland

Houston

United States

San Jose

Los Angeles

Orange County

Metro May 16 May 17

YOY Job Growth

3.1%

4.5%

1.4%

1.3%

1.8%

3.4%

0.2%

1.6%

3.2%

3.2%

3.1%

3.2%

2.3%

2.2%

2.1%

1.9%

1.8%

1.7%

1.6%

1.5%

1.1%

0.2%

U.S. Economy

JOB GROWTH HAS MODERATED IN MOST SECTORS

Sources: U.S. Bureau of Labor Statistics (select major markets shown) | U.S. Bureau of Labor Statistics

.3%

.1%

%

%

%

.2%

Natural Resources& Mining

(-18.4%, 7.0%)

Financial

Transp. & Utils.

Prof. & Business Svcs.

Leisure & Hosp.

Education

Healthcare

Construction

Wholesale Trade

Information(1.2%,-2.2%)

Total

Other Svcs.

Manufacturing

State & Local Gov.Retail

Federal Gov.

1.6%Job Growth

YOY, JUNE 2017

-0.5% 0.5% 1.5% 2.5% 3.5%0.0% 1.0% 2.0% 3.0% 4.0%

4.0%

Em

plo

ymen

t G

row

th Y

OY

Ju

ne

20

17

Employment Growth YoY June 2016

0.0%

0.5%

2.0%

2.5%

3.0%

3.5%

-0.5%

1.0%

1.5%

Above Prerecession Peak

Below Prerecession Peak

♦ Transaction volume has peaked for the cycle but remains high. Volume was down about 8% comparing YE 2017Q1 to YE 2016Q1. Most of this pullback came from major markets.

♦ Rolling four quarter sales volume contracted most sharply in the industrial market as portfolio activity abated. The other three property types were off 4-8% vs. a year ago.

♦ Foreign investors are the most active net buyer of U.S. CRE, but their net activity has fallen in half from 2015 levels. Private domestic buyers have picked up some of the slack.

♦ Tighter lending standards, particularly for construction and multifamily loans, are having an impact on the market. Fewer banks are reporting rising demand for CRE loans.

♦ Regulators began pressuring banks early this cycle to control CRE loan risks, particularly on multifamily construction.

♦ While reducing liquidity and capital availability somewhat, this tightening should limit the fallout in the event of an economic downturn. It also creates opportunities for investors willing to participate in the market as lenders.

Capital Markets

INVESTMENT VOLUME FALLING FROM PEAK LEVELS

8%DECREASE IN TRANSACTION VOLUME COMPARING YE 2017Q1 TO YE 2016Q1.

LENDERS TIGHTENING UNDERWRITING, LOAN DEMAND EASING

Sources: Real Capital Analytics, Inc. | Federal Reserve Senior Loan Officer Survey


2012 2013 2014 2015 2016200920062003 200820052002 20072004 20172010 2011

Dec

-13

Dec

-13

Dec

-14

Dec

-14

Dec

-15

Dec

-15

Dec

-16

Dec

-16

Jun

-14

Jun

-14

Jun

-15

Jun

-15

Jun

-16

Jun

-16

Jun

-17

Jun

-17

Mar

-14

Mar

-14

Mar

-15

Mar

-15

Mar

-16

Mar

-16

Mar

-17

Mar

-17

Sep

-14

Sep

-14

Sep

-15

Sep

-15

Sep

-16

Sep

-16

Attractive, but moderating investment performance

Net

Per

cen

tag

e o

f Ban

ks R

epo

rtin

g

Tig

hte

nin

g S

tan

dar

ds

(%)

Net

Per

cen

tag

e o

f Ban

ks R

epo

rtin

g

Str

on

ger

Lo

an D

eman

d (%

)

50 50

10 10

30 30

-10 -10

-20 -20

40 40

0 0

20 20

Construction and Land Development

Nonfarm Nonresidential

Multifamily

Construction and Land Development

Nonfarm Nonresidential

Multifamily

$450

Ro

llin

g 4

-Qtr

. To

tal I

nves

tmen

t A

ctiv

ity

(Bil.

)

$50

$100

$250

$300

$350

$400

$0

$150

$200

Industrial

Retail

Office

Apartments

♦ Cap rates have trended down and, with interest rates lower than they were at the end of 2016, upward pressure on yields has been slow to materialize.

♦ But spreads have narrowed markedly from cyc- lical highs and investors will be forced to lean more heavily on net operating income growth to generate future appreciation.

♦ Moderating appreciation is a major reason why returns have fallen from the double-digit levels posted through much of the recovery.

♦ Total returns topped 13.0% in 2015 and have since run steadily lower. Industrial has been the notable exception with total returns north of 12.0% during the year ending in 2017Q1.

♦ Much as we anticipated in Perspective 2017 returns are reverting to the mean and should continue to do so.

♦ The search for higher returns is one reason deal flow has undergone a pronounced slowdown in the six major U.S. markets. But we urge caution when chasing yield in secondary and tertiary markets this late in the cycle.

Capital Markets

SPREADS HAVE RETURNED TO MORE TYPICAL LEVELS


Sources: NCREIF (NCREIF Property Index) | NCREIF (current value cap rates), Federal Reserve, Moody’s Analytics

TOTAL RETURNS ARE REVERTING TO THE MEAN

12%TOTAL INDUSTRIAL RETURNS DURING THE YEAR ENDING 2017 Q1

Rising interest rates pressuring values?

*first 21 days

2007 2011 20152009 2013 2017

Cap Rate Spread

10 Year Treasury

Cap Rate

25 Year Average Spread

10 Year Treasury

2.5% - Dec. 2016

2.2% - Jun. 2017*

8 800

Cap

Rat

e/Tr

easu

ry R

ate

(%)

Sp

read

(bp

s)

4 400

0 0

6 600

2 200

7 700

3 300

5 500

1 100

Dec-13 Dec-14 Dec-15 Dec-16Jun-14Jun-13 Jun-15 Jun-16Mar-14Mar-13 Mar-15 Mar-16 Mar-17Sep-14Sep-13 Sep-15 Sep-16

Total Returns:Overall

Apartment

Office

Retail

Industral

9.2% - YE 16Q3

7.3% - YE 17Q1

6.7% - 10 Yr. Avg.

Ro

llin

g 4

-Qtr

. To

tal R

etu

rn

16.0%

8.0%

12.0%

4.0%

14.0%

6.0%

10.0%

Apartment

10-YEAR AVERAGE ANNUAL SUPPLY GROWTH 255,000 UNITS

♦ Vacancy has been trending higher since mid-2015.

♦ Despite this uptick the national apart-ment market is very tight, limiting demand in some cases.

♦ Vacancy is holding below recent and long term historical averages.

♦ Apartment developers are very active and the large number of properties in lease up is pushing up vacancy.

♦ Construction activity is slightly above 2006-07 levels.

♦ Construction seems to have peaked for the cycle—raising the potential for a healthy and more balanced market.

♦ Rents are increasing modestly ahead of inflation due to the still-tight market.

♦ But the exceptional gains seen earlier in the recovery are unlikely to return in the medium term.

♦ Affordability is a concern in some markets and concessions are increasing in many locales.

♦ Broad declines seem unlikely.

2.4% YoY Growth

5.5%Vacancy

351kUnits

10-YEAR AVERAGE VACANCY 6.0%

Quarterly Vacancy Trend

10-YEAR AVERAGE ANNUAL RENT GROWTH 2.3%

10-YEAR AVERAGE ANNUAL DEMAND GROWTH 251,000 UNITS

♦ Even considering seasonal fluctuations, apartment demand has been more sub-dued in recent quarters.

♦ The shift away from homeownership has stalled, leaving the homeownership rate at multi-decade lows.

♦ Millennials have not dominated demand growth, but they are—and will remain—a major source of absorption.

245kUnits

Quarterly Demand Trend Quarterly Supply Trend Quarterly YoY Rent Trend

as of 17Q1 four quarters ending 17Q1 four quarters ending 17Q1 as of 17Q1


New supply is bringing market conditions into balance. Renters are showing some resistance to high rental rates.

RentVacancy Net CompletionsNet Absorption

Source: Axiometrics Note: Charts show the past 13 quarters

♦ Homeownership remains low, perpetuating the upward trend in renter households.

♦ The adjacent chart shows unemployment for younger workers relative to the overall rate. Younger workers are finding jobs, which should support household formation and apartment demand.

♦ Low unemployment is providing some lift to wages, which should help alleviate affordability issues and allow landlords to push rents.

♦ Both starts and permits suggest construction has peaked for the cycle, but completions will remain elevated in the near term.

♦ Construction costs and tightening lending standards for new multifamily development are helping to keep supply in check.

♦ That said we see some markets where material increases in vacancy could unfold in 2017. These markets include, Boston, Nashville, Charlotte, and San Francisco.

♦ Baltimore, Norfolk, Minneapolis, and Denver are among the markets that could outperform the national vacancy trend over the next year.

ApartmentU.S. PERSPECTIVE | MID-YEAR 2017 7

Sources: U.S. Bureau of Labor Statistics (BLS) | U.S. Census Bureau, Moody’s Analytics Calculated

CONSTRUCTION ACTIVITY HAS PEAKED FOR THE CYCLE

2014 2015 2016 2017

Permits

Starts

500

Ro

llin

g 12

-mo.

To

tal M

ult

ifam

ily P

erm

its/

Sta

rts

(u

nit

s, 0

00

s)

340

360

420

440

460

480

300

320

380

400

18-19 Year-olds 20-24 Year-olds 25-34 Year-olds

STRONGER ECONOMY FOR YOUNGER WORKERS SHOULD LIFT DEMAND

14

Per

cen

tag

e P

oin

t D

iffer

ence

in A

ge

Co

ho

rt

Un

emp

loym

ent

Rat

e vs

. Ove

rall

6

2

7

3

10

11

1213

4

0

5

1

8

9

2003-07 (5.2% overall)

2008-10 (8.2% overall)

2011-15 (7.2% overall)

2016 Annual (4.9% overall)

May 2017 YTD (4.5% overall)

Office

10-YEAR AVERAGE ANNUAL SUPPLY GROWTH 35.5 MSF

♦ Vacancy has ticked up slightly after briefly dropping below 13%.

♦ Relative to 10-year and long-term aver-ages office vacancy is still very low.

♦ Recent trends have slightly favored Suburban submarkets over Downtown submarkets.

♦ Vacancy has likely reached its low point for the cycle.

♦ Supply and demand are balanced and completions are only modestly above their 10-yr. avg.

♦ High costs and tightening debt availabil-ity are helping to manage the construc-tion cycle.

♦ Tenant moves towards open, modern floor-plans with amenities have been a major driver of construction.

♦ Fundamentals are yielding only infla-tion-like rent growth.

♦ Rent growth is unlikely to see a mate-rial acceleration, particularly as growth cools in some technology markets.

♦ CoStar shows declining rents YoY in some locations, including the San Fran-cisco and Denver CBDs.

1.8% YoY Growth

13%Vacancy

40Million SF

10-YEAR AVERAGE VACANCY 14.6%

as of 17Q1

Quarterly Vacancy Trend


10-YEAR AVERAGE ANNUAL DEMAND GROWTH 30.0 MSF

♦ Net absorption has moderated from 2015/early 2016 highs.

♦ Key office job sectors have lost little mo-mentum, but weak business investment and an uncertain regulatory regime are a drag.

♦ Office demand may have limited upside in the short run as the economic outlook has cooled.

41Million SFfour quarters ending 17Q1

Quarterly Demand Trend

four quarters ending 17Q1

Quarterly Supply Trend

as of 17Q1

YoY Rent Growth Trend

RentVacancy Net CompletionsNet Absorption


Net absorption has moderated, but companies continue to soak up quality space in locations desired by highly-skilled workers.

Source: CBRE-EA Note: Charts show the past 13 quarters

♦ While conditions are becoming more tenant fa-vorable, the office market is fundamentally sound, underpinned by healthy office-using job growth.

♦ Knowledge-based sectors such as computer systems design and management and technical consulting have seen their growth slow, albeit to still exceptional rates.

♦ A lackluster environment for IPOs and venture capital investment presents headwinds for tech firms. Tech job growth has slowed, although it remains relatively strong.

♦ Financial activities hiring has accelerated modestly led by real estate and credit inter- mediation (banking).

♦ Tenants continue to follow workers to dense live/work/play neighborhoods or expand existing facil-ities in these areas. Amazon, GE, and Uber are all underway on new urban space.

♦ New spaces are highly amenitized, which helps lure workers in a tight labor market, and may serve as a psychological offset to shrinking personal spaces.

♦ Firms looking to grow outside of desirable urban locations are forced to “place make,” or build spaces that will appeal to workers (e.g. Toyota in Plano, TX and Nike in Beaverton, OR).

Office

JOB CREATION CONTINUES TO FAVOR OFFICE LANDLORDS

A MOVE FROM TRADITIONAL TO OPEN LAYOUT IN THE OFFICE


2004 20102006 20122008 2014 20162005 20112007 20132009 2015 2017

Source: U.S. Bureau of Labor Statistics

Office-Using

All Others

120

Em

plo

ymen

t In

dex

(1/3

1/2

00

4 =

100

)100

110

115

95

105

Retail


♦ Despite headwinds, retail availability is slowly falling.

♦ Gradual improvement is expected over the next year as consumption grows.

♦ Urban and dense suburban retail locations have tended to outperform.

♦ Malls may increasingly bear the brunt of new availability as anchor ten-ants close.

♦ Developers have been selective, focusing on strong infill locations with desirable demographics.

♦ Grocery anchored centers and neigh-borhood/community centers have seen the strongest supply growth.

♦ As with demand, supply is more preva-lent where households and single family inventory are growing.

♦ Recent rent growth was the strongest since 2008, and ahead of the apartment and office markets.

♦ Rents should continue to rise, albeit slowly, with significant differences across markets.

♦ Landlords in urban and dense suburban locations are likely to have the most pricing power.

2.9% YoY Growth

10.1%Availability

18Million SF

10-YEAR AVERAGE AVAILABILITY 11.4%

Quarterly Availability Trend

10-YEAR AVERAGE ANNUAL RENT GROWTH -0.5%


♦ Many national retailers are closing stores, dampening demand growth.

♦ Demand is healthy for experiential and personal care-related retail.

♦ Department stores, apparel, and electronics are struggling.

♦ Retail demand rising in metros with strong population and employment growth.

28Million SF

Quarterly Demand Trend Quarterly Supply Trend YoY Rent Growth Trend

as of 17Q1 four quarters ending 17Q1 four quarters ending 17Q1 as of 17Q1


Ecommerce remains highly disruptive to the retail sector resulting in large numbers of store closures even as consumers increase spending.

RentAvailability Net CompletionsNet Absorption


♦ Ecommerce remains far and away the sales growth leader, siphoning off sales from many brick & mortar categories.

♦ Retailers such as Target and Wal-Mart (other general merchandise) have seen revenue growth languish, while personal care stores with an urban footprint (e.g. CVS and Walgreens) have maintained some momentum.

♦ Store closures are expected to spike in 2017, led by chains in struggling retail categories such as department stores, apparel, and electronics.

♦ Ecommerce will remain a major disruptor. Ama-zon’s proposed acquisition of Whole Foods could significantly alter the heretofore insulated grocery category.

♦ Metros in the top right of the adjacent chart have seen strong demand growth for retail space as national chains look to tap into their healthy eco-nomic expansions. Growth in these markets has been well in excess of new construction.

♦ Metros with less exuberant economic growth, including those in the lower left hand corner of the adjacent chart, have still seen demand rise, but at a slower pace — in some cases lagging supply growth.

Retail

SALES MOMENTUM HAS VARIED WIDELY BY CATEGORY

DEMAND GROWTH LED BY HIGHER GROWTH ECONOMIES


Sources: Moody’s Analytics; US Census Bureau | CBRE-EA

Austin

Demand Growth in Excess of Supply 2009 Q4 - 2017 Q1

14%

Atlanta

Baltimore

Boston

Chicago

Charlotte

Columbus

Dallas

Denver

Fort Lauderdale

Fort Worth

Honolulu

Houston

Los Angeles

MiamiMinneapolis

Nashville

New York

Oakland

Orange County

Orlando

Philadelphia

Phoenix

Portland

Pittsburgh

Raleigh

Riverside

San Diego

Seattle

San Francisco

San Jose

St. Louis

Washington, DC

Nation

-2%Tota

l Ret

ail D

eman

d G

row

th 2

00

9 Q

4 - 2

017

Q1

2% 5%1%-1% 3% 6%0% 4% 7%

6%

10%

2%

12%

4%

8%

Gas Stations

Department Stores

Electronics & Appliances Clothing & Accessories

Other General Merchandise

Food & Beverage Stores

Sporting Goods, Hobbies & Music

Furniture & Home Furnishings

MotorVehicles & Parts

Misc. Stores

Bars & Restaurants

Building Material &Garden Supplies

Health & Personal Care

Mail Order

-8.0%

20

16 A

nn

ual

Gro

wth

Rat

e

2.0% 8.0%0.0%-2.0%-6.0% 4.0% 10.0%-4.0% 6.0% 14.0%12.0%

2006 to 2016 Compound Annual Growth Rate *Bubble size denotes total sales volume

14%

0%

6%

-8%

10%

-4%

2%

12%

-2%

4%

8%

-6%

E-commerce &

Industrial


♦ Availability rose in 17Q1 for the first time since 2010.

♦ The current level is near 16-year lows and we expect only a slight increase over the next year.

♦ Most major markets remain ex- tremely tight, facing shortages of mod-ern space.

♦ Construction has ratcheted up and will peak over the next two years.

♦ While above the long term average, annual completions are lagging demand and below prerecession peaks.

♦ Modern spaces in locations closer to urban cores are in demand, but often difficult to develop.

♦ Market conditions are decidedly in favor of landlords.

♦ Industrial rents are rising at a faster pace than the other major property types.

♦ Miami, Oakland, Seattle, and New York have seen strong rent growth recently.

♦ Supply growth should begin to cool rent increases.

6.7% YoY Growth

8.0%Availability

195Million SF

10-YEAR AVERAGE AVAILABILITY 11.2%

as of 17Q1

Quarterly Availability Trend



♦ Demand growth has moderated on a quarterly basis but has been stellar over the past two years.

♦ Industrial indicators bode well for healthy net absorption in the quarters ahead.

♦ Online and brick-and-mortar retailers are building out their distribution networks to support ecommerce growth.

248Million SFfour quarters ending 17Q1

Quarterly Demand Trend

four quarters ending 17Q1

Quarterly Supply Trend

as of 17Q1

YoY Rent Growth Trend

While supply warrants monitoring, demand growth is strong, availability is low, and rent growth leads the other major property sectors.


RentAvailability Net CompletionsNet Absorption


♦ Mid-size to smaller, infill industrial spaces have been in high demand and should remain so.

♦ Tenants are focused on filling out their distribution networks to handle the rapid growth of direct-to-consumer deliveries and returns.

♦ Amazon’s activity has been relatively balanced in terms of building size to support its stellar growth.

♦ FedEx CFO Alan Graf recently estimated that 95% of all ecommerce orders in the U.S. are handled by USPS, UPS, and FedEx.

♦ Healthy consumption growth, driven by a variety of positive economic factors, bodes well for space demand.

♦ Inventory growth has lagged consumption growth recently. Inventories may need replenishing.

♦ Expectations of moderately improving economic growth in the U.S. and abroad suggests industrial’s strong run may continue.

♦ But development increasingly bears watching and conditions will become more balanced between tenants and landlords over the next year.

ECOMMERCE DRIVING INFILL INDUSTRIAL DEMAND

CONSUMPTION LEVELS SUGGEST INVENTORIES MAY RISE

IndustrialU.S. PERSPECTIVE | MID-YEAR 2017 13

Sources: CoStar; Bentall Kennedy | Bureau of Economic Analysis; The Conference Board; Moody’s Analytics; Bentall Kennedy

Amazon FedEx UPS USPS WayfairStaples Jet Williams Sonoma

95%OF ALL U.S. ECOMMERCE ORDERS ARE HANDLED BY USPS, UPS, AND FEDEX

6.0% 120

2009 2012 20152010 2013 2016

Consumer Confidence

Consumption of Goods

Total Private Inventories

Leases Larger than 500ksf

Leases Smaller than 500ksf

2011 2014 2017

-2.0% 60

2.0%

100

-6.0%

40

4.0%

-4.0%

0.0%80

-8.0%20

-10.0% 0

Nu

mb

er o

f Lea

ses

160

200

60

100

120

20

0

140

40

180

80

For institutional use only.

ABOUT BENTALL KENNEDY

Bentall Kennedy, a Sun Life Investment Management company, is one of the largest global real estate investment advisors and one of North Amer-ica’s foremost providers of real estate services. Bentall Kennedy serves the interests of more than 550 institutional clients with expertise in office, retail, industrial and multi-residential assets throughout Canada and the U.S. Bentall Kennedy is a member of UN PRI and a recognized Respon-sible Property Investing leader ranked among the top firms around the globe in the Global Real Estate Sustainability Benchmark (GRESB) for the sixth consecutive year since GRESB was launched.

For more information, visit www.bentallkennedy.com.

For more information about Perspective, please contact:

Paul Briggs, SVP, Head of Research, Bentall Kennedy (U.S.) Limited Partnership [email protected], 617 790 0853

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