Whats Hot in Commercial Real Estate in 2013

7/30/2019 Whats Hot in Commercial Real Estate in 2013

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IN COMMERCIAL REAL ESTATEWHATS HOTSUMMER 2013


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WHATS HOT...in Commercial Real Estate

National Overview

GDP Growth and the Rise o the Millennials 3

High-quality, New Ofce Space, Creative Space 4

Healthcare Bonanza 5

Changing Spaces: Law Firms 5

E-Commerce: Bigger Box Warehouses/Smaller Box Retail 6

Multiamily 7Hot Stats 8

Table of Contents

What's Hot in...

Atlanta, GA 9

Baltimore, MD 10

Greater Boston, MA 11

Charlotte, NC 12

Cincinnati, OH 13

Columbus, OH 14

Dallas, TX 15Dayton, OH 16

Denver, CO 17

Houston, TX 18

Indianapolis, IN 19

Kansas City, MO 20

Los Angeles. CA 21

Louisville, KY 22

Milwaukee, WI 23

Minneapolis, MN 24

Nashville, TN 25New Jersey 26

New York, NY 27

Phoenix, AZ 28

Raleigh, NC 29

Sacramento, CA 30

San Diego, CA 31

San Francisco, CA 32

San Jose-Silicon Valley, CA 33

St. Louis, MO 34

Tampa, FL 35

Washington, DC Metro 36
http://pages.cassidyturley-email.com/page.aspx?QS=3935619f7de112efe28cd2dec9a4da0e7d821baca8a11e23http://pages.cassidyturley-email.com/page.aspx?QS=3935619f7de112efe28cd2dec9a4da0e7d821baca8a11e23


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WHATS HOT...

The U.S. economy is now midway through the ourth year o its recovery. While it has shown recent ashes o a more robusttrajectory potentially orming galvanized by housing and equities it has yet to prove that these stronger trends are sustainable.

Indeed, as o this writing, the Federal Reserve was still artifcially stimulating the economy by making $85 billion in asset purchases

each month (though now hinting they may begin tapering the program at the end o 2013). Until the bond-buying program comes

to an end, and the economy demonstrates that it is capable o standing on its own two eet, we will remain cautious in making our

commercial real estate predictions.

What we can say with greater certainty is that the U.S. economy remains on a consistent path o slow improvement. Real GDP is on track

to grow at a rate o 2% in 2013 roughly the same rate o growth observed in the prior three years o this recovery.

But even in this slow 2% GDP recovery there are certain commercial

real estate (CRE) sectors that are not only perorming well, but thriving.

The most notable winners include multiamily, big box distribution

center space, high-end oce space, creative oce space, medical

oce buildings and virtually any property type that is newly built or

newly renovated. There are a number o orces at work that explain

why these CRE sectors are winning in this recovery. For instance,

the rise o e-commerce and mobile technology is contributing to the massive surge in demand or distribution center space in multiple

markets across the country. Some orces refect a more risk-averse, practical consumer, which explains some o the shit in demand rom

owning to renting, rom large space to smaller space. Other orces are driven by pure demographics: Millennials those aged 20-35 are

entering their prime rental years, ueling the engine or the multiamily market; at the same time an increasing number o baby-boomers

are reaching the age where they require increased medical attention; hence, the medical oce bonanza. Demographics also explain shits

in the oce sector. With the rise o the millennial generation, the new workplace is increasingly ocused on mobility, wireless oce space,

communal work areas, new creative space and energy eciency. Properties that can tick those boxes rather than older, traditional

in Commercial Real Estate

Even in a slow 2% GDP recovery there are

certain CRE sectors that are not only

perorming well, but thriving.

product are dominating in this recovery.

The younger generation is also drawn to

edgy, urban liestyles; that explains why

most downtown areas are hot, while most

suburbs are not.

This paper ocuses on the bright spots

in CRE. In this national overview section,

we will touch on a ew common themes

observed throughout the country, ollowed

by a discussion o hot trends we are

observing at the metro level.

Millennials

Millennials

Gen X

Gen X

Boomers

Boomers


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High-quality, New Ofce Space, Creative Space Crushing ItThe high-end o the oce sector is clearly bouncing back, and most o it is newly built or newly upgraded. When we say new space we

generally mean oce space that was built or rehabbed ater 2007. This segment o the market has accounted or all, 134 million square

eet (ms), o the net absorption that has occurred since 2010. What makes that statistic even more astounding is that new space represents

only 8% o the countrys total oce inventory. Thus, there is a huge wave o tenant demand chasing a very small sliver o the market, and

consequently rents are soaring. In New York City, or instance, there were 29 leases signed recently or over $100 ps in rent; a ew deals

were reported to reach north o that to $200 ps. In Washington, DC, higher quality buildings with views o the Capitol Building are etching

rents that are, on average, $30 ps above the rest o the market. Every metric or new, high quality space is exceedingly more robust vis--vis

traditional space: vacancy or new space has been cut in hal during the recovery, while vacancy or traditional space remains at recessionary

highs; rents or new space is $12 higher than rents or traditional space.

New vs. Older Space

-10

0

10

20

30

2010 2011 2012 Q1 13

msf

Yr Blt After 08'

Yr Blt Before 08'

U.S. Office Net AbsorptionCreative space is another subplot in this evolving story o out withthe old, in with the new. Some o the common characteristics

include edgy architectures, wireless environments, walkable

locations, benching and open foor plans, and unique exteriors.

This creative space trend is most evident in tech-ueled markets

on the West Coast (e.g., Seattle, San Jose, and Los Angeles) but it

is gradually catching on in other major metros such as New York

City, Austin, TX and Washington, DC. In Los Angeles, buildings with

a creative space strategy are leading the charge in the recovery,

registering some o the strongest lease-up rates and etching some

o the highest rents and values in the city.

Still, it's not yet time to ring down the curtain on the traditional oce building model a game o musical chairs within the tenant world

will keep many assets afoat or years to come. But to appeal to the high-end and command those eye-popping rents associated with new

higher quality space, these buildings need a lot o TLC. There are currently 80,000 buildings in the U.S. that are 20 years in age or older,

accounting or 61% o the total national inventory. This presents potentially 80,000 opportunities to retrot these buildings to match todays

tastes and preerences, and the possibility o generating higher returns.

Out with the old, in with the new:

Millennials taking over. This generation (those aged 20 - 35) avors new, edgy, creative, yet smaller space requirements.

Millennials will replace baby-boomers as the primary decision makers by 2020, 51% to 21%.

Right-sizing Many businesses shrunk sta during the recession. As their leases expire, they are looking or space that

better ts a smaller headcount new space is generally more fexible and congurable.

Change in tastes and preerences: The new workplace is about mobility; wireless oce spaces where cubicle and private

oces are being replaced by communal work areas with a smattering o private meeting rooms. These changes in oce

space usage began with tech rms but are spreading to other tenant types as mobility, benching, shared space and collaborative

environments in energy ecient space rise in popularitythe net result being smaller oce ootprints or many tenant types.


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Every day or the next 19

years, more than 10,000

baby-boomers will reach the

age o 65 driving record

levels o demand or medical

ofce space.

Healthcare BonanzaThere are 75 million baby-boomers in the U.S. the largest o the demographic cohorts. The

simple act is that as a group they are getting older, sicker and atter, and that is creating a

healthcare bonanza in the country. Since 1990, employment in healthcare services has grown

nearly our times aster than U.S. employment overall. It is not only strong growth, its reliable

growth. Healthcare employment has added jobs throughout each o the last three recessions

(1991, 2001 and 2007), and that includes a greater number o doctors, nurses and medical

assistants. A number o cities are cashing in. In the well-established medical hubs, such as

Nashville and Raleigh, medical oce construction increased over 50% since 2007 surging

in the ace o a weak recovery. In Boston (biotech hub), Minneapolis (medical device rms),

suburban Maryland (NIH & medical research), New Jersey (pharmaceutical hub) - health

services have already grown to account or about 15% o total employment in those cities.

Pittsburgh a traditional rust-belt metro has largely reinvented itsel based on healthcare

growth and research. More than 246,000 people in Pittsburgh work or health companies.

Louisville, Cleveland, Houston and St. Louis, all report surging demand or medical space.

In nearly every major metro across the country, the heath-service employment chart reveals

nearly the exact same trend, robust growth year ater year.

The growth in demand or medical oce space is only going to accelerate. Every day since

January 1, 2011, and or the next 19 years, more than 10,000 baby-boomers reached

or will reach the age o 65, according to Pew Research. People over the age o 60 visit a

doctors oce twice as oten as does the general population and are prescribed our times

the number o prescription medications. Investors are clearly savvy to these trends. While

sales volume or nearly all CRE product types are still hovering at 2004 levels, sales o

medical oce buildings posted a record high in 2012.

Changing Spaces: Law Firms

Historically, law rms have been

tagged as having overly large

executive oces and a substantial

amount o space dedicated to

legal documentation and legal

libraries. Times have changed.

Technological developments

such as cloud storage capabilities

have eliminated the need orstoring bulky legal books onsite.

Moreover, law rms are beginning

to embrace the ecient space

movement which is materializing

or commercial space. There are

examples in the marketplace o

law rms that have downsized

and moved to modernized layouts

with single-size oces that allow

or more ecient foor plans. In

Washington, DC or example, o

the 29 leases executed or greater

than 30,000 s since the beginning

o 2011, 35% (10 leases) were or

less space than tenants originally

occupied. And o those 10 deals,

7 opted to move rom traditional

oce space into brand new space.


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While all that is compelling enough, lets layer in policy. The impact rom the Aordable Care Act (nicknamed Obamacare) will be anotherboom to the healthcare sector. The program will expand insurance coverage to an additional 22 million people, spurring even more

demand or care. Every one additional patient typically creates two square eet (s) o new demand or medical ofce space. Assuming no

change in policy, Obamacare alone will generate an additional 46 ms o new demand or medical space by 2017.

E-Commerce: Bigger Box Warehouses/Smaller Box Retail

Throughout the recovery, e-commerce has been the elephant in the room or retailers. While retail sales in the U.S. have averaged a 5%

growth rate or each o the past three years, the growth rate or e-commerce is triple that. Meanwhile, it is no coincidence that the retail

categories where online sales have been strongest are the same ones in which bricks-and-mortar chains have struggled the most. As

Amazon and other purely online players continue to grow, retailers are rushing to bee up their e-commerce platorms in order to compete.

Retail activity used to be about the big box store; it is now about the big box warehouse in particular, the mega big box distributionwarehousethe new industrial product type that sits at the nexus o retail and industrial.

While the old bulk warehouse paradigm used to average 100,000 s and was utilized primarily or regional distribution chains, the new

model is much larger and much more complex. In the new world, 300,000 s is small and million-square-oot warehouses are not

uncommon. That is because the new mega warehouses oten serve dual roles as distribution centers or stores as well as e-commerce

ulfllment centers. Instead o just supplying 50 stores in a region daily, warehouses may also be responsible or ulflling 50,000 individual

e-commerce orders per day as well.

Demand or mega bulk warehouse space

is being driven by retailers as diverse

as Walmart and Nordstrom. Still thelargest single player remains Amazon.

com, which currently has 50 ms o

distribution space with ambitious plans

to increase its ootprint to nearly 90 ms

by 2016. In all, we estimate the market

will witness over 80 ms o demand over

the next ew years in a marketplace that

has very little inventory that can currently

accommodate these needs as users

increasingly require more that just space

they need greater stacking capabilities,more dock doors, greater mezzanine

space and more parking, power, HVAC

and ESFR capabilities.

Likely to reach 30% of all retail sales by 2025

PROJECTED

The Rise of E-Commerce

U.S. Retail E-Commerce Sales as a Portion of Total U.S. Retail Sales


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WHATS HOT...

Multifamily Yes, a lot of new supply, but also, a lot of new demandThe multiamily sector is booming. Just take a stroll around almost any city in the U.S.

and count the cranes. The demand numbers remain compelling. For the last three years

through April o 2013, the apartment sector has absorbed 45,000 units per quarter the

strongest demand since the technology boom o the late 1990s. U.S. apartment vacancy

ended the frst quarter o 2013 at 4.3% the lowest national vacancy rate in over a

decade. Allo the 82 markets tracked by Reis posted year-over-year increases in asking

and eective rents in the frst quarter o 2013. In some markets, supply is shockingly

scarce. In New York City, or example, the vacancy rate is 1.9%. Similar tight markets are

San Diego, San Jose and Minneapolis which have vacancy rates o 2.5% or lower. Developers are gearing up. Reis estimates that 634,000

new apartment units will deliver across major markets over the next fve years. This will be the largest development wave in over a decade.

Some ear that with housing coming back, the multiamily industry may again be overbuilding.

Certain markets will clearly overdo it, but in general the demand metrics support the new construction. Household ormation is the

apartment sectors trump card. The prime renter cohorts are ages 20-35 (echo-boomers) and those over 65 years old (the leading edge

o the baby-boomers). According to the Census Bureau, those two groups will grow by 2.2 million annually over the next three years the

astest rate o growth since the early 1980s. That means demand or rental units is potentially 50% above the norm and doesnt even

include the pent-up demand now being unleashed in the recovery. Moreover, the notion that a healthy housing sector and a healthy rental

market cannot co-exist goes against 50 years o business cycles. Every newly completed single-amily home creates 3.05 jobs. Higher

employment leads to aster household growth, which will only add to multiamily demand.

in Commercial Real Estate

The notion that a healthy housing

sector and a healthy rental sector

cannot coexist goes against 50

years of business cycles.


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Hot Stats

The number o metro areas that have now

exceeded pre-recession levels o employment329

Economy...

8 YEARSThe average length o a U.S. expansionarybusiness cycle since 1981 currently in year 4

2.3 MILLIONThe current rate o job growthin the U.S. or 2013

Industrial

72.3 MSF Industrial spaceabsorption in last 6 months strongest

gains in 15 years

21 OUT 68 Metros tracked postedrecord levels o industrial absorption Q1 13

2.5% Year-over-year decline in vacancyor newly built bulk distribution space vs.

0.8% decline or older distribution space

Ofce

100% O the net growth in the ofce sector has been inconcentrated in buildings developed or rehabbed since 2008

$12 The premium or Class A rents overClass B a record high

Retail

16.3% The growth o online retail sales vs. 5.1% overallgrowth in retail sales in 2012

30% The marketshare o e-commerceby 2025, up rom 8% today

Multiamily

4.3% U.S. apartment vacancy atthe end o Q1 13 the lowest national

vacancy rate in over a decade

161,000 Units o annual new demand or apartmentsrom household ormation 50% above the average

Medical

85% The growth rate in healthcare employmentsince 1990 4x aster than total nonarm

46 MSF Future demand or medicalofce will materialize over

the next 4 years


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WHATS HOT...

Metro Atlanta is nally emerging rom many o the struggles caused by the Great Recession.While oce vacancy remains elevated and unemployment has just dipped below 8%,

encouraging signs have begun to appear that point to Atlantas next wave o growth. Many

businesses are expanding, particularly proessional services, technology, healthcare and

related companies (especially healthcare IT and biotech). As an example, digital marketing

rm ExactTarget recently announced an expansion in Atlanta, creating 225 additional jobs,

with its CEO oering a simple explanation: Atlanta is a great place to grow a business. Firms

o all sizes are working to gain eciencies in their space usage and many are considering

relocation o their headquarters or back-oce space. Some large rms are considering

launching new developments.

As they weigh their relocation options, many

companies are attempting to exploit one o Atlantas

hottest trends: the rise o young proessionals

generally aged 20 to 35, oten called Millennials.

The Atlanta Regional Commission recently

reported that Millennials accounted or 36% o

metro Atlantas workorce. (By comparison, baby-

boomers accounted or 26%.) By 2030, Millennials

will comprise ully 75% o Atlantas workers. The workorce is also attractive to employers.

Almost hal (46%) o Atlanta residents hold a bachelors degree or higher (compared to 28%

nationally) and companies oten must compete aggressively or that kind o talent, such as

oering amenities and incentives desired by these workers.

Unlike baby-boomers, many Millennials place a higher premium on quality o lie than

retirement packages or opportunities or advancement. Companies are learning that young

proessionals are less concerned with buying a house in the suburbs and more interested

in access to public transit, pedestrian and bike-riendly areas and vibrant mixed-use

environments in which to live, work and play. The Atlanta markets enjoying the greatest levels

o activity in 2013 Midtown, Buckhead and Central Perimeter all oer some variation

o these components and most active developments are designed

to provide these characteristics to businesses and their employees.

Atlantas largest current projects include Ponce City Market a 1.1

million square-oot redevelopment o the 87-year-old Sears building

in Midtown and Buckhead Atlanta a 900,000 square-ootmulti-block development in the heart o one o Atlantas wealthiest

neighborhoods. Both projects are due to open in 2014 and include a

mix o high-end retail, restaurants, oce space and residential units.

This trend is also evident in Atlantas northern suburbs, like Avalon, a

$600 million mixed-use development in North Fulton County. Like the other projects, Avalon

will eature retail, dining, residential and oce components, as well as two hotels. This type o

development would have been unthinkable in Atlanta just a ew years ago. It is clear rom the

latest trends that Millennials are having a large infuence in shaping what type o commercial

real estate emerges as hot in Hotlanta.

in ATLANTA?

By 2030, Millennials will

comprise ully 75% o

Atlantas workers.

Metro Atlanta expects to

gain 46,300 jobs in 2013,

53,800 in 2014, and 61,700

in 2015. An average o 25% o

these new jobs are expected to be

premium or high-paying jobs.

Nearly 4 ms o

mixed-use space is underconstruction in just three projects.

Job growth is projected to

be strongest in the

proessional services, inormation

technology, education and

healthcare sectors.

Millennials are having a

large infuence in shaping

what type o commercial

real estate emerges as

hot in Hotlanta.

Elizabeth Green

[email protected]

36%MILLENNIALS

WORKFORCE

$
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With the increase in size o Fort Meade due to the Base Realignment and Closure Act o 2005(BRAC), the Baltimore Metropolitan region has become a hotbed o cyber security activity.

Fort Meade is currently the largest employer in Maryland with more than 56,000 employees,

and is home to the U.S. Cyber Command, the Deense Inormation Systems Agency and

the National Security Agency. These agencies, and the emphasis on ever-growing threats o

cyber-attacks on both public and private systems, have been strong engines driving the local

ofce sector. Baltimore has absorbed 3.5 ms o ofce space since 2010 in large part due to

cyber security-related employment growth.

The Baltimore Metropolitan region ranks third in

total cyber security job postings (13,393), trailing

only traditional tech powerhouses Palo Alto (17,570)

and San Francisco (13,710)1. Indeed, the impact o

cyber security on Baltimore is easily seen in the job

numbers. Employment in the highly skilled category

o proessional, scientifc and technical jobs has

grown by more than 24% in Baltimore since the

beginning o 2004. Thats the sixth largest growth

rate in the country. In addition to the increased size

o Fort Meade due to BRAC, the Baltimore region has also benefted rom the high volume o

ederal spending made available to private contractors and cyber security companies in the

area. At the end o 2011, ederal spending accounted or more than 29% o Baltimores Gross

Metro Product. Unlike other areas in the ederal budget which are now being squeezed, cyber

security remains in growth mode. The United States Government or FY 2014 report states,

the budget supports the expansion o Government-side eorts to counter the ull scope o

cyber threats. The proo is in the pudding. While most metros are registering job losses in

the ederal sector, Baltimore has actually added 1,100 government-related jobs since 2011.

The growth in cyber security has clearly been a boom or the local ofce sector. Over the past

10 years, the Northern Baltimore-Washington (NBW) Corridor submarket has experienced an

average annual positive absorption rate o 817,000 square eet o ofce space per year. While

demand or ofce space suered during the Great Recession, the

submarket still managed to eke out positive absorption in both 2008

and 2009 compared to the nationwide absorption level o a mere

87 ms during that same period. With the worst behind us, the NBWsubmarket is re-accelerating once again; the area has averaged

700,000 s o positive absorption annually since 2009 and the

submarket posted another 290,000 s o positive absorption in the

frst quarter o 2013. Developers have taken notice o these stronger

trends. There are nearly 1.3 ms o ofce space under construction in the NBW Corridor with

several million additional s waiting in the pipeline. In general, whatever real estate the cyber

security industry touches in Baltimore, it turns hot very quickly.

1 Source: Cyber Security Jobs Report The Abell Foundation & CyberPoint International, LLC 1/2013

Matthew Myers

[email protected]

in BALTIMORE?

The Department o Homeland

Security has increased its

cyber security workorce by 500%

over the past 2 years.

Baltimore Proessional/

Scientifc/Technical jobs have

increased by 6.7% in the past year,

2nd nationally.

The annual global cost o

cyber crimes is estimated

at $100 billion a year.

The NBW Corridor submarket

experienced 896,125 s

o positive ofce space absorption

in 2012.

President Obama recently

proposed more than $13

billion in cyber-related programs in

his fscal-year 2014 budget.

Employment in the

highly skilled category oproessional, scientifc

and technical jobs has

grown by more than 24%

in Baltimore since 2004.

$

6.7%

2012 TECH

JOB GROWTH


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Financial and proessional service frms will always account or a signifcant portion o greaterBostons tenant demand. But startups and biotech frms, despite their traditionally smaller

ootprints, have rapidly become the key players in Bostons race or commercial space.

Between MIT and Harvard is East Cambridges Kendall Square neighborhood where, or

the past eight quarters, rents have surged. Indeed, asking rents or Class A ofce space

have jumped 12.7% just in the past year, driven by demand rom the entrepreneurial

establishments rising rom this nexus o intellect (deals are currently being executed in the

low $60s PSF). As a result, many o the enterprising frms born in Cambridge are seeking

space outside o the neighborhood but still along the MBTA red line due to tight conditions

and soaring rents.

As a general rule, entrepreneurs are cool people.

And where they choose to cluster will inevitably

become hotspots. Take the 2012 migration to

Bostons Seaport District. At the beginning o that

year, many Kendall Square tenants could fnd Class

A space in the Seaport District in the mid-to-upper

$30s it was scarce, but available. By the end

o the year, it had become a myth with deals

averaging in the low $40s to mid-$50s.

A victim o its own success, the spiking Seaport

rents are orcing entrepreneurial companies tocontinue their hunt or economical, centrally located

space, and Bostons Financial District appears to be the next it spot. At the end o the frst

quarter o 2013, low-rise space in the Financial District was still a value play. Asking rents

were in the low-to-mid $30s PSF, a more than 70% discount o the Class A space in the

Seaport District.

While there was a time ollowing the Great Recession when it

seemed this low-rise space might never be flled, last year PayPal

and Technip took the plunge and relocated into the Financial

District. Cassidy Turley is currently tracking a handul o tech

requirements we expect to land here in the second hal o 2013

and were excited to see what happens as one o Bostons most

traditional neighborhoods makes a move to become one o the

citys hippest.

Ashley Lane

[email protected]

in GREATER BOSTON?

Asking rents or Class A

ofce space in East

Cambridges Kendall Square

neighborhood have jumped

nearly 13% in the past year.

Asking rents or Class A

space in Bostons Seaport

District have climbed into the

low-$40s to mid-$50s.

Low-rise space in Bostons

Financial District oers a

70% discount rom Class A space

in the Seaport.

Spiking Seaport rents are

forcing entrepreneurial

companies to continue

their hunt for economical,

centrally located space

Bostons Financial District

appears to be the next

it spot.

12.7%

KENDALL ASKINGRENTS, CLASS A

$


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WHATS HOT...

Master-planned and mostly speculative Ballantyne Corporate Park known locally as Ballantyne has been one o Charlottes hottest submarkets throughout the recession and into the recovery

with its mix o live-work-play options. To be clear, there are other submarkets in Charlotte that

are also perorming much stronger as o late, but Ballantyne has been one o the bright spots.

Owner-operator Bissell Companies has made no secret o its recent success, divulging that it has

signed nearly 3 million square eet (ms) o total leasing (new deals, renewals and expansions)

between 2009 and 2012, while also constructing six additional buildings summing to slightly

more than 1 ms during that period. Ballantyne is comprised o 29 ofce buildings with just

over 4 ms o space, and the past several successul years o activity has caught the attention

o several high-profle national companies. A number o big-name tenants have located to

Ballantyne Premier, BAE Systems, XPO Logistics,

and Extended Stay Hotels, to name a ew drawn

by the areas business atmosphere, wide-ranging

amenities and ree parking.

However, Ballantyne got another jolt recently when

insurance behemoth MetLie announced in March

that it was leasing 340,000 s at the newly completed

(and speculative) Gragg and Woodward buildings.

With that, Ballantyne gained the largest tenant in

its 17-year history and simultaneously saw vacancy decline by 8.5 percentage points to a

healthy 13.9%. With Ballantynes recent building spree, the areas vacancy rate has requently

vacillated with each new delivery and new major lease, though the fve-year average is 20.7%.

Not only is MetLie now Ballantynes largest tenant, but the relocation announcement

highlights many o the winning business strategies already implemented by Ballantyne and

the thriving community that has grown up around this rapidly growing ofce park. It reafrms

Charlottes strengths: home to a young, educated workorce that is big-bank trained, a high

quality o lie, and relatively low costs o living and o doing business.

Other major characteristics that have contributed to Ballantynes

success are:

Very high-quality ofce product that was all built ater 1996.

Though this is changing as Ballantyne matures, the prevalence

o new construction means there is a relative dearth o second

generation space. Shell space allows companies to ully customize

their spaces.

New buildings are being constructed with parking decks, which enable companies to

accommodate more dense ofce environments. Most other suburban Class A buildings in

Charlotte do not have deck parking which de acto limits density.

Immediate interstate access via Charlottes beltline Interstate 485. The other premier ofce

market, SouthPark, is not directly accessible by any o the regions three interstates.

Sarah Godwin

[email protected]

704.887.3021

in CHARLOTTE?

Ballantyne has 29 ofce

buildings totaling more

than 4 ms. Only three o

those buildings were not

speculatively built.

Ballantynes latest

550,000 square-oot

speculative project was hailed by

CoStar as the largest speculative

project in the nation in mid-2011.

Ballantyne enjoyed nearly

3 ms o total leasing

(new, renewal, and expansion)

in 2009-2012.

Ballantyne is zoned or

almost 2 ms o additional

ofce space.

Ballantyne has been oneof Charlottes hottest

submarkets throughout

the recession and into the

recovery with its mix of

live-work-play options.

8.5%

METLIFE

VACANCY IMPACT


13/37

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The economic recovery in Cincinnati is making consistent progress. So ar in 2013,Cincinnati is on pace to add 10,100 net new jobs, a pace on par with the growth

observed in the prior two years o this recovery. The local economys rebound has

aided in the perormance o oce, industrial and retail markets which are refecting

decreasing vacancies and positive absorption. Still, vacancy remains elevated across

most product types, so the improvement in demand has yet to translate into signicant

rent growth. Also, speculative construction remains dormant.

However, one hot trend that may be fying

under the radar in Cincinnati is the surprisingly

strong increase in tourism. In 2012, the city was

named the #3 U.S. travel destination by Lonely

Planet and it played host to the World Choir

Games which poured $73.5 million into the local

economy and attracted over 20,000 visitors.

Cincinnatis surprising rise as a tourist hot spot is

also expected to continue as the Great American Ballpark (home o the Cincinnati Reds)

was recently chosen as the venue or the 2015 Major League Baseball All-Star Game.

The rise in tourism has prompted a wave o new hotel development concentrated in

Cincinnatis CBD. For 27 years, virtually no new hotels were built in downtown Cincinnati.

Since the recession, there has been a surge o activity, leading to the development o six

new hotels. A ew notables include the 134-room Residence Inn Cincinnati-Downtown

and the 156-room 21c Hotel and Museum. There are interesting examples o ocebuildings getting converted to hotels. For instance, a vacant 232,000 s oce building in

the heart o the CBD was recently sold to Columbus, OH-based EV Bisho Co., which is

planning to covert the property into a 312-room luxury hotel. The Old Enquirer Building

at 617 Vine Street is currently being retrotted rom an oce property into two hotels,

a 105-room Homewood Suites and 144-room Hampton Inn &

Suites. Finally, plans are being pursued that would transorm

the ormer Cincinnati School or Contemporary and Perorming

Arts into a 140-room boutique hotel. In addition to the six hotels

currently under development, there is a pad-ready site at the

Banks project, a mixed-used development located between

Great American Ballpark and Paul Brown Stadium (home o theCincinnati Bengals) along the banks o the Ohio River, that could

acilitate the construction o another 200-room hotel.

Cincinnati, like many other cities, has also seen demand or urban living skyrocket. 88

apartment units opened in November 2012 at the Reserve at 4th and Race and another

1,427 units are in the works.

James Flick

[email protected]

in CINCINNATI?

Cincinnati has added

31,400 jobs since 2010.

In 2012 Cincinnati was

ranked as the #3 U.S. Travel

destinations by Lonely Planet and

hosted the World Choir Games,

which pumped $73.5 million into the

local economy and attracted 20,000

visitors to the City.

Ater 27 years o no activity,

6 new hotels have either

opened or are being developed in

downtown Cincinnati since 2011.

Demand or urban living

has led to 1,427 new

planned multiamily units in

Cincinnatis urban core.

The rise in tourism has

prompted a wave of

new hotel developmentconcentrated in

Cincinnatis CBD.

20,000VISITORS IN2012

TOURISM IS UP

#3

H


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In an age dominated by technology, the Columbus market may be fying under the radaras one the markets cashing in rom the tech-ueled growth. The Columbus region boasts

upwards o 2,000 technology establishments employing 35,000 people and the market

is evolving into one o the astest growing tech cities in the country (ranked #2 according

to a March 2013 Gallup Poll). For many tech rms looking or a new location to grow their

operations, Columbus makes a lot o business sense.

With Ohio State University (OSU) embedded into

the local economy, along with 54 other colleges and

universities, Columbus is a city teeming with young,

hungry tech minds. Moreover, the cost o living is one

o the lowest in the country; or tech rms, that puts

Columbus into the low-risk/high-reward category.

The new tech growth cycle does not appear to be waning anytime soon. In the early months

o 2013, tech companies such as IBM, Verizon and SpeedFC were expanding their current

acilities in addition to creating 500, 500 and 250 new jobs, respectively. An oshoot rom

the tech-growth cycle is the rise o online high schools that have seen signicant increases in

enrollment. Since its ounding in 2001, the online high school, ECOT, has seen its graduating

class grow rom 21 students to more than 2,000 in 2012.

The booming tech trend is also helping to uel robust demand or apartment units. Over the

last two years, Columbus has absorbed 6,200 rental units. Except or those during the tech

boom o the late 1990s, these are the strongest demand levels on record. Multiamily space

in Columbus is currently 95% occupied. As thousands o young people remain in the areaater they graduate rom college, and with good prospects o landing a high-paying tech job,

the Mayor o Columbus has approved the construction o thousands o multiamily units

throughout the city, particularly in ormerly distressed areas just outside o the metro area.

Between the large university population, diversity o industries and

a geographical location that is within a 10-hour drive o nearly 50%

o the U.S. population, Columbus should continue to evolve into a

signicant tech hub in the Midwest, and the technology sector will

be a key engine driving the local property markets going orward.

Jeff Tyndall

[email protected]

614.827.1894

in COLUMBUS?

Tech-employment in

Columbus has grown by

33% since 2003.

Columbus is No. 8 on Forbes

Top 10: Best U.S. Cities or

Tech Jobs.

Columbus unemployment

rate is 1.4% below the

national average.

The market is evolving

into one of the fastest

growing tech cities in

the country.

95%

MULTIFAMILY

OCCUPANCY

#8


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By most economic measures, the Dallas market has clearly been one o the strongestin this recovery, and the robust trends continue in 2013. Dallas has absorbed 3.1 ms

o oce space over the last six months twice that o the next closest metro, Seattle,

at 1.4 ms. But the macro trends gloss over what is perhaps the hottest commercial real

estate sector in Dallas right now: mixed-use.

Physical aspects o the workplace environment

are having an increasingly direct impact on

the productivity, comort, job satisaction

and morale o the people working within it.

Included in this physical environment are such

amenities such as restaurants, shopping, dry-

cleaners, tness centers, conerence rooms,

landscaped green areas, and most importantly,

close proximity to housing. As the importance

o talent recruitment and employee retention

continues to rise, employers are recognizing

that workplace amenities are huge actors that

directly infuence where they should oce.

In act, employee-riendly oce space is one o the primary reasons why Dallas various

mixed-used projects have been consistently hot across the metroplex in recent

years. The Far North Dallas submarket has the amenities many companies are looking.

Legacy Town Center I, II, and III (523,043 s) has shops and restaurantstotaling morethan 600,00 s and more than 3,600 apartments in the Town Center alone. Since

Legacy Town Center Portolio was built in 2002-2006, average quoted rental rates

have dramatically increased to $33.00 ps plus electric rom the original listing price o

$25.50 ps plus electric and is currently 95% leased. In the North Central Expressway

submarket, the Oces at Park Lane (231,227 s) has over 800,000 s o retail property

and over 300 apartments. Similarly, Park Lane is 98% leased with rates at an all-time

high o $22.00 ps plus electric. In the past 12 months both o these developments

have expanded and/or plan to expand their oce space to meet

growing demand.

With such high demand or mix-used, high-amenity product,

developers have shited into a higher gear. There is currently

2.1 ms o mixed-use development in the pipeline. And the

numbers conrm that these new projects are leasing up quickly.

For example, o the 2.1 ms in the development pipeline, 26% is

already pre-leased.

In other words, combine a robust economy with a product that most businesses want,

and the end result is a mixed-use segment o the market that has become white hot.

2.1MSF

MIXED-USE

DEVELOPMENT

Alexandra Jennings

[email protected]

in DALLAS?

Since Legacy Town

Center Portolio was built

in 2002-2006, the average

quoted rental rates have

dramatically increased to $33.00

ps plus electric.

In the Legacy area alone,

there are our oce

buildings currently under

construction.

Craig Halls new tower in

the Art District was the

rst multi-tenant oce building

permit led downtown in almost

seven years.

Employee-riendly ofce

space is one o the primary

reasons why Dallas various

mixed-used projects have

been consistently hot

across the metroplex in

recent years.


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The Greater Dayton economy is acing signicant challenges due to the sharp cuts ingovernment spending. Over 25% o Daytons workorce is employed by the manuacturing and

aerospace sectors, which includes more than 27,000 civilian and military personnel that work

at the Wright Patterson Air Force Base. Federal sequestration has resulted in sizeable military

budget cuts and unpaid urloughs or thousands o deense employees. Despite the dark

cloud o sequester looming over the local economy, there is clear optimism and momentum

in certain segments o Daytons commercial real estate market. The three clearest bright spots

involve construction in the areas o industrial, healthcare and multiamily. Demand or real

estate space in these three sectors has been ramping

up or several months, so much so, that Site Selection

Magazine recognized Dayton as the #1 mid-sized

metro region or business acility projects in 2012.

In metro Dayton, much o the available industrial

inventory is antiquated, and thereore, it ails to meet

the needs o todays advanced manuacturers and

logistics companies. Sensing opportunity, developers

currently have over 1.17 million s o industrial-specic construction projects underway in

Greater Dayton. Major projects include a 250,000 s nutritional drink plant or Abbott Labs in

Tipp City, a 124,000 s addition or Piqua-based automotive supplier Industrial Products Co.,

and an 83,000 s ood processing plant or White Castle in Vandalia. There are also rumors o

a major company planning to build a 2 ms distribution center in Daytons north submarket.

The healthcare industry, which employs 31,000 people in Dayton, has also been a airly reliableeconomic engine driving growth. Since 2010, 1.5 ms o new healthcare space has been

developed. Two new hospitals were built rom scratch: the 474,000 s Springeld Regional

Medical Center in Clark County and the 278,000 s Soin Medical Center in Beavercreek. In

addition, Kettering Health Network added a 5-foor, 70,000 s wing to Grandview Medical

Center this year. Its rival, Premier Health Partners, added a 484,000 s patient tower to

Miami Valley Hospital in late 2010 and a 200,000 s tower to Miami Valley Hospital South

in Centerville last year. Premier also just opened a 32,000 s satellite

Emergency Center in the eastern Greene County city o Jamestown.

The multiamily sector is also posting hot numbers in Dayton.

According to the Downtown Dayton Partnership, the apartment

vacancy rate in downtown Dayton currently ranges between 2% and

3%. As o mid-June 2013, there were ewer than 1,000 apartment/

condo units vacant in the entire downtown area. The combination o

high oce vacancy (currently 35.7% in downtown Dayton) and increasing demand or urban

living space has resulted in a push to convert downtown oce buildings into apartments and

condominiums. Since 2011, 25 downtown condominiums have been built, with another 55

units projected to open within the next 12-18 months. In addition, plans were announced

or construction o a 200-unit downtown student housing complex near Sinclair Community

College, and the 110-unit Lux Lots apartments in the ormer David Building on E. Third Street.

Jarrett Hicks

[email protected]

in DAYTON?

29% o Daytons economy is

linked to ederal spending.

The Dayton area

unemployment rate is

7.6%, down rom 8.1% just one

year ago.

With over 27,000

employees, Wright

Patterson Air Force Base is the

largest single site employer in the

state o Ohio.

In 2013, Abbott Labs will

complete a 250,000 s

nutritional drink plant in Tipp City

at a cost o $270 million.

Two new major hospitals

have been built in Greater

Dayton since 2011.

Site Selection Magazine

recognized Dayton as

the #1 mid-sized metro

region for business

facility projects in 2012.

$

INDUSTRIALCONSTRUCTION

1.17MSF


17/37

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The Denver Metro market continues to ride a wave o positive momentum, with strongeconomic indicators aiding the growth and expansion o the local real estate market.

Through April o 2013, the market was on pace to add over 34,000 jobs in 2013, helping

to bring the metros unemployment rate down to 6.9%. Colorado has done an excellent

job o attracting new businesses to the region, and ranks as one o the top three states

or supporting business innovation according to the

U.S. Chamber o Commerce. In the past 12 months

alone, 11 major corporations have relocated their

headquarters to the Denver Metro market, including

Arrow Electronics and DaVita HealthCare Partners.

Multiple industries are leading the market expansion,

most notably, inormation technology and sotware.

Inormation technology has always accounted or a

signifcant portion o Colorados workorce, with the state having the third largest concentration

o high-tech workers in the country. However, sotware companies have had particular

success in recent years. According to Inc. 5000s list o companies with the highest three-

year percentage growth in the Denver Metro market, seven o the top ten companies were

sotware companies. Boulder startup Rally Sotware exemplifes the success o this industry,

having raised $84 million in April o 2013 in the frst signifcant IPO or a Denver-based

sotware company in the past decade. Since the IPO, shares o the company have increased

over 40%. Given Rallys IPO success, it is likely that a number o other growing local tech

companies will go public beore the end o the year. The growth o the sotware industry is

already evident in the real estate market, increasing demand or data center industrial space

and high density ofce space or call center and customer service use. Currently, 30% o new

ofce tenant demand is comprised o sotware and technology frms.

Another industry poised or uture growth and certainly one unique to Denver is the

marijuana industry. In January o 2014, Colorado will begin licensing retail establishments

to sell marijuana products to anyone over the age o 21. Currently, only medical marijuana

dispensaries are permitted to distribute the substance, and then only to individuals with

medically prescribed cards. Even with these conditions in place, there are well over 500

dispensaries and 150 processors o cannabis-inused ood statewide.

These numbers are expected to increase signifcantly once recreational

sales begin. While controversial, the marijuana industry is likely to provea net positive or commercial real estate throughout the state, not only

or retail and warehouse space, but or ofce space as well. Because

marijuana is currently illegal under Federal law, many banks, insurance

companies and other auxiliary industries will not support the industry.

Thereore, the emergence o a potentially vast network o business support companies could

in theory grow ofce demand throughout the state. Colorado is headed into uncharted territory

come January and it is difcult to estimate the true impact this new industry will have on

commercial real estate demand. But with an estimated 1 ms o warehouse space leased to

meet the existing medical demand and nearly 1,000 license applications awaiting approval,

Colorados commercial real estate sector stands to see some green o its own.

Andrea Jones

[email protected]

in DENVER?

Through April 2013, the

Denver market has added

over 34,000 jobs, bringing

unemployment down to 6.9%.

Colorado has the 3rd largest

concentration o high-tech

workers in the country.

According to Inc. 5000s list

o companies with the highest

three-year percentage growth in the

Denver Metro, seven o the top ten

were sotware companies.

Starting in January o 2014,

Colorado will begin allowing

licensed retail establishments to sell

marijuana and marijuana-related

items to anyone over the age o 21.

An estimated 1 ms o

warehouse space is currently

leased to meet the existing medical

marijuana demand and nearly 1,000

license applications currently await

approval.

In the past 12 months,

11 major corporations

have relocated their

headquarters to the

Denver Metro market.

$

2.2%

JOB GROWTH

3


18/37

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Thanks to the healthcare industry, the Port o Houston, and the energy sector, Houston hasbeen one o the bright spots in this lackluster recovery. Although all three sectors explain

Houstons healthy economic trajectory, it is the energy sector that is keeping this Texas City

hot. Houston is home to every segment o the oil and gas industry including upstream

energy (exploration and production, equipment and manuacturing), downstream energy

(refning and petrochemicals), and distribution and energy trading. As the unrivaled epicenter

o the global oil and gas industry, Houston can accredit 50% o the local economy to the

petroleum, natural gas and chemical industries. The city has roughly 3,700 energy-related

establishments; more than 500 exploration and

production frms and more than 150 pipeline

transportation establishments. In addition, the city

is recognized as the center or emerging alternative

sources. The Institute or Energy Research (IER) and

the Advanced Energy Consortium are both located

in Houston and working to expand research and

development o alternative and renewable energy.

The massive energy sector has provided a source o economic stability, even in the

midst o the national recession. As o March 2013, the city recovered 230.5% o the

jobs lost in the recession. In other words, Houston has added more than two jobs or

every one that was lost ater the downturn. With an abundance o this important natural

resource, to go along with a geographical advantage in serving multiple markets and a still

aordable housing market, people continue to pour into Houston. And as everyone in the

CRE industry knows, the real estate game is a whole lot easier in cities that have strong

population growth. For the last decade, Houston has consistently ranked in the top 3 out

o all major metros in terms o net migration into its city.

Houstons CBD and western submarkets have been the clear benefciaries o the strong

economic trends. Since 2010, Houston has absorbed 7.7 ms, and 55% o that growth

has been concentrated in the CBD and the western submarkets. The ervent demand or

living and working in these submarkets has prompted developers

to propose ofce, residential and retail projects in and around

these areas. Once again, the energy sector is driving the growth.

An astonishing 52% o ofce space in the CBD is occupied by

energy-related industries. Energy giants such as EOG Resources,Plains All American Pipeline and Plains Exploration and Production

are headquartered in the downtown submarket. Due to energy

company relocations and expansions, the Energy Corridor

submarket, has been dubbed one o the citys astest-growing

submarkets over the last decade. More than 4 ms o ofce space (out o the 19 million in

the submarket) can be accredited to multi-national corporations such as ConocoPhillips,

ExxonMobil, Shell Oil and British Petroleum.

Lizzie Layne

[email protected]

713.572.0114

in HOUSTON?

Houston is home to 40 o

the nations 145 publicly

traded oil and gas exploration and

production frms, including 11 o

the top 25.

The nine refneries in the

Houston region produce

2.3 million barrels o crude oil per

calendar day approximately 50%

o the states total production and

13.8% o the U.S. capacity.

Among the nations 20 largest

metro areas, the Houston-

Sugar Land-Baytown Metro Statistical

Area had the astest rate o job growth

in the 12 months ending March 2013.

The Brookings Global

MetroMonitor ranked

Houstons economy #1 in the U.S.

and # 40 in the world.

Houston can accredit

50% of the local

economy to the

petroleum, natural gas

and chemical industries.

52%CBD SPACE

OCCUPIED

#1


19/37

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History shows that cities ortunate enough to be at the nexus o trade routes almost alwaysfourished and those that not only transported hot commodities but also produced them oten

saw their property markets catch re. Such is the case or Indianapolis where a red-hot logistics

market, stoked by rekindled manuacturing demand, has set the Indianapolis industrial market

ablaze. Demand metrics conrm that Indianapolis is among the hottest industrial markets

in the nation. Over the last year, leasing activity has

heated up and translated into over 5 ms o net

absorption. That has caused industrial vacancy rates

to sizzle at a historically low 3.1%.

Hot warehouse demand is nothing new. Indianapolis

is called the Crossroads o America or a reason

its the most centrally-located major metro in the

United States. More interstate highways intersect in

Indianapolis than in any other metropolitan statistical area, and nearly 75% o all businesses

in the country are within a 1-day truck drive. Moving goods is big business.

But so is manuacturing them. Manuacturing is heating up. That is a relatively new

development and critical in a market like Indianapolis where manuacturing comprises nearly

30% o industrial inventory. In addition, the manuacturing pay premium is growing. The

average manuacturing job paid $55,398 last year, 38% above the average or all Indiana

jobs. And average actory pay this year is rising more quickly than ever, growing in the rst

quarter by an estimated $2,000 on an annual basis.

Manuacturing not only pays workers well in Indianapolis, it accounts or the largest portion

o Indianas economy in terms o output, or state gross domestic product, which last year

totaled more than $278 billion in current dollars. In act, manuacturing generated over a

quarter o Indianas GDP, a ar larger share than any other economic sector and high enough

to rank the Hoosier state second nationally. Central Indiana manuacturing also drives

statewide exports; that is big news or small business when considering that manuacturing

accounts or 98% o Indianas exports and small businesses comprise 86% o Indianas

exporters.

Such strength in manuacturing has had signicant impact on the

property markets. Manuacturing vacancy rates have allen or three

consecutive quarters and are now refecting pre-recession levels

o demand, tracking below 5%. Why? Quite simply, new workers

are being hired to meet growing demand and those workers need

space to produce goods. The result is more money in the pockets

o many, including landlords. Those new jobs are also putting a lot

more money into consumer pockets, which eventually winds up in

the cash registers o many other businesses and ultimately in their employees paychecks,

raising the states standard o living in the process. Thus, expect rekindled manuacturing

demand to drive the market in the sizzling summer months ahead.

Jason Tolliver

[email protected]

in INDIANAPOLIS?

Over the last year, leasing

velocity has heated up and

translated into over 5 ms o net

industrial absorption.

Manuacturing comprises

nearly 30% o industrial

inventory.

Manuacturing generated

over a quarter o Indianas

GDP, a ar larger share than any

other economic sector, and high

enough to rank the Hoosier state

second nationally.

Small businesses comprise

86% o Indianas exporters.

Manuacturing vacancy

rates have allen or three

consecutive quarters and are now

refecting pre-recession levels o

demand by tracking below 5%.

Demand metrics confrm

that Indianapolis is

among the hottest

industrial markets in

the nation.

INDUSTRIAL

VACANCY

3.1%

$


20/37

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Kansas City has long been known as a place o steady economic perormance. Theunemployment rate has been below the national average since March o 2009; in April the

metro-areas unemployment was 6.1% compared to the national average o 7.6%. According to

the Bureau o Labor Statistics (BLS), in the twelve months ending in April o 2013 employment

growth in Kansas City was strongest in Proessional and Business Services (3.4%), Leisure and

Hospitality (3.4%), Wholesale Trade (2.2%) and Healthcare and Social Services and Hospitals

(1.8%). Beneath the surace o these broad categories, Kansas City is experiencing growth

in biotechnology, medical services and distribution/

logistics three o the most active sectors in the

area. For example, the Stowers Institute or Medical

Research has an endowment o approximately $2

billion and more than 150 ongoing research projects.

The University o Kansas Cancer Center received

the National Cancer Institute designation in 2012.

Doctors rom around the globe send DNA samples

to Childrens Mercy Hospitals Center or Pediatric

Genomic Medicine or sequencing which processes and analyzes genomic testing more

quickly than any other acility in the world. Cerner Corporation, one o KCs astest-growing

companies, uses inormation technology to create tools to help healthcare providers eliminate

errors, variance and waste, simpliy payment systems, and engage people in their lietime

health goals. Kansas City is also where biotechnology meets agriculture, as it is at the mid-

point o an animal health corridor. The corridor is home to the largest concentration o animal

health interests in the world and accounts or almost 32% o the $19-billion global animal

healthcare market. Manhattan, Kansas was selected or a new $1.2 billion National Bio- and

Agro-Deense Facility to replace an aging one o the coast o Long Island, New York. Google

selected Kansas City or its frst Google fber installation in the metros neighborhoods Google

has designated fberhoods.

Its central location and abundance o transportation inrastructure make Kansas City well-suited

or bulk distribution and e-commerce ulfllment. Rail connects it to Los Angeles, Chicago,

Houston, Mexico and elsewhere. Multiple interstates I-70, I-35, I-29 and I-49 connect

the metro to population centers in every direction. These connections have contributed to

growth in bulk distribution activity. From 2003 to 2013, KCs bulk space grew by 47.5%. Early

in 2013, an 820,000-square-oot speculative building was completed and several others are

planned. BNSF Railroad recently opened a new intermodal acility.In the adjacent business park, a speculative 500,000-square-oot

distribution center is under way.

Auto production is a prominent part o the areas manuacturing

industry. Both Ford and General Motors have assembly plants there.

From 2011 through 2015 automotive and related companies will

expand by 2.3 ms.

Biotechnology, healthcare services, distribution and automotive sectors will continue to keep

Kansas Citys economy perorming steadily, and support its commercial real estate markets.

Carolyn Bagnall

[email protected]

in KANSAS CITY?

Manhattan, Kansas was

selected or a new $1.2

billion National Bio- and Agro-

Deense Facility.

Google selected Kansas

City or its frst Google

fber installations.

From Kansas Citys

central location, one can

ship to most o the country in

two days or less.

From 2011 through 2015,

automotive and related

companies will expand by 2.3 ms.

Biotechnology, medical

services and distribution

centers are three of themost active sectors in

Kansas City.

47.5%

BULK DISTRIBUTION

SPACE


21/37

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National tech oce submarkets can seemingly do nothing wrong during this post-recessionaryperiod. Whether its Silicon Valley in the Bay Area, Silicon Alley in New York City, or biotech in

Boston, these tech markets are requently cited in most every real estate panel discussion as the

hottest markets in CRE. Oddly, Los Angeles (LA)

is routinely let out o the national tech markets

discussion and not really acknowledged as

a bona de hot-bed o tech incubation; this

couldnt be urther rom the truth.

Silicon Valley may have its search engines,

apps, and social media, Cambridge its biotech

and Seattle its e-commerce, but LA is quickly

pioneering its own tech industry genre. Not surprisingly, it is the interplay between technology,

media, and entertainment with the end goal o curating original content or the internet that

is LAs niche. Southern Caliornia as a region is also one o the markets spearheading the

movement away rom traditional oce space towards more creative and adaptable space

designs. The denition o creative space is evolving; people use to consider creative space as

exposed ceiling and concrete polished foors but today it can be simply more ecient space

use. Bench style seating and perimeter-less oce layouts with more o a ocus on lounge,

breakout, and ca kitchen areas today are common themes o creative space in Los Angeles.

O course, the denition o creative is a market-by-market denition. What is creative in

Orlando is not necessarily creative in LA. For a growing number o businesses in LA, creative

space has become a part o their strategy to woo new clients as well as to retain and recruitnew talent. Oce submarkets heavily built out with creative oces are experiencing the

greatest rent growth in Los Angeles. Santa Monica has seen a 15.5% rent growth rom June

2012 to June 2013, while the Arts District in downtown LA has seen a 14.8% growth over the

same timerame.

An increasing number o architectural, engineering, and even nancial,

legal, and proessional business service tenants are adopting more and

more aspects o this creative oce environment. One prime example o

this is the nancial district in downtown LA. Once known or its button-

up suit and tie decorum, over the last ew years the nancial district has

become ever more varied in its tenant base. Migration by edgy tech

rms to downtown LA has increased 19% rom ve years ago.

O course, LAs oce sector is unlikely to ully recover without a strong rebound in nancial

services and rom the legal sector which combined account or nearly one-third o LAs tenant

base. As o June 2013, both o these job sectors had stabilized but tenants rom both sectors

were also generally signing leases or less oce space than in the past and continue to adjust

to smaller headcounts.

But make no mistake, technology, media, and entertainment (TME), when combined, are big

enough to move the needle in LA. LAs oce vacancy rates and rents have stabilized, largely

due to the growth in tech-related industries and its ancillary services.

Arty Maharajh

[email protected]

213-330-0959

More than 700 tech start-

ups exist in LA.

LA is ground-zero or

original programming or

the web; Facebook, Amazon,

Youtube, Google, and Microsot

all are positioned there to curate

original content or the internet.

A growing number o LA's

submarkets are recording

double-digit rent growth.

Technology, media, and

entertainment people

employ 250,000 (more than LAs

nancial sector) and they are

growing, adding over 8,000 jobs

since 2011.

Southern Caliornia is

spearheading the movement

away rom traditional ofce

space towards more creative

and adaptable space designs.

15.5%

OFFICE RENTSANTA MONICA

in LOS ANGELES?


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Manuacturing plays a huge part in Louisvilles economy and manuacturing is hot. Sincethe end o the recession, manuacturing employment in Louisville has increased by 17.5%

generating ar more employment growth than any other sector in the metro area. Part o the

growth is rom new corporate investment. Ford, which has been an integral part o Louisvilles

economy since 1913, invested $600 million into revamp its Louisville Assembly Plant (LAP)

which will now be considered the companys most fexible high-volume plant in the world.

The LAP reopened June 2013 or production o the all new Ford Escape. The company also

plans to invest $600 million in its Kentucky Truck Plant in Louisville, urther solidiying its

commitment to the area. In addition, General Electric (GE) has begun to relocate production o

most appliances rom China back to GE Appliance Park GEs mega-manuacturing acility in

Louisville, which had been considered extinct.

GE has invested nearly $800 million to bring

GE Appliance Park back to lie.

The Bourbon industry is also a hot spot in

Louisvilles economy. The state o Kentucky

produces 95% o the worlds supply o

Bourbon, and the popularity o this whiskey is surging both in the U.S. and around the

globe. According to the Kentucky Distillers Association (KDA), in 2012, demand or Bourbon

production surpassed the 1 million mark or the rst time since 1973. The inventory o

Bourbon totaled 4.9 million barrels in 2012 more barrels than people (4.4 million) who

reside in the state. Granted, a good amount o the whiskey is or U.S. consumption. But there

is also strong demand abroad. Exports to the Asia-Pacic region rose 20% and exports to

Mexico were up 200% in 2012. The rise in Bourbons popularity is also boosting tourism.

The number o visitors to the Bourbon Trail, which runs through downtown Louisville, is at an

all-time high, according to Moodys. The rise o tourism is clearly bolstering the hotel sector,

as well as the retail sector, where rents are the highest in 14 years.

The most obvious beneciary o this manuacturing-led recovery is the industrial sector o

Louisvilles commercial real estate market. A total o 5.3 ms has been absorbed since 2010,

the strongest demand in 13 years. Moreover, at the end o the rst quarter o 2013, the

vacancy rate was 6.7% its lowest point since 2000 and developers

are chomping at the bit. There is currently 1.5 ms in speculative

warehouse space under construction and another 4 ms is scheduled

to break ground between 2014 and 2015. In addition, there are twobuild-to-suit warehouses totaling 819,000 s under construction.

What is driving demand? In addition to Ford and GE, demand or

industrial space is being driven by the UPS Worldport acility located

at Louisville International Airport. The acility continues to be a draw or companies that ship

products around the globe as it is the largest ully-automated package handling acility in the

world. The Louisville Regional Airport Authority reports that in the rst our months o 2013,

50% o the 20,262 fights that landed at the airport were UPS cargo fights. That statistic

alone demonstrates the sheer volume o packages that move through distribution centers

within Louisvilles boundaries.

in LOUISVILLE?

Louisville Slugger was rst

known as the Falls City

Slugger as a reerence to

Louisvilles location at the alls o

the Ohio River.

The inventory o Bourbon

reached 4.9 million barrels

in 2012 which is more aging

barrels than people (4.4 million)

in the state.

Kentucky ranks #3 in

auto industry-related

employment among auto vehicle

producing states.

In April 2013, employment

growth in the manuacturing

sector registered at 8.7% when

compared to a year ago, landing

it 4th in the nation when ranking

employment growth in the sector.

A total of 5.3 msf of industrialspace has been absorbed

since 2010 the strongest

demand in 13 years.

Steve Lannert

[email protected]

MANUFACTURING

EMPLOYMENT

17.5%


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The Milwaukee regions economy is still climbing back rom the recession. Although thelocal economy has been creating jobs since 2010, Milwaukee is still 36,000 jobs short o

pre-recession levels o employment. While the ofce sector is slowly on the mend, it is

Milwaukees industrial sector that is easily the strongest perorming segment in the market.

In act, demand or industrial space in Milwaukee

has been consistently robust since late 2010. The

industrial market is on track to hit 12 successive

quarters o positive space absorption when the

numbers are tallied or 2Q 2013. Over this period,

Milwaukee has averaged over 860,000 square eet o

net absorption per quarter the pace is right up there

with some o the strongest levels on record dating back to 1990. The overall vacancy

rate is approaching 6%, down rom a high o over 9% in mid-2010 making Milwaukee

the 13th tightest industrial market in the country out o 53 metros tracked. Investors

have taken notice o the hot leasing trends and are competing or deals, and bidding

up prices. The average sale price or an industrial building in Milwaukee climbed rom

$17.30 ps in the frst quarter o 2012 to $21.17 in the frst quarter o 2013, representing

a 22% increase.

With supply suddenly lean, build-to-suit projects and speculative construction are on

the rise. It is also worth noting that unlike the bulk o the U.S., Milwaukee did not

signifcantly overbuild prior to the recession which has helped to accelerate the rent-

recovery and the need or new product. 2012 saw several build-to-suit projects added tothe inventory, with several others soon to be announced in 2013. Although speculative

development is still rare, there are signs that that too is picking up. Developers such as

Zilber Co. are moving orward with several spec projects. With 120,000 square eet built

in 2012 that is now approximately 60% leased, Zilber Co. announced two additional

projects totaling up to 265,000 square eet or completion in 2013.

Finally, the velocity o industrial sale and lease transactions has

steadily grown since the depths o the recession, with velocity

increasing by more than 100% in both areas since 2009. The

market is seeing renewed confdence amongst manuacturers

and other users o industrial space. Milwaukees industrial sector

has strong links to the U.S. macro economy and to Canada its

largest oreign trading partner. So assuming economic conditions

dont take a turn or the worse, Milwaukees industrial sector

should remain on a strong trajectory going orward.

in MILWAUKEE?

The industrial market is on

track to hit 12 successive

quarters o positive space

absorption.

With a 1Q 2013 vacancy

rate o 6.5%, Milwaukee

has one o the lowest industrial

vacancy rates in the country.

Milwaukee has averaged

860,000 s o positive

absorption per quarter since

3Q 2010.

Industrial sales volume

has increased by more

than 100% since 2009.

Demand for industrial

space in Milwaukee

has been consistently

robust since late 2010.

12

3Q

Nicole Cadkin

[email protected]

22%

INDUSTRIAL

SALES


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Hot spots are orming in multiple commercial real estate sectors o the Twin Cities, and mosto the improvement links back to the rebounding labor market. Unlike the U.S. economy,

which is still down over one million jobs rom the recession, as o April 2013 Minneapolis/St.

Paul surpassed its pre-recession level o employment by 4,100 jobs. More good news or the

metro: the unemployment rate has continued to all

since the beginning o 2013 landing at 5.0% in April

its lowest reading since June o 2008. Currently,

the Twin Cities have the lowest unemployment rate

across major U.S. metros surpassing the rates o

Seattle, Washington, DC and San Francisco.

What is driving such job growth? The main driver is the Education and Health Services sector

which should be no surprise given that eight o the top 20 employers in Minneapolis are in

the healthcare industry. In April, Education and Health Service jobs increased by 11,900 the

most signifcant rise during a 12 month period since October o 2007. Moreover, the sector

has perormed consistently by creating an average o 717 jobs per month since the recession

ended. That bodes well or demand in the ofce market. The vacancy rate or ofce space,

which peaked at 19.5% in 2010, reached pre-recession levels (16.6%) at the end o the frst

quarter o 2013. Rents have yet to turn the corner, but with space options eroding, they are

inching closer to an upturn.

Accelerating trends are also orming in the industrial sector. Unlike other markets in the U.S.,

the industrial market in the Twin Cities wasnt overwhelmed by a surplus o empty inventory

rom over-building prior to the economic downturn. Thereore, the market rebounded quicklyand in 2012 demand or industrial space went rom modest to robust. Net absorption totaled

2.4 ms, reaching its highest point since 2007. The uptrend has continued into 2013. In the

frst quarter, net absorption totaled 1.1 ms, causing vacancy to drop to 11.0% 230 basis

points lower than the frst quarter o 2012. Moreover, both declining vacancy and rent growth

have given developers the confdence to start new projects. Build-to-suit projects are the most

common, although speculative development is also popping up more and more, particularly

as it relates to bulk distribution center space.

Lastly, the multiamily market is generating some heat. In the frst

quarter o 2013 there were 828 units absorbed in Minneapolis more

than double the amount rented the same period a year ago, according

to Reis. Multiamily vacancy ended the quarter at 2.3%, giving the

Minneapolis apartment market the lowest vacancy rate among all U.S.

metros. Razor-thin vacancy has stimulated multiamily development

activity across the Twin Cities. Multiamily building permits totaled

5,517 by the end o April 2013 up 21% rom March, according to the Census Bureau.

Development is most prevalent in areas that are likely to beneft rom the light rail projects

(Central Corridor and Southwest) slated to connect areas such as downtown Minneapolis and

downtown St. Paul upon completion. Development is most prevalent in urban areas such

Downtown Minneapolis, the North Loop and Uptown. These areas support the rent levels

needed or new construction.

Dennis Panzer

[email protected]

612.347.9309

in MINNEAPOLIS?

Even during the recession,

the Education and

Healthcare sectors in Minn/St.

Paul perormed well, generating an

average o 549 jobs per month.

Ofce rents have increased

an average o 8.1% since

Q1 2007.

From April 2012 to

April 2013, ofce-using

employment increased by

7,800 jobs.

Industrial demand has

driven land prices back to

pre-recession levels.

Multiamily vacancy ended the

frst quarter o 2013 at 2.3%,

giving Minneapolis one o the lowest

multiamily vacancy in the U.S.

among metros.

Industrial absorption

totaled 2.4 msf in 2012,

reaching its highest point

since 2007.

5.0%

UNEMPLOYMENT

RATE


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Whats hot in Nashville, TN? Nashville is hot. The city is booming. The metros economycreated 30,000 net new jobs in 2012 its strongest perormance on record. It currently

ranks in the top 5 in job creation in 2013 as measured by year-over-year percent

change. Businesses and people are continually relocating to Nashville. Over 11.5 million

visitors come to Nashville each year resulting in almost

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Whats Hot in Commercial Real Estate in 2013