2015 3rd Quarter Industrial Market Report

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3RD QUARTER 2015RICHMOND INDUSTRIAL MARKET REPORT

FORECASTAs the U.S. economy continued to show positive economic growth through the third quarter 2015, the Richmond, VA Industrial market saw demand for warehouse and flex properties increase as well. While rental rates remained stagnant in the third quarter, positive absorption pushed vacancy to the lowest Richmond has seen since 2010.

The Flex market displayed the greatest promise in the third quarter, which can be attributed to increasing rental rates and demand. Flex tenants and owners in the Richmond market consist of traditional and non-traditional occupants. Typically, traditional flex users consist of light manufacturing and distribution businesses. Commonwealth Commercial is seeing traditional office users attracted towards Flex properties due to cheaper rents and strategic locations along major transportation corridors. This trend is spurred by entrepreneurial business growth in Richmond.

Commonwealth Commercial expects speculative industrial construction to become more appealing to developers due to the lack of modern distribution and manufacturing space

8.0% VACANCY

281,000 SF UNDER CONSTRUCTION

103,399 SF NET ABSORPTION

$4.22 PSF AVERAGE RENTAL RATES


available in Richmond, VA. We also believe rents of existing industrial properties will increase through the end of the year and through 2016.

The Richmond, VA Industrial market ended the third quarter 2015 with a vacancy rate of 8.0%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 103,399 square feet in the third quarter. Vacant sublease space increased in the quarter, ending the quarter at 99,383 square feet. Rental rates ended the third quarter at $4.22, a decrease over the previous quarter. There was 281,000 square feet still under construction at the end of the quarter.

ABSORPTIONNet absorption for the overall Richmond, VA Industrial market was positive 103,399 square feet in the third quarter 2015. That compares to positive 176,398 square feet in the second quarter 2015, positive 534,676 square feet in the firstquarter 2015, and positive 1,282,794 square feet in the fourth quarter 2014.

Tenants moving out of large blocks of space in 2015 include: Gulf Packaging moving out of 88,000 square feet at1200 Dinwiddie Ave, Handcraft Cleaners & Launderers Inc. moving out of 87,951 square feet at Handcraft Building located in Scotts Addition, and Saddle Creek Corporation Inc. moving out of 50,545 square feet at Eastport IV.

Tenants moving into large blocks of space in 2015 include: Advance Trailer Systems, Inc. moving into 93,500 square feet at Interport Business Center - Building A, Anord Critical Power moving into 88,555 square feet at 7001 Technology Blvd, and Virginia Department of Game & Inland Fisheries moving into 52,296 square feet at Villa Park III.

The Flex building market recorded net absorption of positive 35,787 square feet in the third quarter 2015, compared topositive 39,905 square feet in the second quarter 2015, positive 91,925 in the first quarter 2015, and positive 119,078 in the fourth quarter 2014.

The Warehouse building market recorded net absorption of positive 67,612 square feet in the third quarter 2015 compared to positive 136,493 square feet in the second quarter 2015, positive 442,751 in the first quarter 2015, and positive 1,163,716 in the fourth quarter 2014.

VACANCYThe Industrial vacancy rate in the Richmond, VA market area decreased to 8.0% at the end of the third quarter 2015.The vacancy rate was 8.1% at the end of the second quarter 2015, 8.3% at the end of the first quarter 2015, and 8.4% at the end of the fourth quarter 2014.

RICHMOND INDUSTRIAL MARKET REPORT



Flex projects reported a vacancy rate of 12.2% at the end of the third quarter 2015, 12.5% at the end of the second quarter 2015, 12.7% at the end of the first quarter 2015, and 13.5% at the end of the fourth quarter 2014.

Warehouse projects reported a vacancy rate of 7.6% at the end of the third quarter 2015, 7.6% at the end of secondquarter 2015, 7.8% at the end of the first quarter 2015, and 7.8% at the end of the fourth quarter 2014.

LARGEST LEASE SIGNINGSThe largest lease signings occurring in 2015 included: the 219,981-square-foot lease signed by Stalwart Films, LLCat 4300 Carolina Ave in the Northeast market; the 139,800-square-foot deal signed by Direct Mail Solutions, Inc. at 4915 Norman Rd in the Southeast market; and the 110,000-square-foot lease signed by Staples Contract & Commercial, Inc. at Eastgate Warehouse in the Southeast market.

SUBLEASE VACANCYThe amount of vacant sublease space in the Richmond, VA market increased to 99,383 square feet by the end of the third quarter 2015, from 78,184 square feet at the end of the second quarter 2015. There was 57,578 square feet vacant at the end of the first quarter 2015 and 57,578 square feet at the end of the fourth quarter 2014.

Richmond, VA’s Flex projects reported vacant sublease space of 23,963 square feet at the end of third quarter 2015, up from the 11,164 square feet reported at the end of the second quarter 2015. There were 10,058 square feet of sublease space vacant at the end of the first quarter 2015, and 10,058 square feet at the end of the fourth quarter 2014.

Warehouse projects reported increased vacant sublease space from the second quarter 2015 to the third quarter 2015.Sublease vacancy went from 67,020 square feet to 75,420 square feet during that time. There was 47,520 square feet at the end of the first quarter 2015, and 47,520 square feet at the end of the fourth quarter 2014.

RENTAL RATESThe average quoted asking rental rate for available Industrial space was $4.22 per square foot per year at the end of the third quarter 2015 in the Richmond, VA market area. This represented a 0.5% decrease in quoted rental rates from the end of the second quarter 2015, when rents were reported at $4.24 per square foot.

The average quoted rate within the Flex sector was $8.68 per square foot at the end of the third quarter 2015, while Warehouse rates stood at $3.62. At the end of the second quarter 2015, Flex rates were $8.48 per square foot, andWarehouse rates were $3.64.

DELIVERIES AND CONSTRUCTIONDuring the third quarter 2015, no new space was completed in the Richmond, VA market area. This compares to twobuildings totaling 28,000 square feet that were completed in the second quarter 2015, two buildings totaling 379,660 square feet completed in the first quarter 2015, and 1,001,792 square feet in two buildings completed in the fourth quarter 2014.



There were 281,000 square feet of Industrial space under construction at the end of the third quarter 2015.

Some of the notable 2015 deliveries include: Republic National Distributing Company, a 250,000-square-foot facility that delivered in first quarter 2015 and is now 100% occupied, and Eastport VIII, a 129,660-square-foot building that delivered in first quarter 2015 and is now 31% occupied.

The largest projects underway at the end of third quarter 2015 were Stone Brewing - Phase 1, a 200,000-square-foot building with 100% of its space pre-leased, and 23112 Airport St, a 41,000-square-foot facility that is 100% pre-leased.

INVENTORYTotal Industrial inventory in the Richmond, VA market area amounted to 120,517,509 square feet in 3,201 buildings as ofthe end of the third quarter 2015. The Flex sector consisted of 11,520,890 square feet in 533 projects. The Warehouse sector consisted of 108,996,619 square feet in 2,668 buildings. Within the Industrial market there were 437 owner-occupied buildings accounting for 32,136,221 square feet of Industrial space.

SALESTallying industrial building sales of 15,000 square feet or larger, Richmond, VA industrial sales figures rose during thesecond quarter 2015 in terms of dollar volume compared to the first quarter of 2015.

In the second quarter, six industrial transactions closed with a total volume of $10,985,000. The six buildings totaled 333,320 square feet and the average price per square foot equated to $32.96 per square foot. That compares to four transactions totaling $6,570,000 in the first quarter. The total square footage was 155,000 for an average price per square foot of $42.39.

Total year-to-date industrial building sales activity in 2015 is down compared to the previous year. In the first six months of 2015, the market saw 10 industrial sales transactions with a total volume of $17,555,000. The price per square foot has averaged $35.95 this year. In the first six months of 2014, the market posted 13 transactions with a total volume of $26,746,009. The price per square foot averaged $36.66.

Cap rates have been higher in 2015, averaging 7.08%, compared to the first six months of last year when they averaged 5.55%.



SELECT TOP YEAR-TO-DATE DELIVERIESProperty Name Sub-

MarketRBA Occupied Quoted

RateGround Break Date

Delivery Date

Developer

Republic National Distributing

Company

Northwest 250,000 100% N/A 3rd

Quarter 2014

1st

Quarter

2015

Clayco Inc.

Eastport VIII Southeast 129,660 0% $5.25 2nd Quarter 2015 1st Quarter

2015

Liberty Property Trust

9825 Atlee Commons Drive -

Phase I

Northeast 23,400 69% $7.50 1st Quarter 2015 2nd Quarter

2015

Ronald Hickmon

13515 Lawing Drive Southwest 4,600 0% Negotiable 4th Quarter 2014 2nd Quarter

2015

Debarah Hughes

SELECT TOP UNDER CONSTRUCTION PROPERTIESProperty Name Sub-

MarketRBA Occupied Quoted

RateGrnd Brk Date Deliv Date Developer

Stone Brewing - Phase I Southeast 63,000 88% $24.50 2nd

Quarter 2014

1st

Quarter 2015

EDA

23112 Airport Street Dinwiddie 41,000 100% N/A 1st Quarter 2014 1st Quarter

2016

Elite Contracting Group

12200 Deergrove Road Southwest 24,000 100% N/A 2nd Quarter 2015 4th Quarter

2015

ATB, LLC.

Groome Transportation Northwest 16,000 100% N/A 3rd Quarter 2015 1st Quarter

2016

Groome Transportation



The information and details contained herein have been obtained from third-party sources believed to be reliable; however, Commonwealth Commercial has not independently verified its accuracy. Commonwealth Commercial makes no representations, guarantees, or express or implied warranties of any kind regarding the accuracy or completeness of the information and details provided herein, including but not limited to the implied warranty of suitability and fitness for a particular purpose.

Interested parties should perform their own due diligence regarding the accuracy of the information. The information provided herein, including any sale or lease terms, is being provided subject to errors, omissions, changes of price or conditions, prior sale or lease, and withdrawal without notice. Third-party data sources: CoStar Group, Inc., Moody’s Economy.com, Nielsen/Claritas, Real Capital Analytics, U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics, U.S. Census Bureau, Greater Richmond Partnership, U.S. Department of Commerce.

The Commonwealth Commercial Industrial Market Report compiles relevant market data by using a third-party database for the proprietary analysis of specific industrial properties above 10,000 SF in the Richmond Metropolitan Area.

Industrial Team

Fred PlaistedT 804-228-4933

E fplaisted@ commonwealthcommercial.com

Russell WyattT 804-433-1817

E [email protected]

Ben BruniT 804-793-0046

E bbruni@ commonwealthcommercial.com

Mark ClaudT 804-433-1803

E mclaud@ commonwealthcommercial.com

Middleton SmithT 804-793-0061

E msmith@ commonwealthcommercial.com

Real Estate

2015 3rd Quarter Industrial Market Report