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Jared Sullivan, Senior Economist CBRE | Global Research and Consulting | Econometric Advisors Presentation at RTM, October 7, 2014
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GLOBAL RESEARCH AND CONSULTING ● ECONOMETRIC ADVISORS
THE INDUSTRIAL SECTOR, WHERE ARE WE TODAY10/7/2014
2 GLOBAL RESEARCH AND CONSULTING | ECONOMETRIC ADVISORS
• 60% of all demand during recovery, occurred since Q4 2012
• National availability rate has fallen 370 bps from recession peak, 210 bps during those seven quarters
• Rent growth didn’t begin until 2012
But the recovery accelerated sharply in 2013
INDUSTRIAL MARKET RECOVERING FOR 17 CONSECUTIVE QUARTERS
3 GLOBAL RESEARCH AND CONSULTING | ECONOMETRIC ADVISORS
ABSORPTION RUNNING ABOVE AVERAGE
-90
-70
-50
-30
-10
10
30
50
70
90
Q2
2005
Q4
2005
Q2
2006
Q4
2006
Q2
2007
Q4
2007
Q2
2008
Q4
2008
Q2
2009
Q4
2009
Q2
2010
Q4
2010
Q2
2011
Q4
2011
Q2
2012
Q4
2012
Q2
2013
Q4
2013
Q2
2014
Q4
2014
Q2
2015
Absorption Pre recession Avg Absorption Level
Absorption, msfForecast
Source: CBRE EA Industrial Outlook, Q2 2014.
4 GLOBAL RESEARCH AND CONSULTING | ECONOMETRIC ADVISORS
INDUSTRIAL PRODUCTION GROWTH IS POWERING SPACE DEMAND
80
85
90
95
100
105
110
65
70
75
80
85
90
Mar
-05
Sep
-05
Mar
-06
Sep
-06
Mar
-07
Sep
-07
Mar
-08
Sep
-08
Mar
-09
Sep
-09
Mar
-10
Sep
-10
Mar
-11
Sep
-11
Mar
-12
Sep
-12
Mar
-13
Sep
-13
Mar
-14
Industrial capacity utilization Total industrial production
Index, 2007=100, SA% of Capacity
Source: Federal Reserve, August 2014.
5 GLOBAL RESEARCH AND CONSULTING | ECONOMETRIC ADVISORS
INVENTORIES ARE WHAT MATTER
-50
-40
-30
-20
-10
0
10
20
30
40
50
-100
-50
0
50
100
1989
.1
1990
.1
1991
.1
1992
.1
1993
.1
1994
.1
1995
.1
1996
.1
1997
.1
1998
.1
1999
.1
2000
.1
2001
.1
2002
.1
2003
.1
2004
.1
2005
.1
2006
.1
2007
.1
2008
.1
2009
.1
2010
.1
2011
.1
2012
.1
2013
.1
2014
.1
Net Absorption (L) Change in Real Private Inventories ( R)
Net Absorption, (msf) Change in Real Business Inventories, $ Bil
Changes Inventories and warehouse net absorption have a 76.1% correlation!
Source: CBRE EA Industrial Outlook, Q2 2014 ,U.S. Census Bureau, July 2014.
6 GLOBAL RESEARCH AND CONSULTING | ECONOMETRIC ADVISORS
INVENTORIES CONTINUE RAPID PACE OF EXPANSION
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Business Inventories, $ Bil
Source: U.S. Census Bureau, July 2014.
7 GLOBAL RESEARCH AND CONSULTING | ECONOMETRIC ADVISORS
Rents fell further and faster than seen in previous recessionsRENTAL RECOVERY HAS A WAYS TO GO
80
82
84
86
88
90
92
94
96
98
100
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33
1991 2001 2007
100=prerecession Peak
Source: CBRE EA Industrial Outlook, Q2 2014.
8 GLOBAL RESEARCH AND CONSULTING | ECONOMETRIC ADVISORS
CONSTRUCTION REMAINS WEAK, AND CONCENTRATED IN A FEW MARKETS
Source: CBRE EA Industrial Outlook, Q2 2014.
The sector will add 127 MSF in 2014, compared to average annual construction level of about 204 MSF
MarketShare Comp,
Next 12 Months Share of StockDallas/Fort Worth 14.2 5.4Inland Empire 13.3 3.4Houston 6.3 3.6Chicago 6.2 7.9Baltimore 4.1 1.6Total 44.1 21.9
9 GLOBAL RESEARCH AND CONSULTING | ECONOMETRIC ADVISORS
AVAILABILITY RATES CONTINUE TO DECLINE ACROSS MARKETS
0
5
10
15
20
25
Det
roit
Den
ver
Mem
phis
Dal
las
Min
neap
olis
Col
umbu
sIn
dian
apol
isO
akla
ndB
osto
nA
tlant
aH
oust
onS
um o
f Mar
kets
Kan
sas
City
Cle
vela
ndS
eattl
eLo
s A
ngel
esB
altim
ore
Ora
nge
Cou
nty
Cin
cinn
ati
Riv
ersi
deC
hica
goFo
rt W
orth
St.
Loui
sP
hila
delp
hia
Por
tland
New
Yor
kE
diso
nW
ashi
ngto
n, D
CM
iam
iN
ewar
kP
hoen
ix
Availability Rates, %
Prior Low Availability Cycle Peak Availability Q2 2014 Availability
Source: CBRE EA Industrial Outlook, Q2 2014.
GLOBAL RESEARCH AND CONSULTING ● ECONOMETRIC ADVISORS
THE INDUSTRIAL SECTOR, WHERE ARE WE HEADED?Cover subtitleDate
11 GLOBAL RESEARCH AND CONSULTING | ECONOMETRIC ADVISORS
ENERGY PRODUCTION REDUCING OIL IMPORTS
0
10
20
30
40
50
60
Jan-
03M
ay-0
3Se
p-03
Jan-
04M
ay-0
4Se
p-04
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14M
ay-1
4
Real Dollars Nominal Dollars
Oil Imports, Billions $
Source: BEA, August 2014.
12 GLOBAL RESEARCH AND CONSULTING | ECONOMETRIC ADVISORS
World LNG Estimated August 2014 Landed Prices
ENERGY REVOLUTION REDUCING NATURAL GAS PRICES, GREAT FOR MANUFACTURING
Source: Waterborne Energy, Inc. Data in $US/MMBtu, FERC, July 2014
13 GLOBAL RESEARCH AND CONSULTING | ECONOMETRIC ADVISORS
ECOMMERCE EXPANSION CONTINUES…BULLISH FOR INDUSTRIAL
Source: CBRE Econometric Advisors, US Census Bureau.
0
50
100
150
200
250
2000
2000
2001
2001
2002
2002
2003
2003
2004
2004
2005
2005
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2011
2011
2012
2012
2013
2013
2014
Housing Discretionary Necessities
Retail Sales Index: 2007Q1 =100 Retail Sales Index: 2007Q1 =100
14 GLOBAL RESEARCH AND CONSULTING | ECONOMETRIC ADVISORS
ECOMMERCE EXPANSION CONTINUES…BULLISH FOR INDUSTRIAL
Source: CBRE Econometric Advisors, US Census Bureau.
0
50
100
150
200
250
2000
2000
2001
2001
2002
2002
2003
2003
2004
2004
2005
2005
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2011
2011
2012
2012
2013
2013
2014
Housing Discretionary Necessities E-Commerce
Retail Sales Index: 2007Q1 =100
15 GLOBAL RESEARCH AND CONSULTING | ECONOMETRIC ADVISORS
Health and Food Segments Remain OutliersE-COMMERCE SHARE GROWING FOR MOST
Source: CBRE Econometric Advisors , US Census Bureau.
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%El
ectro
nics
and
Appl
ianc
es
Spor
ting
good
s;ho
bby;
book
; mus
icst
ores Cl
othi
ng
Furn
iture
Heal
th
Com
pute
rHa
rdwa
re/S
oftw
are
Food
and
Bev
erag
es
Oth
er
Change in Online Share of Total Retail Sales (2008-2012)
16 GLOBAL RESEARCH AND CONSULTING | ECONOMETRIC ADVISORS
The Biggest Force of ChangeE-COMMERCE
17 GLOBAL RESEARCH AND CONSULTING | ECONOMETRIC ADVISORS
The New Big BoxDEVELOPMENT
TRADITIONAL DISTRIBUTION FACILITY Over 100,000 sq. ft. 24- to 32-foot clear heights 40- by 40-foot bays Minimal employee parking At least 20 dock doors with cross-docking preferred but not necessary
BIG-BOX DISTRIBUTION FACILITY At least 300,000 sq. ft. of space At least 36-foot clear heights 52- by 52-foot or 60- by 50-foot bays Excess land (or parking structures) to
accommodate increased employee parking Minimum of 40 dock doors and cross-
docking
18 GLOBAL RESEARCH AND CONSULTING | ECONOMETRIC ADVISORS
AVAILABILITY RATE WILL CONTINUE FALLING FOR NEXT COUPLE OF YEARS
Source: CBRE EA Industrial Outlook, Q2 2014.
5
6
7
8
9
10
11
12
13
14
15
-100
-80
-60
-40
-20
0
20
40
60
80
100Q
2 20
04
Q2
2005
Q2
2006
Q2
2007
Q2
2008
Q2
2009
Q2
2010
Q2
2011
Q2
2012
Q2
2013
Q2
2014
Q2
2015
Q2
2016
Absorption Completions Availability Rate
Absorption, Completions, (msf) Availability Rate (%)
Forecast
19 GLOBAL RESEARCH AND CONSULTING | ECONOMETRIC ADVISORS
• In near term industrial demand drivers are performing well• Inventory growth
• Trade Growth
• Industrial production growth
• Longer term structural changes should provide continued support for industrial space• Cheap energy and lower labor costs are seeds for manufacturing
resurgence
• Globalization will continue
• Ecommerce continues to move product from stores to warehouses
STRUCTURAL AND CYCLICAL TRENDS ARE BULLISH FOR THE INDUSTRIAL