JLL Research

Louisville | Q3 2017

Industrial Outlook

JLL Research

An in-depth look at the Louisville industrial market. Analysis includes leasing, sales, construction and employment.

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

Q3 2017

Insight

Louisville Industrial Outlook

Once viewed as a tertiary market and later defined as an emerging distribution hub, Metro-Louisville is now established as an Inland Port and garners the attention of institutional developers, investors and occupiers. Growth in the market has been driv0en by Louisville’s central location within the US as well as the three main employers: UPS, Ford Motor Co., and GE Appliances. On the heels of 2nd quarter investment announcements from both Ford and UPS, GE made additional investment from GE Appliances, reaffirming the Big Three’s commitment to advancing their operations in the Louisville market.

The success of the “Big 3” and our geographic advantage underpins the market’s ability to attract e-commerce fulfillment centers, pharmaceutical distribution operators, 3PL occupiers, and Tier 1 vendors. This accretive effect in the market was most recently displayed with Ingram Micro’s 592,000-square-foot lease at Van Trust’s speculative building in River Ridge.

Space users’ confidence in fundamentals and market consistency through recent years continues to convince existing owners to expand their portfolios and attract new players to the market. Exeter and GLP both made acquisitions in the third quarter to expand their Louisville presence and further solidify their confidence in the market.

OutlookWhile leasing activity has remained active through the third quarter, it has struggled to keep up with unprecedented pace of development. As the end of the year approaches, we expect a significant amount of vacant space to be absorbed due to the current market velocity of prospective tenants in the market. As the space is absorbed, we project that vacancy rates will lower while rents will remain steady. As cap rates continue to hover around historical lows of 6.0-6.5% we expect a continued appetite for investment grade properties.

Fundamentals Forecast

YTD net absorption 2,013,454 s.f. ▲QTD net absorption 1,422,566 s.f. ▲Under construction 4,516,512 s.f. ▲Total vacancy 10.7 % ▼Average asking rent (NNN) $3.72 p.s.f. ▲Tenant improvements Falling ▼

0

4,000,000

8,000,000

2013 2014 2015 2016 YTD

2017

Supply and demand (s.f.) Net absorptionDeliveries

Sales activity stays hot while “Big 3” continue to grow

7.2% 6.6% 5.7%

8.7%10.7%

2013 2014 2015 2016 YTD 2017

Total vacancy

$3.30

$3.40

$3.50

$3.60

$3.70

$3.80

2013 2014 2015 2016 YTD 2017

Average asking rents ($/s.f.)

• Exeter’s buying spree continued in the third quarter with the acquisition of the 2-building Globalport Business Center portfolio.

• GLP acquired 7101 Intermodal Drive, the single transaction followed their 3-building acquisition from DCT in the second quarter.

• GE Appliances invested $30 million for its manufacturing operations, part of $100 million in new production investment this year.

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

Inventory

(s.f.)

YTD

total net

absorption

(s.f.)

YTD

total net

absorption

(% of inventory)

Total

Vacancy (%)

Average

total asking

rent

($ p.s.f.)

YTD

completions

(s.f.)

Under

construction

(s.f.)

Airport 20,337,586 912,777 4.5% 4.2% $3.81 1,098,585 3,068,435

Bullitt County 12,983,053 -227,250 -1.8% 16.8% $3.82 721,050 428,960

East 5,028,451 0 0.0% 0.0% $5.50 0 513,000

Riverport 12,333,633 310,927 2.5% 12.4% $3.35 370,798 0

Southern Indiana 9,460,055 1,017,000 10.8% 20.1% $3.87 1,257,600 506,117

Louisville Totals 60,142,778 2,013,454 3.3% 10.7% $3.72 3,448,033 4,516,512

Analyzes all industrial buidings greater than 100,000 s.f. with a minimum clear height of 24'

2,117,585

1,014,608

1,750,850

2,234,6481,934,181 2,059,001

2,742,8893,029,702

3,843,783

2,013,454

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2017

Q3 2017

Statistics

Louisville Industrial Outlook

15.1% 15.6%

12.2%

9.2%8.3%

7.2%6.6%

5.7% 8.7%

10.7%

2.0%

5.0%

8.0%

11.0%

14.0%

17.0%

2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2017

Total vacancy rate (%)

Total net absorption (s.f.)

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

This report analyzes all industrial sales > 75,000 s.f. year-to-date

$221,541,500

16

$64

6.0-6.5%

100.0%

0.0%

6.0-6.5% 0 - -

0.0% 8 221,541,500

Top sales transactions year-to-date

Size (s.f.) $ p.s.f. Sale date

645,840 $65 Mar-17

402,444 $63 Sep-17

401,600 $61 Aug-17

360,000 $61 Aug-17

240,000 $83 Apr-17

120,000 $73 Feb-17

254,896 $41 Jun-17

140,748 $48 Jun-17

194,700 $50 Aug-17

100,000 $70 Apr-17

The Schroering Company

Schmier

Schmier

Kentucky Trailer

$25,346,500

$24,500,000

$22,000,000

$20,000,000

3400 Robards Court Cardinal Industrial Kentucky Trailer $7,000,000

7201 Intermodal Drive GLP Investment Corp DCT Industrial $10,062,835

3908 Produce Road Exeter Property Group Sparrohawk $9,800,000

The LandMark Group $17,700,000

7000 Riverport Drive GLP Investment Corp DCT Industrial $10,524,904

65 Kingbrook Pkwy Berger Foundation

6001 Global Distribution Way Exeter Property Group

7201 Logistics Drive Cardinal Industrial

5101 Jefferson Blvd Office Star Products

6201 Global Distribution Way Exeter Property Group

2500 Export Drive Clarion Partners Molto Properties $42,300,000

Building address Buyer company Seller company Sales price $

Sales volume $ by submarket

Warehouse/Dist. sales volume as % of

total YTD

Flex/R&D sales volume as % of total

YTD

Cap rate range

Core Class A Ind.

*KY Trailer and Faurecia sale prices inflated average price

p.s.f. figure

Average Class A price p.s.f. YTD*

At a glance

Total volume YTD

Number of transactions YTD

Average Class A cap rate YTD

Sales activity by building type year-to-date

Transactions details

Number of partial interest

transactions

Top sellers (s.f.)Top buyers (s.f.)

Number of domestic

buyers

Foreign capital $

Average partial interest

acquired

Number of foreign

buyers

Domestic Capital $

$221,541,500

3,469,077 s.f.

0 s.f.

500,000 s.f.

1,000,000 s.f.

1,500,000 s.f.

2,000,000 s.f.

2,500,000 s.f.

3,000,000 s.f.

3,500,000 s.f.

4,000,000 s.f.

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

Warehouse / Distribution

Sum of Price ($) Sum of RBA (SF)

39%

19%

15%

12%

10%

3%2%

Exeter Property Group Clarion Partners

GLP Investment Corp Office Star Products

Cardinal Industrial Berger Foundation

Auto Truck Group

22%

19%

17%

15%

12%

10%

3% 2%

Schmier Molto Properties

Sparrohawk DCT Industrial

The Schroering Company Kentucky Trailer

The LandMark Group Boland

$143,346,500

$46,800,000

$31,395,000

Airport

Riverport

East

Q3 2017

Sales

Louisville Industrial Outlook

39%

19%

15%

12%

10%

3% 2%

Exeter Property Group Clarion PartnersGLP Investment Corp Office Star ProductsCardinal Industrial Berger FoundationAuto Truck Group

22%

19%

17%

15%

12%

10%

3%2%

Schmier Molto PropertiesSparrohawk DCT IndustrialThe Schroering Company Kentucky TrailerThe LandMark Group Boland

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

This report analyzes all industrial developments under construction & new deliveries > 100,000 s.f.

Total leased at delivery (%) 18.7%

Total speculative at delivery (s.f.) 3,448,033

Total BTS at delivery (s.f.) -

Total Owner-User at delivery (s.f.) -

Total # of properties delivered 6

Asking rental rate (low - high) $3.69 - $3.95

Largest projects delivered year-to-date

Building RBA (s.f.) Delivery dateLeased at

delivery (%)

Velocity 65 Bldg 1 721,050 Q3 2017 0%

Crossdock River Ridge 664,800 Q1 2017 0%

Aiport Commerce Center II 645,840 Q1 2017 100%

Van Trust River Ridge 592,800 Q1 2017 0%

New Cut Center Bldg 1 452,745 Q2 2017 0%

Riverport Distribution Center 370,798 Q2 2017 0%

Total pre-leased (%) 3.3%

Total speculative under construction (s.f.) 3,216,512

Total BTS under construction (s.f.) -

Total Owner-user under construction (s.f.) 1,300,000

Total # of properties UC 11

Asking rental rate (low - high) $3.95 - $5.35

Largest projects currently under construction

Building RBA (s.f.) Delivery datePre-leased

(%)

W.W. Grainger 1,300,000 Q3 2020 100%

Aiport Commerce Center III 677,685 Q2 2018 0%

Exeter River Ridge 506,117 Q1 2018 0%

LIC Building W 416,750 Q1 2018 0%

Skyway 350 350,000 Q2 2018 0%

Speculative

Speculative

Speculative

Submarket

Under construction

4,516,512Under construction (s.f.)

Under construction in-depth

Upcoming deliveries by year (s.f., excludes YTD completions)

Riverport IAC Speculative

New deliveries

Completions in-depth

3,448,033Total delivered year-to-date (s.f.)

Historical deliveries (s.f.)

Construction typeOwnerSubmarket

Airport

Southern Indiana

Airport

Southern Indiana

Bullitt County

Main Street Realty

Van Trust

Molto

Crossdock Dev.

Browning

Speculative

Speculative

Airport

Airport

Southern Indiana

Airport

Airport

Speculative

Speculative

Owner Construction type

Speculative

The Schroering Co.

Clarion Partners

Exeter Property Group

Molto

W.W. Grainger

Speculative

Owner-user

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

2010 2011 2012 2013 2014 2015 2016 YTD 2017

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2017 2018 2020

Owner-user Speculative

Q3 2017

Construction

Louisville Industrial Outlook

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

Q3 2017

Construction

Louisville Industrial Outlook

Air Commerce Phase IIISigned tenant(s): noneSquare Feet: 677,685Landlord: Molto Properties

Est. completion: Q2 2018300 Hilton DriveSigned tenant(s): Square Feet: 506,177Landlord: Exeter Property Group

Est. Completion : Q1 2018

Salt River Business ParkSigned tenant(s): noneSquare Feet: 634,400Landlord: Crossdock Development

Est. completion: Q2 2018

Velocity 65 Bldg 1Signed tenant(s): noneSquare Feet: 721,050Landlord: Browning Investments

Completed: Q3 2017

Park 65 Business CenterSigned tenant(s): noneSquare Feet: 259,960Landlord: Johnson Development

Lewis and Clark Bridge

Completed: Q4 2016

Est. completion : Q4 2017

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

23%

13%

13%13%

12%

10%

7%

Trade, Transportation & Utilities

Educational & Health Services

Professional & Business Services

Manufacturing

Government

Leisure & Hospitality

Financial Activities

Mining, Logging & Construction

Other Services

Information

Q3 2017

Employment

Louisville Industrial Outlook

4.4%U.S. unemployment

1.5%U.S. 12-month job growth

4.5%Louisville unemployment

1.7%Louisville 12-month job growth

5.2%Kentucky unemployment

1.6%Kentucky 12-month job growth

0.0%

0.7%

1.4%

2.1%

2.8%

3.5%

2013 2014 2015 2016 2017

Louisville U.S.

-300

100

100

100

700

1,100

1,600

4,400

4,700

5,300

-2,000 -1,000 0 1,000 2,000 3,000 4,000 5,000 6,000

Government

Information

Leisure & Hospitality

Other Services

Financial Activities

Educational & Health Services

Mining, Logging & Construction

Trade, Transportation & Utilities

Manufacturing

Professional & Business Services

-2.0

3.0

8.0

13.0

18.0

2013 2014 2015 2016 2017

Professional & Business Services Information

Government Financial Activities

0%

4%

8%

12%

400,000

500,000

600,000

700,000

800,000

2013 2014 2015 2016 2017

Employment Unemployment

Employment vs. unemployment rate

Employment by industry Office employment trends (12-month change, 000s)

Job growth by sector (12-month change)

Job growth (12-month change)

Job growth by sector (12-month change)

© 2017 Jones Lang LaSalle IP, Inc.

All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

Andrew BatsonVice President, Director of Research+1 216 937 4374andrew.batson@am.jll.com

Ross BratcherResearch Analyst+1 513 719 3706ross.bratcher@am.jll.com

About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. AFortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $136 billion. At year-end 2016, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of more than 77,000. As of December 31, 2016, LaSalle Investment Management has $60.1 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.

About JLL Research

JLL’s research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate today’s commercial real estate dynamics and identify tomorrow’s challenges and opportunities. Our more than 400 global research professionals track and analyze economic and property trends and forecast future conditions in over 60 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions.