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Industrial Outlook

Tampa | Q1 2014

Large availabilities continue to dwindle while tenants’ demands continue to increase • As vacancy plummeted in 2013, is 2014 the year of increased rent

appreciation? Some submarkets have already recaptured 25.0 percent of the rent that was lost during the recession while other submarkets are still at the trough of this past business cycle.

• We expect 2014 to be the year that leverage shifts from the side of the tenant towards the landlords as demand has increased steadily over the past eight quarters and vacancy is below the five-year and ten-year averages in some submarkets.

JLL • Tampa Industrial Outlook • Q1 2014 3

Tampa industrial overview Economy They” say perception is ninety percent of reality but luckily for Tampa Bay, reality and perception are synonyms in this case. The metropolitan area was recently ranked as the third best city in the United States to find a job. The ranking is supported by facts. Industrial related employment sectors have shown tremendous growth over the past twelve months leading the entire Bay area in gains. Manufacturing related employment grew by 6.9 percent which yielded 4,100 new jobs. Of those 4,100 jobs, 3,400 were related to durable goods. Furthermore, construction has rebounded after being hit hard during the recession. Construction employment in the metropolitan area peaked in June 2006 at 95,300 jobs and then shrunk by 47.4 percent when it bottomed in January 2011 at 50,100 jobs. Since bottoming, construction has grown by 13.4 percent to a total of 56,800 jobs. Although only recovering 6,700 out of the over 45,000 jobs that were lost, 4,000 of those jobs have been recovered in the past year alone showing that the industry has just recently started to get back on its feet. Total nonagricultural employment grew by 2.6 percent over the past twelve months yielding a growth of 30,000 new jobs. As a result of the new jobs, the unemployment rate has continued its recent trend downwards and currently sits at 6.5 percent, down 100 bps from this time last Spring. Tampa Bay’s unemployment is currently 10 bps higher than the unemployment rate for Florida.

Total industrial market (owner occupied included) Supply Construction Vacancy Availability Demand Pricing

Total stock (MSF) Under construction (MSF) Rate Trend Rate Trend Q1 2014 net absorption (s.f.) Average rental rate (nnn)

Total industrial market 134.6 2.3 10.5% 14.1% 882,653 $4.12

Warehouse/distribution 99.6 2.1 11.3% 13.9% 789,404 $4.19

Manufacturing 35.0 0.2 8.4% 14.6% 93,249 $3.63

Gains in employment are not the only place in the MSA to find signs that the economy is picking up steam and trending in the right direction. Residential real estate, notorious for being a leading indicator in the health of the economy, is displaying notable expansion in the Bay area. For single family homes, there is currently only 4.5 months of inventory available which is down from 6.6 months at the beginning of this year and 8.1 months at the beginning of 2012. Furthermore, pending sales are up 10.1 percent from last month and 4.6 percent from the same time last year. The average sales price throughout the Bay area are up 7.0 percent, year-over-year, as well. The news is just as good on the multi-family side of the residential market as construction is taking place all throughout the market. The Skyhouse Project is a 23-story tower that is being built in the Channel District. This was the first tower to break ground in the Channel District, located southwest of downtown, in more than five years. There is also a new $20M apartment complex that recently broke ground in Wesley Chapel, a suburb to the north of downtown, that will consist of 264 units and will open early 2015.


Tampa overview, cont.

Tampa property clock

For an industrial market that is roughly eighty-three percent composed of warehouse or distribution product, the performance of the property set is a great representation of the overall health of the market. Demand has increased supported by the fact that absorption in the first quarter of 2014 was the second highest it had been since the first quarter of 2011. One of the things that is driving demand is the new expectation for online retail. As same-day delivery becomes more common in the e-commerce world, firms will be forced to have DCs located closer to population centers. This increase in demand has helped decrease the vacancy rate down to 10.5 percent which equates to a 4.0 percent decrease (50 bps) over the past year. The vacancy rate currently is below the five-year average by 120 bps but remains above the ten year average by 130 bps. Rents have remained relatively stagnant throughout the past twelve months only increasing 1.7 percent to $4.12. Prior to the recession, rents in this product set in Tampa Bay reached $5.87.

Market Conditions Acceleration is beginning to be seen in the industrial product set and the market is in a completely different place today than it was two years ago. Larger tenants have resurfaced in the market and demand for quality space is increasing. There are more than ten tenants that are currently surveying the market that have a need for over 100,000 square feet. For large users, a challenge exists to locate space, which is a great sign for the overall health of the market. The quantity of quality Class A large blocks of space, greater than 100,000 square feet, has become non-existent. In Hillsborough county, which consists of the East Side submarket and Westshore/Airport submarket, there exists two spaces available that have 30’ clear and ESFR. There is a third space that will be completed later this year. A second challenge for large users who may consider approaching a developer, is the limited availability of permit-ready land which will delay the timeline that a tenant could potentially occupy a new building.

Peaking market

Falling market

Rising market

Bottoming market

Manatee/Sarasota

Land

lord l

ever

age Tenant leverage

Pinellas Westshore/Airport

Pasco, Polk

East Side


Market Conditions contd.

Eastside Industrial Cabot Commerce Center, a 150,000 square-foot distribution center, just broke ground at the interchange of the Lee Roy Selmon Expressway and US Hwy 301, and will be only the third Class A availability over 100,000 square feet in Hillsborough County. Rents on the Eastside have increased 9.0 percent over the past twelve months.

Manatee-Sarasota Counties Over fourteen percent of the manufacturing product set has been absorbed in the past two years in the Manatee-Sarasota Counties industrial submarket decreasing the vacancy down to 4.4 percent the lowest since the second quarter of 2007. The warehouse/distribution product set has also faired well with its vacancy declining 12.8 percent over the past year or the equivalent of 130 bps. Talks of speculative construction occurring in the near term future are abundant.

Pasco County Pasco county has maintained a consistent amount of demand over the past two years posting eight consecutive quarters of positive of absorption on a four-quarter rolling total basis. Prior to this trend, there were nine consecutive quarters of negative absorption. Vacancy has declined 31.7 percent (620 bps) over the past twelve months and currently rests below the five-year and ten-year averages.

.

Trend spotlight… • The housing market is coming back which is helping to increase the number of construction

jobs in the market • As the demands of e-commerce change (ie same day or next day delivery), tenants will be

forced to relocate to areas closer to highly populated geographies such as Amazon is doing with their two new buildings that are currently being constructed along I-75 and I-4.

• Metropolitan areas like Denver are seeing industrial buildings double in price as the recent legislation passed to legalize marijuana as investors are able to demand rents that exceed the market average by a multiple of four to growers of cannabis. A bill is being voted on in Florida later this year to legalize medical marijuana in Florida.

Pinellas County The furthest submarket to the west has all signs pointing to a healthy submarket with vacancy decreasing and rents appreciating in both the manufacturing and warehouse/distribution. Furthermore, for the industrial market as a whole in Pinellas County, the four-quarter rolling total of net absorption is at its highest point since the first quarter of 2007.

Polk County Polk county is one of the slowest recovering submarkets in the greater Bay area but this may be the last business cycle where this is true. Many investors have a high outlook on the both the short-term and long-term future of the submarket as it is bisected by I-4 connecting the two largest metropolitan areas in Central Florida, Tampa and Orlando. Moreover, investors and developers are looking to acquire well-positioned land for future development.

West Shore – Airport The submarket only has one block of space greater than 100,000 square feet which will hinder it moving forward when trying to attract large tenants, but for the time being, this shouldn’t be a concern with vacancy below both five-year and ten-year averages. Even with low vacancy, rents remained stagnant throughout 2013. Expect this to change in the latter half of 2014.

Outlook

All signs point to a promising next couple years for the industrial market in Tampa Bay. As vacancy continues to inch down below historical lows, look for speculative development to occur. The developers/investors who have land tied up and are permit ready will have a significant advantage against their competitors due to the timing it will take for other owners to pull permits. Furthermore, as the market continues to tighten, more investors will look to acquire land but the stock of industrial land in Hillsborough and Pinellas counties continues to be very low. Furthermore, there has yet to be a ton of rent appreciation throughout most submarkets but that is not a huge concern right now. Rent appreciation typically lags drops in vacancy by four to six quarters. Therefore, as 2013 saw huge declines in vacancy, we expect rent appreciation to pick up steam in 2014.


Pricing and availability trends • Rents have just recently appreciated with some submarkets making up more ground than others.

The following is the amount of rent that has been recaptured since the trough of the last business cycle: Eastside (25%), Polk (1%), Westshore/Airport (16%), Pasco (1%), Manatee/Sarasota (10%) and Pinellas (20%).

• As the market recovers, it becomes tricky for landlords not to out-price the demand. The question

becomes is absorption increasing because rents remain suppressed or is absorption increasing truly due to increased demand. The answer in Tampa appears to be that demand is increasing but this perception will likely be confirmed later in the year as rents begin appreciating at 150 bps per quarter.

Tampa industrial overview, cont.

YTD net absorption

Demand trends

• For the market in its entirety, the manufacturing product set has had 2.3 percent of its stock absorbed while the warehouse/distribution product set has only had 0.7 percent absorbed over the past four quarters.

• Although Polk county has the largest YTD absorption figure, it is the submarket with the lowest four-quarter rolling total of net absorption (summation of the previous four quarters).

• Absorption may be hindered in the short-term future if large users do not have a place to relocate due to the limited availability of high-quality space.

Average rental rate (NNN)

Eastside

Pasco

Westshore/Airport

Pinellas

Manatee/Sarasota

Polk

$3.00

$3.50

$4.00

$4.50

$5.00


Methodology…

The leased industrial sector excludes owner-occupied product from the market’s data set, and provides a rental equivalent perspective for industrial buildings that are leased by tenants. Buildings can move into and out of this data set based upon being purchased or sold by a particular user.

Recent lease transactions

Tenant name Location Submarket Deal type Size (s.f.)

HD Supply 4406 Madison Industrial Ln Eastside New 229,308

Excellence Industries 500 S Falkenburg Rd Eastside New 90,000

Suncoast Textile 12200 34st N Pinellas New 35,000

Total leased industrial market (excluding owner occupied facilities)

Supply total stock (MSF)

Vacancy rate

Availability Rate

Demand Q1 2014 net

absorption (s.f.)

Pricing Average rental

rate (nnn)

Total leased industrial market 78.1 14.3% 16.9% 970,848 $4.12

Warehouse/distribution 61.4 14.7% 16.9% 917,841 $4.19

Manufacturing 16.7 12.8% 16.8% 53,007 $3.56

Sector trends… • The total leased sector of the Tampa industrial market represents 58.0percent of the market’s

total industrial stock tracked by JLL. Demand within this segment increased outperformed owner-occupier buildings capturing a larger percent of its total stock in the opening quarter of the year.

• Leasing activity is picking up as tenants are becoming aware that the market is shifting towards a landlord-favorable market. As the market begins to shift, tenants are tying up space in long-term deals as the deal that can be struck today will be more advantageous for a tenant than it will be in twelve to twenty-four months from now.

Tampa leased industrial market [excluding owner-occupied facilities]


Pinellas 6451 126th Ave N

RBA 120,000 s.f.

Buyer Richard D. Forsyth

Seller Harrod Properties

Price (p.s.f.) $97

Eastside 4410 Eagle Falls Pl

RBA 147,000 s.f.

Buyer Exeter Property Group

Seller Industrial Income Trust

Price (p.s.f.) $78

Eastside 1802 Jim Johnson Rd.

RBA 807,795 s.f.

Buyer C7S Wholesale Grocers

Seller Good Lion

Price (p.s.f.) $31

It appears though the industrial market hit its bottom in regards to the average price per square-foot that buildings are being sold for. 2013 saw the average price of a building sell for $32.00 per square foot but did see a slight increase in the velocity of buildings be sold. Already in the first quarter of 2014 have we seen prices appreciate. The weighted average on a price per square-foot basis of sales in the past three months exceeded forty-seven dollars. As revenues begin to grow again for companies now that we are out of the recession, owner-occupier tenants who own or lease multiple facilities throughout a metropolitan area may opt to consolidate to one location, which often times is the most cost-efficient strategy in the long term. If this occurs, as we expect it will, the number of properties being bought and sold will likely increase. Furthermore, three additional factors are likely to have a positive impact on capital markets activity as demand will increase. First, consumers are

Tampa industrial capital markets overview

Tampa select sales Average sales price (p.s.f.)

$0

$10

$20

$30

$40

$50

$60

$70

$80

2007 2008 2009 2010 2011 2012 2013 2014

Avg. price (p.s.f.)

demanding more from e-commerce retailers. Next day delivery is almost “mandatory” in the eyes of the consumers and same day delivery is becoming more desired. As these delivery benchmarks become a staple of the e-commerce industry, suppliers will be forced to have more distribution centers in order to have shorter supply lines to the end users. Second, although at a minimum of six months away, legalizing medical marijuana is on the ballot in Florida this coming November. If the amendment passes, demand for warehouse space to grow the product will skyrocket like it has in areas such as Denver and the San Francisco Bay Area. For example, Cannabis-Rx just recently bought a Walmart sized boat plant in Sarasota in hopes to beat the increased demand that will after November. Lastly, as the economy strengthens and larger users look to upgrade to newer space with additional features such as a higher clear height or ESFR fire suppression, look for them to sell their current locations in order to free up capital to relocate.


Statistics

Large block availabilities

Contacts

Appendix


Tampa industrial market statistics, cont.

Submarket YTD completion

(s.f.)

Inventory (s.f.)

Direct net

absorption (s.f.)

YTD direct net

absorption

(s.f.)

Total net

absorption (s.f.)

YTD total net

absorption (s.f.)

YTD total net

absorption

(% of stock)

Direct vacancy

(s.f.)

Direct vacancy

(%)

Total vacancy

(s.f.)

Total vacancy

(%)

Average

asking rent

($ p.SF) NNN

Under

construction /

renovation (s.f.)

Eastside Industrial

Warehouse / Distribution 0 37,728,022 60,883 60,883 60,883 60,883 0.2% 5,288,981 14.0% 5,316,751 14.1% $4.24 1,100,000

Manufacturing 0 8,440,599 0 0 0 0 0.0% 420,631 5.0% 420,631 5.0% $4.30 80,600

Total industrial 0 46,168,621 60,883 60,883 60,883 60,883 0.1% 5,709,612 12.4% 5,737,382 12.4% $4.24 1,180,600

Manatee-Sarasota Counties

Warehouse / Distribution 150,000 11,561,943 289,348 289,348 289,348 289,348 2.5% 1,030,977 8.9% 1,120,314 9.7% $4.32 0

Manufacturing 0 5,998,655 29,355 29,355 29,355 29,355 0.5% 264,491 4.4% 264,491 4.4% $4.18 96,000

Total industrial 150,000 17,560,598 318,703 318,703 318,703 318,703 1.8% 1,295,468 7.4% 1,384,805 7.9% $4.30 96,000

Pasco County

Warehouse / Distribution 0 2,364,917 3,961 3,961 3,961 3,961 0.2% 294,682 12.5% 294,682 12.5% $3.40 0

Manufacturing 0 457,884 0 0 0 0 0.0% 80,400 17.6% 80,400 17.6% $5.95 0

Total industrial 0 2,822,801 3,961 3,961 3,961 3,961 0.1% 375,082 13.3% 375,082 13.3% $3.40 0

Pinellas County

Warehouse / Distribution 0 14,694,376 92,315 92,315 130,031 130,031 0.9% 1,186,030 8.1% 1,186,030 8.1% $4.90 0

Manufacturing 0 12,381,131 53,021 53,021 53,021 53,021 0.4% 652,050 5.3% 652,050 5.3% $4.44 0

Total industrial 0 27,075,507 145,336 145,336 183,052 183,052 0.7% 1,838,080 6.8% 1,838,080 6.8% $4.76 0

Vacancy: Physically vacant space. Total Vacancy includes both direct and sublease space. Net Absorption: The net change in occupancy over a measured period of time. Average Asking Rent: Direct monthly values presented on a NNN basis, then weighted by the amount of direct available space in a building. Statistics reflect the total industrial market, including owner occupied facilities

All classes, 30k s.f. and higher


Tampa industrial market statistics, cont.

Submarket YTD completion

(s.f.)

Inventory (s.f.)

Direct net

absorption (s.f.)

YTD direct net

absorption

(s.f.)

Total net

absorption (s.f.)

YTD total net

absorption (s.f.)

YTD total net

absorption

(% of stock)

Direct vacancy

(s.f.)

Direct vacancy

(%)

Total vacancy

(s.f.)

Total vacancy

(%)

Average

asking rent

($ p.SF) NNN

Under

construction /

renovation (s.f.)

Polk County

Warehouse / Distribution 387,165 27,361,958 391,754 391,754 391,754 391,754 1.4% 3,135,607 11.5% 3,212,007 11.7% $3.83 1,050,400

Manufacturing 0 5,906,650 -23,307 -23,307 -23,307 -23,307 -0.4% 1,380,497 23.4% 1,380,497 23.4% $2.81 0

Total industrial 387,165 33,268,608 368,447 368,447 368,447 368,447 1.1% 4,516,104 13.6% 4,592,504 13.8% $3.65 1,050,400

Westshore Airport

Warehouse / Distribution 0 5,973,982 -86,573 -86,573 -86,573 -86,573 -1.4% 318,130 5.3% 318,130 5.3% $4.57 0

Manufacturing 0 1,731,246 34,180 34,180 34,180 34,180 2.0% 140,054 8.1% 140,054 8.1% $3.18 0

Total industrial 0 7,705,228 -52,393 -52,393 -52,393 -52,393 -0.7% 458,184 5.9% 458,184 5.9% $4.34 0

Total market

Warehouse / Distribution 537,165 99,685,198 751,688 751,688 789,404 789,404 0.8% 11,254,407 11.3% 11,447,914 11.5% $4.19 2,231,000

Manufacturing 0 34,916,165 93,249 93,249 93,249 93,249 0.3% 2,938,123 8.4% 2,938,123 8.4% $3.59 96,000

Total industrial 537,165 134,601,363 844,937 844,937 882,653 882,653 0.7% 14,192,530 10.5% 14,386,037 10.7% $4.12 2,327,000

Vacancy: Physically vacant space. Total Vacancy includes both direct and sublease space. Net Absorption: The net change in occupancy over a measured period of time. Average Asking Rent: Direct monthly values presented on a NNN basis, then weighted by the amount of direct available space in a building. Statistics reflect the total industrial market, including owner occupied facilities

All classes, 30k s.f. and higher


Tampa industrial buildings with large block availabilities

Pinellas

5 Blocks

695,112 s.f.

1501 N 72nd St (M) – 213,472 s.f.

8575 Largo Lakes Dr (W) – 132,000 s.f.

13590 Automobile Blvd (W) – 122,140 s.f.

8031 114th Ave (M) – 120,000 s.f.

4750 118th Ave N (W) – 107,500 s.f.

Warehouse Distribution Warehouse Distribution

Flex Distribution Warehouse

Contiguous blocks greater than 100,000 square feet; (M): Manufacturing; (D): Distribution; (F): Flex; (W): Warehouse

Eastside Industrial

13 Blocks

2,382,195 s.f.

1601 N 39th St (W) – 460,000 s.f.

6708 Harney Rd (D) – 435,000 s.f.

6422 Harney Rd (W) – 216,500 s.f.

5301 E Hanna Ave (D) – 160,000 s.f.

915 Chad Ln (F) – 157,205 s.f.

4406 Madison Industrial Ln (D) – 156,311 s.f.

4543-4561 Oak Fair Blvd (W) – 136,212 s.f.

Manufacturing Warehouse Warehouse

Manufacturing Warehouse

3901 Riga Blvd (M) – 135,169 s.f.

402 E Ohio St (W) – 109,878 s.f.

8800-8824 E Adamo (D) – 106,374 s.f.

8800-8824 E Adamo (D) – 105,792 s.f.

4720 Oak Fair Blvd (W) – 103,754 s.f.

4429 Madison Industrial Ln (W) – 100,000 s.f.

Manufacturing Warehouse Distribution Distribution Warehouse Warehouse


Tampa industrial buildings with large block availabilities, cont. Manufacturing

Warehouse Distribution Warehouse Distribution Distribution



Manufacturing Distribution

Polk

12 Blocks

2,2725,69 s.f.

525 S Recker Hwy – (M) – 320,325 s.f.

5300 Recker Hwy – (W) – 297,549 s.f.

81 Industrial Blvd – (D) – 250,000 s.f.

5300 Recker Hwy – (W) – 236,500 s.f.

5200-5225 Regions Ct – (D) – 217,850 s.f.

5101 Great Oak Dr – (D) – 200,000 s.f.

309 S Acuff Rd – (M) – 171,107 s.f.

500 Eagles Landing Dr. – (W) – 137,500 s.f.

300 NW Phosphate Blvd – (M) – 116,274 s.f.

502 McKean St. – (W) – 112,349 s.f.

155 Dyson Rd – (M) – 108,394 s.f.

5020-5044 Great Oak Dr. – (D) 104,721 s.f.


Manufacturing

Manatee/Sarasota Counties

1 Block

107,300 s.f.

7110 21st St E – (M) – 107,300 s.f.


Tampa industrial buildings with large block availabilities, cont.

Warehouse

West Shore/Airport

1 Block

196,800 s.f..

5025 W Knollwood St. – (W) – 196,800 s.f.


Warehouse

Pasco

1 Block

132,220 s.f.

14962 Ronnie Drive – (W) – 132,220 s.f.

Submarkets with no large block availabilities:


Tampa contacts Research Ryan Vaught Research Analyst +1 813 387 1291 [email protected] Brady Titcomb Research Director, Florida +1 954 653 3222 [email protected] Brokerage John Dunphy, CCIM, SOIR Senior Vice President – Industrial Services +1 813 387 1312 [email protected] Robert O. Alter Senior Vice President – Industrial Services + 1 813 387 1325 [email protected] Scott Altieri Vice President – Industrial Services +1 813 830 6366 [email protected] Thomas Grandoff Associate - Industrial Services +1 813 387 1321 [email protected]

Additional Resources Doug Irmscher Market Director, Florida +1 407 982 8580 [email protected]

Chris Butler Managing Director, Central Florida +1 813 387 1303 [email protected] Chad Rupp Managing Director, Central Florida +1 813 387 1300 [email protected]

About JLL JLL (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $4 billion, JLL operates in 75 countries worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3 billion square feet and completed $99 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $47.6 billion of real estate assets under management. 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 300 professional researchers track and analyze economic and property trends and forecast future conditions in over 70 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.

©2014 Jones Lang LaSalle IP, Inc. All rights reserved. No part of this publication may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of Jones Lang LaSalle. The information contained in this document has been compiled from sources believed to be reliable. Jones Lang LaSalle or any of their affiliates accept no liability or responsibility for the accuracy or completeness of the information contained herein and no reliance should be placed on the information contained in this document.

For more information, please contact:

JLL 401 E Jackson St.., Suite 1500 Tampa, FL 33602 ww.us.jll.com/industrial Tel +813 830 6535

http://www.us.jll.com/industrial

new construction projects finally break-ground; … industrial... · total industrial market (owner...

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