quarter 2q2013

DAL LA S ’ M a r k e t R e p o r t

S e c o n d Q u a r t e r | 2013

T he Q u a r t e r

tablecontentsOFFICE

CENTRAL BUSINESS DISTRICT

UPTOWN / TURTLE CREEK

RICHARDSON

QUORUM / BENT TREE

UPPER TOLLWAY / WEST PLANO

CENTRAL EXPRESSWAY

PRESTON CENTER

LAS COLINAS

INDUSTRIAL

GREAT SOUTHWEST – ARLINGTON

PINNACLE – LONESTAR – TURNPIKE

NORTHEAST DALLAS – GARLAND – MESQUITE

PLANO – RICHARDSON

DFW AIRPORT

NORTH STEMMONS – VALWOOD

SOUTHERN DALLAS COUNTY

SOUTH STEMMONS CORRIDOR

05

07

09

11

13

15

17

19

23

25

27

29

31

33

35

37

4

o�cesummaryOveral l Investment Grade Inventory

137,334,983O F F I C E I N V E N T O R Y

24,926,976AVA I L A B L E S Q U A R E F E E T

S U B M A R K E T I N V E N T O R Y A V A I L A B L E S Q U A R E F E E T

2 Q 2 0 1 3A V A I L A B I L I T Y


UPTOWN/TURTLE CREEK

RICHARDSON

QUORUM/BENT TREE

UPPER TOLLWAY/WEST PLANO

CENTRAL EXPRESSWAY

PRESTON CENTER

LAS COLINAS

26,913,901

9,859,952

15,477,001

23,452,886

21,006,378

10,294,468

2,694,724

27,635,673

137,334,983

27.9%

12.8%

11.7%

19.1%

6.6%

21.6%

7.4%

19.4%

18.2%

7,468,404

1,261,149

2,314,856

4,483,197

1,536,975

2,099,950

280,839

5,481,606

24,926,976

eightM A J O R D A L L A S

O F F I C E S U B M A R K E T S

18.2%S E C O N D Q U A R T E R

AVA I L A B I L I T Y

5

DALLAS LOVEFIELD

20

30

35E

35E

121

635

45

175

12

183

67

12

360

PRESIDENTGEORGE BUSH

TOLLWAY

LAS COLINASpage 20

RICHARDSONpage 10

UPPER TOLLWAY / WEST PLANO

page 14

QUORUM / BENT TREE

page 12

CENTRAL EXPRESSWAY

page 16


page 06

PRESTON CENTERpage 18

UPTOWN / TURTLE CREEK

page 08

This map reflects the locations of the eight office submarkets within the greater Dallas metro area. Up-to-date market statistics, recent transactions, new development summaries, and current market trends can be found for each submarket on the following pages.

6

SECOND QUARTER 2013 • CENTRAL BUSINESS DISTRICT

THANKSGIVING TOWER

u pVACANCY

f l a tRENTAL RATES

f l a tCONSTRUCTION

27.9%

AVAILABILITY

S t a t i s t i c s HISTORICAL AVAILABILITY TRENDSAVAILABLE SQUARE FEETINVENTORY 2Q 2013

AVAILABILITY 2Q123Q124Q121Q13

20.0%33.2%29.2%27.6%13.0%

27.2%

19.4%32.4%28.6%27.0%

0.0%26.3%

19.8%33.0%30.2%28.0%

0.0%27.2%

19.8%34.4%29.8%28.2%12.1%

27.7%

19.7%37.2%28.5%28.3%12.1%

27.9%

1,495,5522,386,5613,502,6987,384,811

83,5937,468,404

7,551,3656,930,748

11,743,57826,225,691

688,21026,913,901

Class A Tier 1Class A Tier 2Class BTotal - Competitive Investor Owned PropertiesPlus - Owner User PropertiesOverall Investment Grade Inventory

“ We have seen buildings

north of the DART rail line

in the CBD become a prime

target for groups looking

to hop on the Klyde Warren

Park/Arts District

band-wagon..”

Through the first half of the year a number of long-rumored lease transactions have materialized within the Dallas CBD. With the announced Hall Arts Tower and 2100 Ross leading the charge, Stream has seen buildings north of the DART rail line in the CBD become a prime target for groups looking to hop on the Klyde Warren Park/Arts District band-wagon. These transactions include the relocation of KPMG and Jackson Walker to the new Hall Arts Tower project that is expected to break ground this September.

Fueled by their recent success retaining and attracting tenants to the CBD, Landlords willing to invest in their assets are benefiting from a “flight-to-quality.” Tenants, particularly those which are longstanding CBD occupants, largely desire to remain in the CBD provided that a building can offer a) stable and proactive ownership, b) high quality improvements and services and c) an adequate parking ratio. In response, Stream has seen two large assets in the submarket purchased out of foreclosure from reputable and well-capitalized owners, including Comerica Bank Tower (M-M Properties and CBRE Capital Partners) and Thanksgiving Tower (Woods Capital/Third Point Opportunity Master Fund). Furthermore, the previous year has seen the entry of institutional investors Invesco (Plaza of the Americas) and Cousins Properties (2100 Ross), both of which will invest substantial capital in building improvements.

7 S t r e a m R e a l t y P a r t n e r s

SECOND QUARTER 2013 • CENTRAL BUSINESS DISTRICT

B U I L D I N G SQUARE FEETT E N A N T

Leasing Activity

150,000

65,000

50,000

28,208

25,000

14,000

Hall Arts

2100 Ross Avenue

Harwood Center

Bank of America Plaza

2100 Ross Avenue

Renaissance Tower

KPMG

Nederland Sewell

GSA

Invitation Homes

Turner Construction

Clearview Electric

299,005

291,570

269,556

261,260

237,254

234,506

225,209

223,361

172,046

161,421

152,933

106,780

87,569

86,640

83,593

68,098

54,904

1601 Elm St

350 N Saint Paul St

901 Main St

1201 Elm St

603 Munger

1717 Main St

1910 Pacific Ave

1700 Pacific Ave

500 N Akard St

2001 Ross Ave

717 N Harwood St

1445 Ross Ave

2100 Ross Ave

1201 Main St

400 S Record St

600 N Pearl St

2001 Bryan St

Thanksgiving Tower

One Dallas Center

Bank of America Plaza

Renaissance Tower

West End MarketPlace

Comerica Bank Tower

Pacific Place

1700 Pacific

Lincoln Plaza

Trammell Crow Center

KPMG Centre

Fountain Place

2100 Ross Avenue

One Main Place

The Belo Bldg

Plaza of the Americas -

South Tower

Bryan Tower

SQUARE FEETA D D R E S SB U I L D I N G

Big Block Availabi l i t ies

EXPIRATIONSQUARE FEETT E N A N T

Deals in the Market

2015

2016

2016

2015

2014

2014

2015

2014

2018

N/A

2016

2014

2015

2014

2014

150,000

130,000

120,000

105,000

90,000

80,000

70,000

45,000

40,000

35,000

30,000

30,000

25,000

20,000

20,000

Locke Lord

Norton Fulbright

Gardere Wynn

Jackson Walker

Akin Gump

Ernst & Young

Strasburger & Price

Invesco

Grant Thornton

Hub International

McKinsey & Co.

Meadows Collier

Sidley Austin

Senior Care

Taber Estes

Landlords know that even with all of these upgrades, parking remains a threshold challenge relative to Uptown buildings, which command rates nearly double that of “core” CBD buildings. Those that can make the leap by offering 3.0:1,000 SF or greater parking ratios will continue to receive the deepest interest from large tenants in the market. The same has held true with 2100 Ross and Lincoln Plaza, both of which recently struck large leases by guaranteeing a minimum of 3.0:1,000 SF parking by way of arrangements with surrounding lots.

I n v e s t m e n t S a l e s

• M-M Properties, backed by capital from CBRE Capital Partners purchased 1717 Main Street (Comerica Bank Tower). The property was bought from CW Capital out of receivership. Dividend Capital Total Realty Trust was the previous owner, which had acquired the property by way of its mezzanine loan interest.

• Woods Capital (Jonas Woods), with help from Third Point Opportunities Fund (famed New York-based investor Dan Loeb), purchased 1601 Elm Street (Thanksgiving Tower). The property was sold quickly after being put on the market in April.

D e v e l o p m e n t

• Hall Arts Tower has the permits and tenants in place to begin construction this September. Rents are expected to clear $40/SF net of electricity for most of the building

• Two other developments in the Arts District, Two Arts Plaza and The Spire, are on the hunt for an anchor tenants to kick off preleasing.

F o r e c a s t

The CBD is catching a tailwind given overall market large block scarcity and the new local amenity base. The next 24 months should be pivotal for the submarket as a number of large tenants within the area are coming to the market. With a substantial amount of new construction proposed in the Arts District and elsewhere in Uptown, Stream anticipates a modest influx of supply to the market in 2014 and 2015. Creative parking solutions will continue to drive the conversation among the most prominent repositioning opportunities within the CBD, including KPMG Centre, Comerica Bank Tower, and Thanksgiving Tower.

8

SECOND QUARTER 2013 • UPTOWN - TURTLE CREEK

FROST TOWER

12.8%

AVAILABILITY

d o w nVACANCY

u pCONSTRUCTION

u pRENTAL RATES

S t a t i s t i c s HISTORICAL AVAILABILITY TRENDSAVAILABLE SQUARE FEETINVENTORY 2Q 2013

AVAILABILITY 2Q123Q124Q121Q13

16.5%20.6%15.8%17.8%0.0%

17.3%

13.9%23.8%21.8%19.1%

0.0%18.6%

14.4%19.2%12.6%15.7%

0.0%15.2%

11.0%17.8%12.0%13.6%

0.0%13.2%

10.6%17.2%11.7%13.2%

0.0%12.8%

431,369572,526257,254

1,261,1490

1,261,149

4,053,1363,330,6322,196,3689,580,136

279,8169,859,952

Class A – Tier IClass A – Tier IIClass BTotal - Competitive Investor Owned PropertiesPlus - Owner User PropertiesOverall Investment Grade Inventory

“Tenants and residents are

drawn to this submarket

because of its “live, work, play”

amenities.”

The Uptown/Turtle Creek submarket is situated between Downtown and Dallas’ most prestigious neighborhood, Highland Park. Due to its proximity to the city’s center and affluent residences, Uptown/Turtle Creek commands some of the highest office rental rates in the Metroplex. Tenants and residents are drawn to this submarket because of its “live, work, play” amenities including: Stanley Korshak, The Ritz-Carlton Hotel and Tower Residences, West Village, American Airlines Center, McKinney Avenue retail, Turtle Creek residences, the Katy Trail, Klyde Warren Park, and the Perot Museum of Nature and Science. Additionally, the McKinney Avenue Trolley

extension is under construction and will connect from the CBD DART Rail through Uptown. Second quarter 2013 statistics show continued vacancy decrease in all asset classes. Overall, the vacancy rate decreased from 13.2% to 12.8%. During the last real estate cycle, developers put a shovel in the ground in 2005 when Uptown overall vacancy hit 13.2%. This quarter, Frost Bank announced that is has finalized its 57,558 SF lease in the proposed Frost Tower to be developed by Harwood International. In the Arts District, Hall recently announced their new Hall Arts Development with KPMG and Jackson Walker as their lead tenants.


SECOND QUARTER 2013 • UPTOWN - TURTLE CREEK

Leasing Activity

70,970

57,558

25,342

22,000

12,000

11,079

10,359

9,000

7,266

8,000

Park Seventeen

Frost Tower

Park Seventeen

Two Turtle Creek

Rosewood Court

The Crescent

Park Place on Turtle Creek

Rosewood Court

One Victory Park

3131 McKinney

Regions Bank

Frost Bank

Clarion Partners

Community Trust Bank

Caldwell Cassidy

Holland & Knight

Miller, Egan, Molter & Nelson LLP

Cushman & Wakefield

Plains Capital

Bookshout!

SQUARE FEETB U I L D I N GT E N A N T



119,310

94,087

53,748

47,817

45,150

38,043

34,018

32,789

31,189

28,992

26,834

22,459

21,611

21,219

1919 McKinney Ave

3500 Maple Ave

3102 Oak Lawn Ave

3100 McKinnon St

3333 Lee Pky

2414 N Akard St

4311 Oak Lawn Ave

2828 N Harwood St

2323 Victory Ave

3811 Turtle Creek Blvd

3838 Oak Lawn Ave

2101 Cedar Springs Rd

200 Crescent Ct

2727 N Harwood St

1919 McKinney

3500 Maple

The Centrum

Citymark

3333 Lee Pky

Akard Plaza

Hampton Court

Harwood International-

Phase IV

One Victory Park

Turtle Creek Centre

Two Turtle Creek

Rosewood Court

The Crescent

The Jones Day Building

SQUARE FEETT E N A N T

Deals in the Market

EXPIRATION2015

2016

2016

2014

2014

2018

2015

2014

150,000

110,000

100,000

90,000

60,000

40,000

35,000

20,000

Locke Lord

Gardere Wynn

Strasburger & Price

Akin Gump

Invesco

Grant Thornton

Godwin Ronquillo

Taber Estes

Uptown is going through a true “land grab” with few development sites remaining.

Although the lack of big block availability was scarce in the second quarter, a number of notable leases were executed such as Regions Bank (relocating from the Stemmons submarket) for 70,970 SF at Park Seventeen and Clarion Partners for 25,342 SF in the Park Seventeen Pent House which brings the asset to 95% leased.

Fueled by strong demand from other parts of DFW, and a limited office supply, landlords continue to increase rental rates across the board. The Uptown market is fundamentally strong. In addition to Frost Tower, the buzz surrounding new developments continues as the Tier AA product continues to tighten and large block availability is scarce. In Uptown, Crescent and KDC are all actively hunting for a lead tenant to kick off new projects. In addition, just south of Woodall Rodgers Freeway, Billingsley and Spire are also targeting lead tenants for their projects.


• Velocis acquired 3131 McKinney, a 145,610 SF, 88.8% leased building strategically located on McKinney Avenue.


• Harwood International has finalized the 57,558 SF lease with Frost Bank and plans to develop Frost Tower, a 167,251 SF, 22 story office building at the south corner of the McKinnon Street and Wolf Street intersection.

F o r e c a s t

With tightening market fundamentals, rental rates are on the rise. Based on current demand, Stream expects occupancy to tighten and rental rates to rise as tenants citywide continue to seek out Uptown for their office.

10

SECOND QUARTER 2013 • RICHARDSON

WATERVIEW 190

f l a tRENTAL RATES

11.7%

AVAILABILITY

d o w nVACANCY

f l a tCONSTRUCTION

S t a t i s t i c s HISTORICAL AVAILABILITY TRENDSAVAILABLE SQUARE FEETINVENTORY

2Q124Q12 3Q121Q132Q 2013

AVAILABILITY

24.8%23.9%24.3%0.4%

21.1%

22.8%25.1%24.1%

0.3%19.8%

15.1%24.5%20.3%

0.3%16.9%

14.3%21.9%18.9%

0.2%15.0%

7.1%19.7%14.7%0.2%

11.7%

698,6551,608,7202,307,375

7,4812,314,856

4,883,7777,349,766

12,233,5433,243,458

15,477,001

Class AClass BTotal - Competitive Investor Owned PropertiesPlus - Owner User PropertiesOverall Investment Grade Inventory

“Richardson continues

to be one of the hottest

submarkets in DFW. ”

Richardson continues to be one of the hottest submarkets in DFW. Between the first and second quarter of 2013, overall investment grade properties vacancy decreased by over 3%, ending at 11.7%. Tier A product vacancy dropped by more than 6% during the second quarter, ending at 7.10%.

This drastic drop in vacancy can be tied to the State Farm build-to-suit which broke ground in the Spring of 2013. State Farm announced that they will lease an additional 815,000 SF of space at Nortel’s former headquarters on Lakeside Dr. Add this to their existing footprint of over 700,000 SF,

and their regional campus is projected to be well over 2.2 million SF upon completion in late 2015.

Buildings with high parking ratios (6 per 1000 and greater) are evaporating by the week. Kohl’s signed a lease for 230,000 SF at Waterview 190 after the owner was able to secure additional land for parking to meet a 6 per 1000 parking ratio requirement. Extend Health leased 114,000 SF of space at 250 E. Arapaho after the building was able to expand its parking in the adjacent land. A division of United Healthcare leased 70,000 SF at Granite’s flex project at Campbell Creek after the landlord was able to obtain


SECOND QUARTER 2013 • RICHARDSON


Leasing Activity

812,503

230,000

114,000

70,000

13,000

The Tower Lakeside

Waterview 190

250 East Arapaho

Campbell Creek

1111 Digital

State Farm Insurance

Kohl’s

Extend Health

Connection Group

Eligibility Consultants



190,000

174,056

140,000

114,247

81,047

60,000

2280 N Greenville Ave

3000-3030 Waterview Pky

2323 N Central Expy

1201 E Campbell Rd

2400 Lakeside Blvd

17787 Waterview Pky

2280 N Greenville Ave

3000-3030 Waterview Pky

2323 N Central Expy

Campbell Commons

Greenway Plaza II

17787 Waterview Pky


Deals in the Market

Associa

Liberty Mutual

CVS

Carbonyx

90,000

55,000

45,000

14,000

2014

2014

2014

2014

an additional two acres of parking. Lastly, Liberty Mutual is rumored to be signed for 55,000 SF at Greenway Plaza II and will occupy just over two floors with a 5:1000 parking ratio.

Tier A product continues to lead the market, and Tier B buildings are experiencing a strong “trickle-down” effect as good options are leased up. For the first time in over five years, Tier B product vacancy is below 20.0 %. In fact, just one year ago vacancy for the submarket was 23.9%.


• 3300 Renner is being offered for sale. The 180,000 SF building is 33% leased, and can offer 6 per 1000 parking.

• Cardinal Park will be coming to market. Wayzata purchased the note in 2011.

• Lakeside Tower (2350 Lakeside) will be coming to market in the Fall. The asset is 97% leased, with Texas Capital Bank occupying all but one floor through 2023.


• Fobare announced they will be reskinning and redesigning 1225 Alma, and expanding the parking. The 150,000 SF asset will be an ideal location for a call center, with an 8 per 1,000 parking ratio and expansive floorplates.

F o r e c a s t

Expect Class B vacancy to drop drastically over the next six months as Class A options disappear. Tougher vacancies, tougher buildings, and tougher locations will experience increased activity due to the lack of supply but steady demand. One word of caution, in 2016 you could have a wave of big blocks come available similar to what happened in 2009 when Blue Cross Blue Shield moved to their build to suit. Until that happens, it is clearly a landlord's market, with concessions shrinking and rental rates rising.

12

SECOND QUARTER 2013 • QUORUM - BENT TREE

SPECTRUM CENTER

u pRENTAL RATES

f l a tCONSTRUCTION

u pVACANCY

19.1%

AVAILABILITY


2Q123Q124Q121Q132Q 2013

AVAILABILITY

Class A – Tier IClass A – Tier IIClass BTotal – Competitive Investor Owned ProperPlus - Owner User PropertiesOverall Investment Grade Inventory

8,495,8074,297,0098,919,028

21,711,8441,741,042

23,452,886

1,471,280717,728

2,287,6574,476,665

6,5324,483,197

17.2%16.7%25.7%20.6%

0.0%19.1%

17.2%16.4%24.6%20.1%

0.0%18.3%

17.2%17.7%25.6%20.8%

0.0%18.9%

17.2%21.2%30.6%24.1%

0.2%22.1%

17.2%18.8%26.9%21.2%0.0%

19.4%

“As the economy picks up momentum and rates north of 190 continue to increase, Quorum/Bent Tree wil l be poised for improvement"

The Quorum/Bent Tree submarket is home to numerous large corporate tenants, such as Mary Kay, MBNA and Coca-Cola, as well as a myriad of smaller professional firms. The area is well known for its strong retail presence, including the Galleria Dallas and numerous restaurants and shops along Belt Line Road.

Second quarter leasing activity in Quorum / Bent Tree leveled off with fewer large deals transacting in the submarket than recent quarters. Concentra chose to renew for 115,000 SF at Spectrum Center, keeping the Granite-owned property north of 90% leased. TexasLending.com expanded by 11,000 SF, bringing their total presence to 79,153 SF at The Centre on Midway Road. Symon Communications also inked a new 20,000 SF lease at The Colonnade with the anticipation of Fortis’ renovations to the 1.1 million SF project. Lastly, Quadrant Capital negotiated a successful relocation

and expansion of an existing tenant, Norman Spencer-McKernan, for 17,092 SF taking the project to 95% leased.

Although the majority of new development remains further north, Beck Ventures unveiled its redevelopment plans for the Valley View mall area. Dubbed “Dallas Midtown” the 430 acre site will be repurposed into a mixed-use office, retail and multifamily destination. Plans for the project were revealed this quarter by Omniplan and call for nearly $3 billion of capital to be invested over the next ten to fifteen years. The project is slated to begin by years’ end.

Quorum/Bent Tree’s high vacancy rates and healthy concessions continue across the submarket; however, numerous factors point to increased demand over the coming years. Construction to the


SECOND QUARTER 2013 • QUORUM - BENT TREE


Leasing Activity

115,000

79,153

22,928

20,000

17,092

Spectrum Center

The Centre

Addison Com Center

The Colonnade

Parkside Corp Centre

Concentra

Texas Lending

Cardlab, Inc.

Symon Communications

Norman Spencer-McKernan



248,948

134,833

129,564

93,214

81,043

66,112

64,000

61,562

59,793

53,754

52,688

14841 N Dallas Pky

13737 Noel Rd

14001 N Dallas Pky

13727 Noel Rd

16479 Dallas Pky

5757 Alpha Rd

14311 Welch Rd

15301 N Dallas Pky

14131 Midway Rd

16000 N Dallas Pky

14651 N Dallas Pky

The Aberdeen

Galleria North Tower I

Stanford Corporate Centre

Galleria North Tower II

Bent Tree Tower II

Alpha Tower

14311 Welch

Colonnade I

Greenhill Park Tower

Tollway Plaza North

The Princeton


Deals in the Market

FedEx Office

Concentra

Ryan & Co

National Default Exchange

1st Data

Netherland Sewell

Invesco

Columbus Data Services

GHA Architects

LenderLive

225,000

125,000

120,000

100,000

70,000

60,000

60,000

25,000

30,000

25,000

2015

2014

2015

2014

2014

2014

2014

2015

2015

2014

the south along I-635, which began in April 2011 and is expected to take five years to complete, has pushed tenants north. Tightening supply and increased rental rates in Legacy have also encouraged tenants to seek lower cost options in Quorum/Bent Tree and surrounding submarkets. Further redevelopment in the submarket will also entice new businesses into the area.


• The Colonnade – 1,051,641 SF – Fortis Property Group purchased the asset from CBREI.

• Interchange Office Center – 152,163 SF – Brookwood Financial purchased the asset from CBREI.

• Briargrove Place – 128,092 SF – Crown Sterling Properties is marketing the 97.3% leased asset for sale.

• Henry S. Miller is marketing 14 acres of land for sale along I-635.


• Dallas Midtown, a 430 acre, $3 billion redevelopment of the Valley View mall area, is spearheaded by Beck Ventures.

F o r e c a s t

Landlords in Quorum/Bent Tree will continue their rate war for new tenants over the next six months. Well-capitalized landlords focused on occupancy will continue to win the lion’s share of new deals in this submarket. Construction on I-635 and economic incentives from Plano and Frisco will continue to attract tenants from Quorum and surrounding submarkets. Examples include Yum! Brands and EnCana, who have chosen to leave Quorum enticed by new product farther north. Tough economic times will continue to produce short sales and foreclosures, primarily with older, functionally obsolete buildings. Construction noise and delays along I-635 will continue to push LBJ tenants to surrounding submarkets, including Quorum/Bent Tree. As the economy picks up momentum and rates north of 190 continue to increase, Quorum/Bent Tree will be poised for improvement.

14

SECOND QUARTER 2013 • UPPER TOLLWAY / WEST PLANO

7800 N DALLAS PARKWAY

d o w nVACANCY

f l a tCONSTRUCTION

u pRENTAL RATES

6.6%

AVAILABILITY


2Q123Q124Q121Q132Q 2013

AVAILABILITY

Class A – Tier IClass A – Tier IIClass BTotal – Competitive Investor Owned PropertiesTotal – Owner User PropertiesOverall Investment Grade Inventory

8.9%11.4%15.5%12.5%0.0%

8.2%

3.7%9.7%

13.9%10.0%0.00%6.6%

5.3%12.6%15.8%12.4%

0.0%8.1%

4.4%10.5%16.4%11.4%

0.5%7.3%

3.7%10.0%14.6%10.4%

0.2%6.6%

100,224689,354705,895

1,495,47341,502

1,536,975

2,254,9986,550,1974,314,183

13,119,3787,887,000

21,006,378

“As a result of the

dwindling supply and

strong demand in the

submarket , rental rates

have increased an

average of 4 .81% since

this t ime last year.”

The Upper Tollway/West Plano submarket continued to see vacancy fall for the Competitive Investor Owned Properties during the second quarter ending at 10.4%. Two large deals contributed to the vacancy decrease in the second quarter. United Healthcare executed a lease for the entire 76,000 SF building at Lincoln Property Company’s 2012 delivery, Lincoln R&D IV. Loan Depot also took part in the action by inking a 59,708 SF lease at The Plaza at Legacy. At the moment Amazon is rumored to be in lease negotiations with Granite Properties at Granite Park IV for 50,000-75,000 SF, making Amazon the anchor tenant for the project.

The New Year brought in the new development cycle. Randy Heady was the first developer to deliver with his 157,800 SF, 6-story Class A office building in the first quarter of this year and it is now 30% leased. Primera’s 51,000 SF, 2-story tilt wall building named Headquarters Place was a close second, delivering in June and it is now 22% leased. Billingsley also announced plans for a new 150,000 SF building in their International Business Park project that will have ReachLocal, an existing tenant in International Business Park, occupying 100,000 SF. In addition, 842,066 SF of speculative construction is being developed between


SECOND QUARTER 2013 • UPPER TOLLWAY / WEST PLANO


Leasing Activity

76,000

59,708

20,481

17,000

16,815

15,008

9,821

9,196

Lincoln R&D IV

The Plaza at Legacy

Denbury Park II

Legacy Town Center HQ I

Tennyson Office Center II

Granite Park Three

Hall Office Park

Legacy Town Center III

United Healthcare (Connexions)

Loan Depot

Marquis Software Solutions

Community Hospital Corp.

Infosys Ltd.

Alkami

Con-way Multimodal

Gloval Media Outreach

SQUARE FEETB U I L D I N G


A D D R E S S 354,482

122,248

120,750

110,640

100,528

80,823

66,651

62,176

58,332

53,996

51,688

5601 Legacy Dr

5360 Legacy Dr

6500 International Pky

7800 N Dallas Pky

5556 Tennyson Pky

18583 N Dallas Pky

5340 Legacy Dr

5560 Tennyson Pky

2401 Internet Blvd

6860 N Dallas Pky

5601 Granite Pky

AT&T Legacy Bldgs A & B

The Campus at Legacy

Legacy Town Center HQ I

Gramercy Center North

The Campus at Legacy

Office Tech Center G-1

Lincoln Legacy One

Granite Park Three

T E N A N T SQUARE FEET EXPIRATION

Deals in the Market

2016

2015

2014

2014

2014

2014

2013

400,000

225,000

120,000

120,000

100,000

70,000

50,000

45,000

25,000

RealPage

FedEx Office

Barclays

Aegis

Pepsi

1st Data

Butler & Hosch

Vendor Resource Management

Ford Motor Credit

three of the largest developers in the region; Hall Financial, Granite Properties, and Trammell Crow Company. Futhermore, several projects from numerous developers have been proposed but none with a definite completion date as most are waiting for a lead tenant and/or build-to-suit opportunity.

As a result of the dwindling supply and strong demand in the submarket, rental rates have increased an average of 4.81% since this time last year. KBS is taking full advantage of this trend and has restructured their leases to utilize a Triple Net rate structure. Granite Park IV has also begun quoting Triple Net rental rates.


• Capital One – 5040/5050 Headquarters Drive – 500,000 SF

• Legacy Tower – 7250 Dallas Parkway – 342,066 SF

• Granite Park IV – 5850 Granite Parkway – 300,000 SF

• Hall Office Park – 3001 Dallas Parkway – 200,000 SF

• Conifer Health Solutions – Duke Bridges IV – 200,000 SF

• International Business Park – 6111 West Plano Parkway – 150,000 SF (ReachLocal occupying 100,000 SF)

• Tyler Technologies – 5101 Tennyson Parkway – 82,000 SF

F o r e c a s t

With the lack of large blocks of space available for lease and premium rental rates offered by landlords, more tenants are considering built-to-suit options in the submarket. Currently there are over 10 different proposed buildings on available land sites. The access to Plano’s skilled labor force and top tier school system make the Upper Tollway/West Plano submarket an attractive choice for many of the Fortune 1000 companies across the globe.

16

SECOND QUARTER 2013 • CENTRAL EXPRESSWAY

7557 RAMBLER

u pCONSTRUCTION

u pRENTAL RATES

u pVACANCY

21.6%

AVAILABILITY


2Q123Q124Q121Q132Q 2013

AVAILABILITY

15.5%21.8%15.8%17.7%0.0%

17.7%

14.4%22.0%15.5%17.3%

0.0%17.3%

13.2%21.9%22.1%19.1%

0.0%19.1%

13.6%24.3%23.1%20.4%

0.0%20.4%

19.2%23.6%22.0%21.6%0.0%

21.6%

457,806860,887781,257

2,099,9500

2,099,950

3,362,2973,549,8443,382,327

10,294,4680

10,294,468


“Central Expressway offers

something for virtually any

tenant’s budget.”

The Central Expressway submarket is comprised of 10.3 million SF of office space stretching along U.S. Highway 75 from Haskell Avenue to Forest Lane. The submarket typically attracts tenants that prefer proximity to inner suburbs such as Highland Park, University Park, Preston Hollow, Lakewood and Lake Highlands and desire the access, visibility and exposure Central Expressway provides. Central Expressway is home to prominent users like Dean Foods, The Richards Group, ACS, and also contains one of DFW’s largest collections of medical office buildings from Park Lane to Forest Lane along the submarket’s northern quadrant. Central Expressway offers something for virtually

any tenant’s budget, as evidenced by an inventory evenly distributed among Class AA, Class A, and Class B product and quoted rates typically ranging from the mid-teens to mid-twenties plus electric. Additionally, the DART light rail system’s Red Line runs north-south along Central Expressway with stops at Walnut Hill, Park Lane, Lovers Lane, Mockingbird Station, and Cityplace. Rail access continues to be a key demand driver for the Central Expressway submarket as buildings with proximity to DART stations attract tenants whose employee base resides in Richardson, Plano, and North Dallas.


SECOND QUARTER 2013 • CENTRAL EXPRESSWAY


Leasing Activity

42,912

13,070

5,046

2,839

2,475

2,378

1,820

1,731

1,688

1,660

1,655

Tower at City Place

Tower at City Place

Two Energy Square

Meadow Park Tower

7557 Rambler

Two Energy Square

Campbell Centre

6500 Greenville

Meadows Building

Mockingbird Station

One Glen Lakes

Zix Corporation

Orthoworld

Comerica

Perry Law, P.C.

Berent Law Firm

Park Cities Counseling

KeyRoyal

Lookout Software

Tidal Wave Marketing

John Franz

Behind the Numbers

The Tower at Cityplace

The Offices at Park Lane

Northpark Central

Three Energy Square

The Offices at Park Lane

Office Tower in the Glen

8130 Park Lane

Two Energy Square

Pyramids - North Tower

7557 Rambler

Campbell Centre II - South Tower

Walnut Glen Tower

9400 NCX

2711 N Haskell Ave

8000 Park Ln

8750 N Central Expy

6688 N Central Expy

8028 Park Ln

NCX @ Walnut Hill

8130 Park Ln

4849 Greenville Ave

9201 N Central Expy

7557 Rambler Rd

8150 N Central Expy

8144 Walnut Hill Ln

9400 N Central Expy

219,927

152,490

149,867

145,009

102,850

98,100

86,615

85,315

77,098

67,840

58,856

54,138

52,263




Deals in the Market

2015

2014

2014

2014

2013

-

300,000

200,000

70,000

50,000

40,000

30,000

EXCO Resources

The Richards Group

Encompass Home Health

CBS Radio

Davaco

BB&T

The vacancy in Tier 1 increased sharply in the second quarter of 2013 from 13.6% to 19.2%. The increase is due to the bankruptcy filing of Residential Funding and subsequent rejection of their 200,000 SF lease at The Tower at Cityplace. Despite the large increase in vacancy in Tier 1, the overall vacancy for the quarter only increased by 1.2 percentage points from 20.4% to 21.6%. Most of the large active deals in the submarket have yet to make a decision, with the exception of Zix Corporation, which inked a long term renewal for nearly 43,000 SF at The Tower at Cityplace. The Richards Group, currently in Northpark Central I, continues to be focused on a build-to-suit in Cityplace West for approximately 200,000 SF, but no formal announcement has been made. Davaco and Encompass Home Healthcare, located in Energy Square III, are both in the market for 40,000 SF and 70,000 SF respectively. Both of these tenants are likely to make a decision on their location by year-end and it is expected they will stay in the submarket. EXCO Resources, located in Lakeside Square, is evaluating build-to-suit and existing options for approximately 300,000 SF and they are considering North Dallas options as well as options within the submarket.The investment sales market showed signs of life in the second quarter with two groups making value add plays. Parmenter Realty Partners acquired the 60% leased 7557 Rambler for $78.85/SF. Parmenter hopes to return the building to the 90% leased status it enjoyed in 2008. Boxer Property had been providing third party leasing and management services 10100 North Central Expressway, but decided the time was right to acquire the 50% leased asset from LNR.


• 7557 Rambler – 310,771 SF – 61.4% leased building sold for $78.85/SF from Endeavor Real Estate Group to Parmenter Realty Partners.

• 10100 North Central Expressway – 94,294 SF – 50.7% leased building bought by Boxer Property from LNR Property Corporation.


• Offices at Park Lane owned by Northwood Investors

• 8000 Park Lane – 190,000 SF (120,000 SF of office) – expected delivery date of fall 2014 with construction beginning in July 2013.

• 8130 Park Lane – 100,000 SF - renovating the building to office use – expected delivery date of fall 2014 with construction beginning in July 2013.

F o r e c a s t

Central Expressway landlords will begin to slowly increase rates as the overall market tightens. However, Central Expressway landlords will still remain aggressive in comparison to competing markets such as Preston Center and Uptown/Turtle Creek where space is considerably more limited.

18

SECOND QUARTER 2013 • PRESTON CENTER

8115 PRESTON ROAD

7.4%

AVAILABILITY

u pCONSTRUCTION

u pRENTAL RATES

d o w nVACANCY


2Q123Q124Q121Q132Q 2013

AVAILABILITY

9.5%16.0%9.8%

12.1%0.0%

12.1%

8.1%14.1%

7.3%10.4%

0.0%10.4%

8.9%12.3%

6.5%9.8%0.0%9.8%

9.6%13.0%

6.7%10.4%

0.0%10.4%

7.0%9.4%4.4%7.4%0.0%7.4%

107,701139,630

33,508280,839

0280,839

1,119,2211,072,945

502,5582,694,724

02,694,724


“The overal l vacancy

remains one of the lowest

in the DFW market at

just over 7%.”

The Preston Center submarket is positioned between two of the highest-income neighborhoods in Dallas: the Park Cities and Preston Hollow. With proximity to highly affluent neighborhoods and limited available development sites, the Preston Center submarket has historically maintained the lowest vacancy rate and highest rental rates in the Dallas market. The typical tenant in Preston Center is a privately-held, local or regional company that leases less than 10,000 SF. Banks and medical providers also have a substantial presence throughout the submarket.

Second quarter leasing activity in Preston Center was marked by positive net absorption of 15,930 SF and a significant decline in the vacancy rate to 7.4% from 10.34% in the first quarter. As a result of these optimistic trends, total market quoted rental rates increased 7.13% from the previous quarter to $30.24/SF + E. Three buildings, Preston Sherry Plaza, The Berkshire, and 8300 Douglas, each reported positive net absorption of at least 10,000 SF, a strong quarterly mark for any Preston Center office property.

On the investment sales front, several meaningful transactions closed in the second quarter. KBS Realty Advisors purchased both Sterling Plaza and Preston Commons from CB Richard


SECOND QUARTER 2013 • PRESTON CENTER


Leasing Activity

Iberia Bank

Strait Capital

Sherry Lane Place

Preston Sherry Plaza

1,900

2,054

B U I L D I N G SQUARE FEET


A D D R E S S25,872

17,538

17,428

14,644

13,000

10,797

5950 Berkshire Ln

3890 W Northwest Hwy

5956 Sherry Ln

8115 Preston Rd

4301 Westside Dr

3860 W Northwest Hwy

The Berkshire @ Preston Center

Bluffview Towers - East

Sherry Lane Place

East Tower

Bluffview Towers - West

Ellis Global Investors. The Lionstone Group purchased 8333-8343 Douglas from CB Richard Ellis Global Investors. The significance of these two transactions is that now approximately 30% of the entire submarket is in the hands of two institutional investors. Both groups will look to aggressively elevate rental rates, which should benefit all landlords in the submarket.


• 8333 and 8343 Douglas – 420,995 SF – Sold to The Lionstone Group in April 2013.

• Sterling Plaza – 302,747 SF and Preston Commons – 425,757 SF Sold to KBS Realty Advisors in June 2013.


• Bandera Ventures has broken ground on its eight-story, 200,000 SF office building at the corner of Douglas Avenue and Weldon Howell Parkway. The site was previously owned by Hines, which planned to build residential condos before the Great Recession. Bandera is partnering with Chief Partners, the real estate affiliate of Trevor Rees-Jones’ Chief Oil & Gas. Chief will be the project’s lead tenant and vacate nearly two full floors at Sherry Lane Place when the building is delivered in late 2014.

F o r e c a s t

The limited supply of available office space in Preston Center along with the prime location will continue to contribute to increasing rental rates in the submarket for the foreseeable future. Additionally, look for owners to begin the shift towards a triple net lease structure as opposed to a gross plus electric. Finally, with KBS and Lionstone representing roughly a third of the ownership in the submarket, their moves, along with those of Bandera/Chief at their new development, will dominate the trends for the submarket as it relates to rental rates, occupancy, and absorption.

20

SECOND QUARTER 2013 • LAS COLINAS

URBAN TOWERS

19.4%

AVAILABILITY

u pRENTAL RATES

u pCONSTRUCTION

d o w nVACANCY


2Q123Q124Q121Q132Q 2013

AVAILABILITY

5.9%22.7%33.6%27.3%8.0%

22.9%

9.5%20.5%33.8%26.9%

2.0%21.5%

8.5%20.7%32.5%26.2%

2.0%21.0%

4.9%20.8%31.7%25.5%

0.3%19.8%

6.3%20.9%30.4%24.9%

0.3%19.4%

66,4491,873,7413,525,1315,465,321

16,2855,481,606

1,344,0228,990,625

11,135,85721,470,504

6,165,16927,635,673


- -

“Las Colinas is experiencing strong leasing development and investment sales activity.”

Year to date, Las Colinas is leading the market in positive absorption. DFW has seen 628,500 SF of positive absorption in 2013 and 80%, or 499,000 SF, of it has been in Las Colinas. The vacancy rate for investment grade properties fell almost 2% from Q1 2013 to Q2 2013, ending at 19.4% vacant. Continuing the good news, the positive absorption is being evenly distributed in Urban Center, Office Center and Freeport and in Class A and B assets. All areas of Las Colinas are thriving.

Recent major lease transactions in the Las Colinas submarket have been a combination of new tenants relocating from other submarkets, cities and states as well as existing companies renewing within Las Colinas. Relocations include Trend Micro, Texas Industries, Enterprise Holdings, TSA and Safran. Significant renewals and expansions include Allstate, ADT, SkyChefs, Sedgwick, CCS

Medical, Epsilon and Cadent Medical.

Investment sales activity remains strong for both investor and user sales. Cole Real Estate Investments purchased the Allstate campus from Allstate Insurance Co. Allstate signed one of the largest sale-leasebacks Dallas has seen in the last five years for 485,000 SF. TheBlaze, the parent company of Glenn Beck's news, opinion and entertainment network, also purchased the Studios at Las Colinas. They plan to rename it Mercury Studios and the building will serve as the network's flagship radio and television facility. Urban Towers and The Point, two Urban Center buildings from the five-building CBREI Fund IV portfolio sale, are under contract and scheduled to close in August. MacArthur Plaza and 100 E Royal in the Office Center are also under contract with closing dates in August.


SECOND QUARTER 2013 • LAS COLINAS

- -


Leasing Activity

LifeSynch/Humana

Lehigh Hanson

Nationstar

Acosta

Fleet Pride

Wells Fargo

Uniden

Investar Financial

Regus

Federal Aviation Administration

Employment Solutions Mgmt

Aerotek

Auto Trader

Carpenter Corporate Center

300 E. John Carpenter

4000 Horizon Way

220 E. Las Colinas Blvd.

600 E Las Colinas

6051 N. State Hwy 161

161 Corporate Center

222 W. Las Colinas

1431 Greenway Dr.

Freeport Corporate Center III

222 W. Las Colinas

Waterway Tower

Intellicenter

225,000

211,121

105,559

65,000

47,000

35,000

27,000

22,503

17,181

16,521

16,269

11,744

11,460


B U I L D I N G A D D R E S S SQUARE FEET223,469

93,282

182,739

175,143

164,700

152,121

150,232

6021 Connection Dr

500 E John Carpenter Fwy

1601 LBJ Fwy

220 E Las Colinas Blvd

2100-2120 W Walnut Hill Ln

5601 Executive Dr

4301 Regent Blvd

The Commons

of Las Colinas II

500 E John Carpenter Fwy

Browning Place I

VHA Place

Cottonwood Office Center

5601 Executive Dr

Epsilon

Deals in the Market

EXPIRATIONSQUARE FEETT E N A N T-

2013

2015

2014

2015

2014

-

-

2015

N/A

2014

2014

2014

250,000

250,000

250,000

250,000

225,000

125,000

120,000

110,000

100,000

100,000

80,000

70,000

65,000

Vought

Epsilon

Michaels

Samsung

FedEx Office

Concentra

Aegis

Corinthian College

CEC Entertainment

Caris Life Sciences

SkyChefs

JDA

Multiplan


• The Allstate Campus, a three-building, 485,000 SF portfolio located at 8701-8711 and 8675 Freeport Pky and 8901 Esters Blvd. was purchased by Cole Real Estate Investments. Allstate Insurance Co. did a sale-leaseback.

• TheBlaze purchased the 72,000 SF Studios at Las Colinas building located at 6301 Riverside Dr.

• The Point (300 E. John Carpenter) a 402,127 SF, 99% leased building is under contract.

• Urban Towers (222 W. Las Colinas Boulevard) an 844,113 SF, 96% leased building is under contract.

• 100 E Royal, a 146,500 SF, 96% leased building is under contract.

• MacArthur Plaza, a 185,545 SF, 94% leased building is under contract.

• Carpenter Corporate Center, a 226,822 SF, 100% leased project is being marketed for sale by CBRE.


• Cypress Waters – Billingsley Co. broke ground on a spec 185,000 SF office building at Cypress Waters with a June 2014 delivery.

• Freeport 9 - Myers & Crow broke ground on their 150,000 SF, four-story building at the northwest corner of Freeport Parkway and Regent Boulevard with a Q1 2014 delivery.

• Freeport Commons – Capital Commercial announced its plans for a 300,000 SF, four-story spec building on the southwest corner of LBJ Freeway and Freeport Parkway.

• Avion – KDC has conceptual plans for a three- to four-building campus with up to 600,000 SF of office space near the corner of SH 114 and Esters Boulevard.

• Lincoln Property Company, Duke Realty, Harwood International and Wilcox Development have land available for build-to-suit opportunities.

F o r e c a s t

Landlords will continue to push rates and offer less free rent and few TI dollars as the market continues to tighten. Owners are starting to pass on short-term deals in favor of five, seven and ten-year deals and they are being selective regarding tenant credit. Now is the optimal time to make long-term deals with strong-credit tenants. Big blocks are scarce, which has encouraged developers to move forward with spec building plans. Speculative buildings are offering up to 7:1000 parking ratios to accommodate the growing trend of increased parking for dense users. There are enough big deals floating around the Las Colinas market that a BTS should be announced in Freeport within the next few months.

22

industrialsummaryOveral l Investment Grade Inventory

338,294,076I N D U S T R I A L I N V E N T O R Y

38,197,242AVA I L A B L E S Q U A R E F E E T

S U B M A R K E T I N V E N T O R Y A V A I L A B L E S Q U A R E F E E T

2 Q 2 0 1 3A V A I L A B I L I T Y

GREAT SOUTHWEST / ARLINGTON

PINNACLE / TURNPIKE / LONESTAR

NORTHERN DALLAS / GARLAND / MESQUITE

RICHARDSON / PLANO

DFW AIRPORT

NORTH STEMMONS / VALWOOD


82,541,552

22,705,948

46,140,492

33,042,497

65,714,403

43,479,908

44,669,276

338,294,076

9.3%

13.4%

15.4%

15.7%

8.4%

10.4%

11.5%

12%

7,690,303

3,053,681

7,123,746

5,189,868

5,483,955

4,540,868

5,114,821

38,197,242

eightM A J O R D A L L A S

I N D U S T R I A L S U B M A R K E T S

12%S E C O N D Q U A R T E R

AVA I L A B I L I T Y

23

20

PRESIDENTGEORGE BUSH

TOLLWAY

121

35E

75

635

175

4567

35E

360

30

183

121

114

12

30

80

20


page 36

NORTHERN DALLAS / GARLAND / MESQUITE

page 28

RICHARDSON / PLANOpage 30

GREAT SOUTHWEST / ARLINGTON

page 24

DFW AIRPORT

page 32

NORTH STEMMONS / VALWOOD

page 34

SOUTH STEMMONS CORRIDOR

page 38

PINNACLE / TURNPIKE / LONESTAR

page 26

35

75

380

This map reflects the locations of the eight industrial submarkets within the greater Dallas metro area. Up-to-date market statistics, recent transactions, new development summaries, and current market trends can be found for each submarket on the following pages.

24

SECOND QUARTER 2013 • GREAT SOUTHWEST - ARLINGTON

5101 FRYE ROAD

9.3%

AVAILABILITY

u pRENTAL RATES

u pCONSTRUCTION

d o w nVACANCY


FlexDistribution - Small [0 – 20,000 SF]

Distribution - Medium [20 – 50,000 SF]

Distribution - Large [50 – 100,000 SF]

Distribution - Extra Large [<100,000 SF]

Total – Competitive Investor Owned PropertiesTotal – Owner User PropertiesOverall Investment Grade Inventory

2Q123Q124Q121Q132Q 2013

AVAILABILITY

20.5%10.1%15.2%14.4%17.5%16.7%2.8%

14.2%

17.1%11.1%13.2%11.5%17.8%15.9%

4.8%13.9%

18.1%13.6%13.4%

8.8%16.8%15.1%

6.3%13.5%

18.3%9.7%

11.0%7.2%

15.3%13.6%

5.9%12.2%

16.9%8.7%8.8%

10.2%9.9%

10.6%3.4%

9.3%

1,368,149270,361747,123

1,099,6873,704,767

7,190,087 500,216

7,690,303

8,110,3863,095,0038,537,457

10,755,09637,202,257

67,700,199 14,841,353

82,541,552

“Activity has yet to slow as the Dallas / Fort

Worth summer kicked off, and deal volume has increased compared to

years past .”

The Great Southwest submarket continued its downward trend in vacancy through the 2nd Quarter of 2013 with a 291 basis point decrease in overall investment grade product; the largest drop in vacancy in over 5 years. Activity has yet to slow as the Dallas / Fort Worth summer kicked off, and deal volume has increased compared to years past. The extra large category recognized the most evident gain in absorption with a 536 basis point yield in vacancy. This substantial move is due to large transactions completed by Trader Joe’s, PGL, K&M Tires, and Builders FirstSource. These transactions involved both new entries into the submarket and significant expansions. As the supply set across almost all product types continues to decrease, tenants are becoming challenged to find space that caters to their specific requirement. Rental rates have returned to historical levels and are being pushed significantly by landlords. Across the submarket, modern vacancies of 150,000 SF or greater have diminished to only a couple of options. Much like the DFW Airport submarket just to the north, this lack of supply has shifted focus in the submarket towards new development.


SECOND QUARTER 2013 • GREAT SOUTHWEST - ARLINGTON


Leasing Activity

L A N D L O R D

Major Owners

Duke

Clarion Partners

Prologis

DCT Industrial Trust

TIAA-CREF

KTR Capital Partners

First Industrial

Primera

Cabot Properties

Cobalt Capital Partners

Crow Holdings Industrial

RREEF

Exeter

Invesco

DRA Advisors

MetLife

Hillwood

Seefried Properties

Proterra Properties

TA Associates

Major Tenants

Mercedes-Benz

Southwire

RICOH

Solo Cup

Vought Aircraft

Cott Beverage

General Electric

Cardone Industries

Trader Joe's

Lockheed Martin

Quaker Oats Company

Office Depot

General Motors

Jan-Pak

Northern Tool

Lagasse

Mach-1 Logistics

American Airlines

Bell Helicopter

Android Industries

APDI

Business Interiors

United Stationers

Turbo Air

Coaster Company

Rooms to Go

U.S. Cold Storage

728,520

494,990

202,000

201,600

131,040

125,000

90,838

76,448

74,880

65,065

54,748

54,125

49,985

40,243

30,255

22,350

22,265

15,265

Trader Joe's

Undisclosed

PGL

K&M Tires

Builders FirstSource

Johns Manville

Thyssen Krupp

Amerco

ADS

Automann

Celebration

PGT Holdings

Suddath Relocation

CFC Print

Curbell Plastics

Innovative Soil Solutions

Bohler Uddeholm

Arlington Office Furniture

Traders Joe's

KTR

Morgan Stanley

Interventure

KBS

Primera

Morgan Stanley

Amerco

IIT

Weeks Robinson

Invesco

High Street Equity

Invesco

Invesco

Clarion Partners

Realty Associates Fund

Prologis

Vincent Stagliano


• Crow Holdings acquired the Post and Paddock site totaling 24 acres and has commenced construction on a 425,000 SF cross-dock facility. This project is expected to be completed in 6-7 months and will bring needed 100,000 + SF spaces back to the market quickly if not preleased in advance.

• Restoration Hardware’s build-to-suit, developed by Weeks Robinson, is nearing completion. The site is located at the southwest corner of Highway 161 and West Pioneer Parkway. The $22 million, 850,000 SF distribution facility will add 300 + jobs and will act as Restoration Hardware’s southwest regional distribution center.

• Exeter has broken ground on a speculative 821,000 SF, cross-dock distribution facility located just south of Interstate 20. The project is expected to be completed by January of 2014.

• Oakmont Industrial Group will soon commence construction on a 500,000 SF project on their site which is approximately 28 acres off Roy Orr Boulevard. The land was purchased from the City of Fort Worth.

• Champion Partners sold its land site on Marshall to Weeks Robinson. The site is 92 acres and rail served. Weeks Robinson can deliver over 1 million SF on the site.

F u t u r e D e m a n d

Throughout the metroplex and specifically, in the Great Southwest, demand does not seem to be slowing down anytime soon. Showings, RFP submittals, and signed deals should continue as the economy stabilizes and businesses are expanding. Stream is tracking several new transactions that are focused on 3rd or 4th quarter commencements.

F o r e c a s t

As the year comes to its midpoint, the Great Southwest submarket continues to show why it is one of the premier submarkets in the metroplex with its high demand and consistent decrease in vacancy rate. With the tightening market, Stream expects the limited, usable land left in the Great Southwest and surrounding areas to be pegged for new development in the coming quarters. Expected new development will affect the overall vacancy rate across the market. With the product type being mostly industrial space in the extra-large category with 100,000 SF blocks and greater, the bulk of the submarket should continue to see a decrease in vacancy. The Great Southwest is a strong market with its central location, accessibility, and proximity to DFW Airport making it desirable to tenants searching for more aggressive rates than the DFW Airport submarket, and do not expect this to change any time soon. The only question that remains is, “is there enough available space?” Moving into the second half of 2013, Stream expects to see the market continue to tighten and rental rates to increase. Landlords are already offering fewer concessions. With vacancy quickly approaching historic numbers, Stream anticipates the market to become even more competitive.

26

SECOND QUARTER 2013 • PINNACLE - LONESTAR - TURNPIKE

4003 GIFFORD

u pRENTAL RATES

f l a tCONSTRUCTION

d o w nVACANCY

13.4%

AVAILABILITY







2Q 2013AVAILABILITY 2Q123Q124Q121Q13

-27.2%16.9%9.9%

28.0%24.8%4.6%

19.5%

-27.3%13.3%11.2%22.3%20.3%

4.6%16.2%

-29.9%11.1%11.2%21.7%19.8%

4.6%15.8%

-27.8%16.1%13.9%20.1%19.3%

1.6%14.7%

-27.8%16.3%13.9%17.6%17.4%

2.1%13.4%

-151,549248,956309,465

3,405,2654,115,235

122,8634,238,098

-544,977

1,525,0162,000,553

12,734,32316,804,869

5,901,07922,705,948

“The market recognized a notable increase in demand for smaller

spaces less than 100,000 square feet . ”

The submarket continued its trend of decreasing vacancy rates ending the quarter at 13.4% vacant. This downward movement represented a 130 basis point decrease in the overall investment grade vacancy rate. Two large transactions that occurred in the extra-large category accounted for the majority of this movement. APL Logistics leased approximately 210,000 SF of space in Duke’s Grand Lakes project at 4003 Gifford. Duke also leased approximately 100,000 SF in this building to neighboring Farley and Sathers. Although the Farley deal is short term, Duke is hopeful that they will remain and sign a term commitment eventually. Continental Tire has also targeted this building on its short list as they are likely going to be vacating their existing space in far South Dallas for a larger footprint. Without the Farley and Sathers short term lease, this building can deliver approximately 380,000 SF.

The submarket, together with the market as a whole, noticed a decrease in large space activity in April that continued through late May. In June, the market saw an increase in demand for bulk space. During the same time frame, the market recognized a notable


SECOND QUARTER 2013 • PINNACLE - LONESTAR - TURNPIKE

Leasing Activity

SQUARE FEETL A N D L O R DT E N A N T

Major Owners

Alliance Data Systems

Krestmark Industries

Ozburn-Hessey

Overhead Door

Fed-Ex

Farley’s & Sathers Candy

Constar

The Roomstore

Quality Logistics

Neiman Marcus

Southwest Molding

Garden Ridge

Service Craft Logistics

Tree of Life

Kuehne & Nagle

Fulfillment Solutions

Cadbury Schweppes

International Truck & Engine

Iron Mountain

Major Tenants

210,000

100,000

Duke

Duke

APL Logistics

Farley and Sathers

increase in demand for smaller spaces less than 100,000 SF. The Pinnacle – Turnpike – Lonestar submarket, known for its available bulk product, will benefit from the rebound of larger requirements. Only Indcor’s building located on Cockrell Hill and Kennedy’s building on Pinnacle Point can deliver contiguous space in excess of 400,000 SF. OHL currently has flex rights in the Kennedy building and the market believes that OHL may act defensively if need to preserve all or a portion of this space. As a result, the submarket has very limited large options available.


No development has been announced although First Industrial has indicated it could start its two-building project on Cockrell Hill. This land site, challenged by material topographical concerns, has been rumored to be under consideration by other developers. At this time, however, it appears that First Industrial does not intend to sell but will move forward with a speculative development at some point. The submarket is predominantly land-constrained and remains very viable with its central location.


Stream expects future demand to be strong. As previously noted, big box demand has returned with multiple requirements in excess of 1 million SF in the market currently. The demand for smaller distribution space also ramped up notably during the second quarter. This combination of diversified demand has not slowed during the 2nd quarter. For activity to be this robust during the summer months combined with continued economic growth in Texas and DFW, a strong second half of the year is anticipated.

F o r e c a s t

With what little amount of land that is left in the submarket, Stream expects developers to be competing for the last remaining land sites or pushing west towards Grand Lakes, Belt Line Road off Interstate 30 and into the Great Southwest submarket. The challenge developers will face in the submarket is scale. Currently the combination of land prices and construction costs for anything outside of a very large building does not marry up with lease comps. Stream expects this to change as more space gets absorbed and rates rise. Only the developers with a vision of where rates will go will have early success in this environment. Rent growth is coming to Dallas at levels potentially never seen before.

Billingsley Co.

Hillwood Properties

Duke


TIAA CREF

IndCor

Capri Capital

IDI

New Tower Multi-Employer

Holt Lunsford

Clarion Partners

Prologis

US Post Office

First Industrial

Kennedy & Assoc.

Panattoni Development

Crow Holdings

28

SECOND QUARTER 2013 • NORTHEAST DALLAS - GARLAND - MESQUITE

1100 CHASE ROAD

d o w nVACANCY

f l a tCONSTRUCTION

f l a tRENTAL RATES

15.4%

AVAILABILITY







1Q132Q 2013

AVAILABILITY 4Q12 3Q12 2Q12

23.2%30.8%20.4%16.0%21.5%20.2%7.3%

16.3%

22.4%25.8%22.2%17.5%20.4%21.2%

6.0%16.6%

21.2%28.7%20.4%17.7%20.1%21.4%

5.2%16.3%

21.8%26.1%19.6%22.8%20.1%21.4%

4.4%16.3%

21.5%28.1%16.4%19.7%19.0%20.0%

4.7%15.4%

1,060,066963,547927,674960,162

2,562,142 6,473,591

650,155 7,123,746

4,922,0873,425,5635,642,4534,876,686

13,476,641 32,343,430 13,797,062

46,140,492

“The submarket continued to see overal l activity in the Medium

to Large asset class with expansions and new deals to the market .”

The Northeast Dallas-Garland-Mesquite submarket rounded out the 2nd quarter of 2013 with an overall drop in vacancy rate compared to the 1st quarter 2013 finishing at 15.79% vacant for investment grade product. The most significant transactions that occurred over the 2nd quarter were: Lipman Produce purchased a 151,600 SF facility, and Intrapak expanded for a total of 83,000 SF. The submarket continued to see overall activity in the medium to large asset class with expansions and new deals to the market. The activity shows many indications that the market is rebalancing and the vacancy rates should continue to drop.


Prologis has f inal ized their 398,000 SF bui ld- to-su i t fac i l i ty for Pr ime Dis t r ibut ion a t 5194 S . Buckner . Besides Prologis’ completed project no new spec or build to suit projects have been announced or broken ground within the Northeast Dallas-G a r l a n d - M e s q u i t e s u b m a r k e t . However , wi th re lat ive ly few land s i tes and l im i ted C lass A bu lk d i s t r i b u t i o n a s s e t s r e m a i n i n g , d o n o t b e s u r p r i s e d i f a n e w project is announced by year end.


SECOND QUARTER 2013 • NORTHEAST DALLAS - GARLAND - MESQUITE


Leasing Activity


Indcor

Duke

Clarion Partners

Primera

TA Associates

PS Business Parks

Transpacific Development Co.

First Industrial

Prologis

TIAA-CREF

Frontier Equity

Hillwood


DRA Advisors

Exeter

Sealy

Sentinel Real Estate Corp.

Proterra

International Airport Centers

Major Owners

Shippers Warehouse

Dal-tile Corp.

1000bulbs.com

Ingersoll Rand

Kraft Foods

Prime Distribution

Nogales Produce

Fossil

Integra Color

Raytheon

Georgia Pacific

Interceramic

Marazzi Tile

Sears

DAP

Coca Cola

Fed Ex

Major Tenants

L A N D L O R D

225,000

151,600

97,200

83,000

79,239

66,270

54,413

35,416

32,085

25,921

25,500

20,591

Grand Six LLC

Kennedy & Associates

DRA Advisors

Frontier Equity

Hillwood

Prologis

Tuffli Company, Inc.

Herschel Brown

Frontier Equity


TIAA- CREF

DRA Advisors

Copier, LLC

Lipman Produce

Liquidity Services

Intrapak

Pride Mobility

IFCO Systems

Print Appeal

Moore Plumbing Supply

National Aluminum Co

Norandex Building Materials

The Body Shop

Wycliff at Douglas

Bissell Corp.

Hatco

International Truck / SST

SpeedFC

Sherwin Williams

Boise Cascade

IMO/Varo

Kingsley Tool

Plastipak Packaging

• Clarion Partners sold 1201 Big Town Blvd to Huntington Industrial, a 508,750 SF Class A facility occupied by Shippers Warehouse.

• TIAA-CREF’s large Dallas portfolio and Cobalt Capital’s Dallas portfolio have been awarded to Greenfield Partners and is expected to close in the 3rd quarter of 2013. Both of these portfolios were heavily weighted in North-East-Dallas-Mesquite and will position Greenfield Partners as one of the top owners in the submarket, now owning 486,320 SF.

• TIAA-CREF sold the largest block of available class A distribuiton space in Garland a vacant to Principal Financial Group.

• DCT currently has two buildings consisting of 80,784 SF rumored to be under contract.


During the 2nd quarter of 2013, there was an abundance of medium to large requirements surveying the market. Stream anticipates the following tenants will focus on finalizing their transactions during the 3rd quarter of 2013. Hayes Retail Services is focusing on 400,000 to 500,000 SF options; MPI wood is surveying the market for 90,000 to 130,000 SF options; PCA and Bronco Packaging are evaluating 45,000 to 60,000 SF options; DSS/ Firetrol is narrowing in on purchasing 30,000 SF; Bonded Inspection continues to search for 30,000 to 35,000 SF, API/Mutual Sprinklers is narrowing options in the 25,000 to 35,000 SF range, and Chloe Lighting looks to finalize a 18,000 to 24,000 SF requirement.

F o r e c a s t

Stream is optimistic the Northeast Dallas-Garland-Mesquite submarket will continue to see companies expand their current facilities and have organic growth through 2013. Stream anticipates more new companies relocating into the submarket with vacancy rates tightening throughout Dallas. The institutional sales activity has continued to increase and expect many remaining assets to hit the market. The owner user activity will continue to be strong throughout 2013 for the small to medium size tenants as long as aggressive financing and low interest rates remain. Stream looks forward to watching increased activity play out as new tenants and owners move into, and/or grow their operations throughout the Northeast Dallas-Garland-Mesquite submarket in 2013.

30

SECOND QUARTER 2013 • PLANO - RICHARDSON

2800 TECHNOLOGY

u pRENTAL RATES

f l a tCONSTRUCTION

d o w nVACANCY

15.7%

AVAILABILITY







2Q123Q124Q121Q132Q 2013

AVAILABILITY

26.3%21.7%25.3%20.2%44.2%26.6%

1.2%17.4%

26.2%21.1%18.3%17.9%38.0%25.3%

0.8%16.5%

28.0%18.5%18.4%18.5%

0.0%23.9%

1.4%15.7%

3,908,420418,838380,161312,213

05,019,632

170,2365,189,868

13,949,4582,260,2142,066,5521,687,7461,079,378

21,043,34811,999,149

33,042,497

26.3%23.5%26.4%20.9%44.2%26.9%2.3%

18.0%

26.3%23.2%25.3%23.7%44.2%27.0%

1.4%17.7%

“Plano has seen

tremendous demand

in al l s ize ranges and

product types.”

The Plano – Richardson submarket ended the 2nd Quarter 2013 with an overall vacancy rate for investment grade product at 15.7%, down once again from the previous quarter which ended at 16.5% vacant. Plano has seen tremendous demand in all size ranges and product types. The most active product type during the 2nd Quarter 2013 was the small distribution product that experienced a 256 basis point swing in its vacancy rate. Stale vacancies that have struggled to lease over the past few quarters are witnessing strong activity and consideration simply due to lack of supply. Due to the diminishing supply set within the Plano – Richardson submarket, tenants coming to the market will no longer be able to evaluate multiple options, but now be forced to consider only a couple true relocation options. As a result Stream anticipates rental rate growth for new and renewal transactions to become more present and concessions to tighten. Even with the announcement that Flextronics will be vacating its campus at Shiloh Rd. and Plano Parkway consisting of three buildings totaling approximately 435,000 SF, Stream is confident this will not affect the momentum the Plano – Richardson submarket has developed over the past few quarters.


SECOND QUARTER 2013 • PLANO - RICHARDSON

Leasing Activity


Major Owners

Miramar

Dividend Capital Trust

Sealy & Company

Argent Property Co.

Kennington Properties

Property Reserve

RMB Investments

Charter Holdings

Prologis


DRA Advisors

Wayzata

AEW

First Industrial

PS Business Parks

Cabot

Industrial Income Trust

KBS

IndCor

Major Tenants

140,593

22,541

16,200

13,848

13,602

13,005

12,632

12,555

12,544

10,500

9,551

9,012

8,693

8,091

Camtron

Rogers O'Brien

Coreplex

Sealco

Eligibility Consultants

Circuit Co.

Dunbar Armored

Assembly Fasteners

Comtech

Treasure Doors

Patriot Protection

Best American Trampoline

IPS

IDM

Alcatel Lucent

Dal-Tile

Fossil

Precision Communications

Genband

Cisco Systems

Fujitsu

Regal Research

Telect

Dallas Morning News

Hewlett Packard

Rockwell Collins

Disctronics

Nortel Networks

Samsung

Verizon

Texas Instruments

EDS


• With the completion of the Winzer and ELTEK build-to-suits at the end of 2012 there are no new industrial development underway in the Plano-Richardson submarket. With that said, KDC has broken ground on its large State Farm development located on the SE corner of President George Bush Turnpike and Highway 75. KDC acquired approximately 186 acres that will include a 1.5M SF build-to-suit office for State Farm, multi-family residential units, retail stores, an integrated healthcare facility, hotels, and restaurants. Although no industrial development will be completed, the amenities and pure size of this development can only positively affect the Plano – Richardson industrial submarket.

• As mentioned in last quarter’s write up, Stockbridge brought a 2.4M SF multi-city, multi-submarket portfolio to the market for sale. Of the 2.4M SF approximately 630,000 SF resided the Plano – Richardson submarket. As anticipated, the product received strong consideration from numerous institutions and ultimately was awarded to Prologis who plans to close during the 3rd quarter of this year.

• In addition to the Stockbridge portfolio coming to the market, the ELTEK build-to-suit also hit the market as a single tenant net leased asset. Founders closed on the 124,042 SF building, located at 2925 E. Plano Parkway during the 2nd quarter 2013.


With demand continuing to be strong throughout the Plano – Richardson submarket Stream anticipates the following tenants to focus on executing leases during the 3rd quarter 2013: CVE, Invodo, GE, and an undisclosed user are evaluating 35,000 SF spaces; Texas Valve and Fitting is narrowing in on 25,000 SF options; D Cables, VOX Technologies, Picture People, and Source Networks are in search of 12,000 – 15,000 SF buildings; Valspar and an undisclosed pharmaceutical company are both needing 10,000 SF options; and Clairex is focused on 7,000 SF locations.

F o r e c a s t

It’s hard to believe it is halfway through another year but the Plano – Richardson submarket continues to turn heads with the strong demand and overall improvement it continues to witness quarter after quarter. It has been exciting to watch the recovery, to understand how far the submarket has truly come, and are optimistic the right fundamentals are in place for continued success in the Plano – Richardson submarket. Stream anticipates we will see more expansion requirements will come to the market to accommodate tenants internal growth plans. With no new development announced, Stream expects vacancy rates to continue to tighten resulting in rental rate growth and lighter concessions. As the summer months are closed out, Stream looks forward to a more focused audience as decision makers are back from summer vacations, resulting in more transactions taking place. Stream predicts there is still a lot of good to come from the Plano – Richardson submarket and are excited to watch it all take place.

32

SECOND QUARTER 2013 • DFW AIRPORT

4251 STATE HWY 121

d o w nVACANCY

u pCONSTRUCTION

u pRENTAL RATES

8.4%

AVAILABILITY

HISTORICAL AVAILABILITY TRENDS






AVAILABLE SQUARE FEET

INVENTORYS t a t i s t i c s 2Q123Q124Q121Q132Q 2013

AVAILABILITY

21.4%15.1%15.1%21.1%8.8%

14.2%2.1%

11.6%

22.3%15.8%14.1%15.0%

7.3%12.3%

2.6%10.2%

21.4%14.0%10.9%17.7%

7.8%12.4%

2.5%10.2%

22.4%11.7%10.6%13.0%

7.4%11.1%

1.5%9.0%

20.7%10.6%10.0%

9.8%7.4%

10.1%1.9%

8.4%

1,274,738290,812 847,385

1,042,1901,757,780 5,212,905

271,050 5,483,955

6,158,6732,750,744

8,468,901 10,628,710 23,653,999 51,661,027 14,053,376

65,714,403

“The DFW Airport industrial market continued to strengthen and improve during the second quarter 2013.”

The DFW Airport industrial market continued to strengthen and improve during the second quarter 2013. Demand continued to improve across all size ranges with healthy new activity between 150,000 – 300,000 SF. Investment grade vacancy rates decreased by approximately 67 basis points during the 2nd quarter 2013, settling at 8.35%. Activity continues to be strong in every category including lease demand, development activity, user purchase requirements, and land.


The DFW Airport submarket continues to be the top focus for most developers. Bandera Ventures broke ground on a new project during the second quarter totaling 263,320 SF. Below is a description of each development that is currently under construction:

• International Commence Park - Trammell Crow/Clarion/Rosewood – Under Construction on a 3 building development totaling 1,000,000 SF. Trade Center 6 will be a 500,000 SF cross dock, Trade Center 7 will be a 297,500 SF cross dock, and Trade Center 9 will be a 202,500 SF shallow bay rear load building. All buildings are in the City of Irving and located on DFW Airport ground leased land. Walls are being tilted on the cross dock buildings.


SECOND QUARTER 2013 • DFW AIRPORT

Leasing Activity

SQUARE FEETL A N D L O R DT E N A N T

Major Owners

TIAA-CREF

Industrial Properties

Primera

KTR

IndCor

Principal Financial

Lincoln Property Co.

Alexander & Baldwin

East Group

LaSalle


Cabot Properties

Majestic Realty

Crow Holdings

Hines

ML Realty

Trammell Crow

Oakmont

Industrial Income Trust

TA Associates

Stockbridge

Duke

Clarion Partners

Hillwood

Hudson Advisors

USAA

Bentall Kennedy

Exeter

Invesco

IDI

Prologis

Colony Realty Partners

Major Tenants

185,825

160,000

148,000

101,900

102,938

91,364

81,000

79,750

50,993

43,973

43,132

38,118

32,760

27,121

25,054

23,080

22,018

22,012

19,625

15,760

14,381

13,163

10,625

Cabot

DCT Industrial

Oakmont

Prologis

Colony Realty

Mayfield Properties

Lincoln Property Company

Primera

Cobalt

Stockbridge

Industrial income Trust

Exeter

Lincoln Property Company

Colony Realty

Cohen

Columbia (Lincoln)

National RE Mgmt.

Stockbridge

Majestic

Cabot

Alexander and Baldwin

Madison Realty

Madison Realty

Maxxis

SMS InfoComm

Universal Display

Wildernest Logistics

Couriers Inc.

Challenge Manufacturing

Undisclosed

Fresenius Medical

J Hilburn

Hotline

Alco Stores

BNSF Logistics

Nypro

All Boxed Up

Advance Business Capital

The Lawrence Group

AFC Worldwide Express

DOCUmation

LEIO Corporation

INO Therapeutics

North Texas Surfaces

Toshiba

Cohesion Products

Glazer's Foods

SMS Infocomm

Stacy's Furniture

Pratt & Whitney

Craftmade

Shaw Industries

Life Science Logistics

Acuity Lighting

Pegasus Logistics

Owens and Minor

Syncreon

Parts Distributing Company

Simmons Bedding

Exel Logitics

Network Logistics

Broader Bros

Kid Kraft

Natures Best

Scentsy Candles

Mohawk Carpets

UPG

Kohler

Kay Chemical

The Container Store

Home Depot Supply

Hemispheres

Samsung

Seimens

GameStop

Kimberly Clark

Amazon

Welton USA

Uline

Ceva Logistics

• Lakeside Commerce Center – Oakmont – Well under construction on their 2 building development totaling 755,628 SF. Building A is a 462,779 SF cross dock. Building B is a 292,849 SF cross dock. Both buildings are in the Town of Flower Mound. The 292,849 SF building will deliver with a 148,000 SF prelease with Universal Display.

• 980 W. Bethel – Hillwood – Under construction on approximately 1,000,000 SF cross dock build-to-suite for Amazon. The building is located in the City of Coppell. The building should be completed in the next 30 – 60 days.

• Valley Parkway Distribution Center – IDI & Industrial Income Trust (IIT) – IDI is under way on their 529,000 SF cross dock facility which is located in the City of Lewisville.

• 350 S. Northpoint – Industrial Income Trust (IIT) – IIT is underway with their 300,800 SF cross dock building. Located in the City of Coppell.

• DFW Global Logistics Centre – This 2 building project totals 263,320 SF and is made up of 1 shallow bay (160’ deep) rear load building totaling 120,070 SF and 1 shallow bay (180’ deep) rear load building totaling 143,320 SF.

As mentioned above, numerous developers are close on additional projects within the DFW Airport submarket. Stream suspects another 1 – 2 projects to break ground during the 3rd quarter.


As previously mentioned, demand has increased during the end of the 2nd quarter with numerous deals moving quickly to close. The most exciting data point is that demand between 150,000 – 300,000 SF has noticeably increased. The following tenants continue to evaluate options around DFW Airport for their requirements. Jacobson Logistics (240,000 SF); Anna’s Linnens (200,000 – 263,000 SF); Greybar Electric (202,000 SF); Undisclosed Government Contract (200,000 SF); network Logistics (175,000 SF); Trade Group (100,000 SF); SourceHOV (70,000 SF); Triumph (50,000 SF); World Trade Cargo (40,000 – 50,000 SF); Taylor Aviation (40,000 SF); ThermoTek (40,000 SF).

F o r e c a s t

The following statement was included last quarter “The two biggest trends Stream is seeing are 1) demand for land within the DFW Airport industrial market and 2) tenants continuing to struggle to find space that fit their needs”. This is still very much the case. Additionally, with the large and extra large distribution space tightening, Stream is beginning to see tenants forced to consider a larger geographical search area. Tenants in the 100,000 – 200,000 SF range are looking into Northwest Dallas and Centreport in order to increase the number of functional options. The prices quoted by new development at the airport are also pushing some requirements to other submarkets. Tenants who do not need to be adjacent to the airport or who are not willing to pay the premiums associated with space around DFW Airport are looking to more economical options: Great Southwest submarkets and Valwood/N. Stemmons. Shallow bay product (Rear load space between 160’ – 210’ deep) continues to tighten with only a handful of spaces available. Stream believes development within this product type is on the horizon but it will still be far less than the past cycles.

34

SECOND QUARTER 2013 • NORTH STEMMONS - VALWOOD

1520 SELENE DRIVE

10.4%

AVAILABILITY

u pRENTAL RATES

f l a tCONSTRUCTION

d o w nVACANCY







2Q123Q124Q121Q132Q 2013

AVAILABILITY

5,006,9872,773,717

11,027,3856,698,1499,953,975

35,460,2138,019,695

43,479,908

965,501226,068

1,317,907706,232

1,137,9774,353,6851,071,320

5,425,005

19.2%7.6%

12.1%9.8%

11.0%12.0%

3.6%10.4%

21.7%7.5%

11.8%12.9%16.3%14.3%

2.4%12.1%

23.4%7.9%

12.1%13.4%16.3%14.8%

2.2%12.5%

24.5%8.5%

13.3%11.5%17.1%15.2%

2.7%13.0%

23.1%8.4%

14.2%14.4%24.4%17.9%2.7%

15.1%

“Activity is very strong

across al l s ize ranges and

we continue to see the

smaller warehouse and

f lex tenants become more

active.”

During the 2nd quarter 2013, the North Stemmons – Valwood submarket experienced one of the strongest quarters in recent history. Decreasing its overall vacancy rate for investment grade product by 170 basis points from 12.1% to 10.4%, the submarket witnessed more than 700,000 SF of positive absorption which is illustrated in the activity chart. Vacancy continues to decrease as many of the larger spaces have been leased and no new development is under construction. Activity is very strong across all size ranges and continue to see the smaller warehouse and flex tenants become more active. Class B and C warehouse space has been leased quickly at rates higher than historical norms. Stream believes that vacancy rates will continue to decrease giving overall vacancy rates a chance to surpass historical lows in the coming quarters. This is largely due to the fact there is a lack of developable land within the submarket which will constrain supply moving forward.


SECOND QUARTER 2013 • NORTH STEMMONS - VALWOOD

L A N D L O R D SQUARE FEETT E N A N T

Leasing Activity

Major Owners

First Industrial

Sealy & Company

IndCor

Morgan Stanley

Eastgroup

Principal Financial Group

Billingsley Company

DRA Advisors

Duke Realty


Crow Holdings

Clarion

Prologis

TIAA-CREF

DCT Industrial

Industrial Properties

Major Tenants

213,961

122,400

110,700

100,000

90,000

89,430

84,060

68,174

58,880

44,900

42,561

41,000

28,993

25,500

24,800

23,670

18,625

16,933

12,543

8,320

Morgan Stanley

Morgan Stanley

IndCor

Duke

Billingsley

Duke

Lincoln Property

Holt Lunsford

Holt Lunsford

Cobalt

Billingsley

Billingsley

Cobalt

Hay & Jones

User Purchase

Prologis

First Industrial

First Industrial

AEW Capital

First Industrial

American Hotel Register

JP Enterprises

Custom Assembly

Glaziers

Priority Wire & Cable

Duro-Last Roofing

Zurn

Panolam

Raynor Group

Armstrong Relocation

Kenco

American National

Embed USA

LinkEx

Wireless Way

IVEDCO

WJ Auto Body

Flooring Services

Pro Source Athletics

Dalton Mailing Services

Arteriors

Cirus One

4Front Engineering

Rudy’s Tortilla

Staton

UPG

OK Paper

IFF

Carrier

Illes Foods

Essilor

Pro Health

Ingram Micro

Unisource

Lennox

Trend Offset Printing

Sports Supply Group

United Advertising Media

Hewlett Packard

Johnson Supply

Dynamex

Mckesson

SATCO

Heritage Bag Company


During the 2nd quarter 2013 no new development broke ground within the North Stemmons – Valwood submarket. Below is a brief description of the developments that are currently under construction and a potential new development:

• Holt Lunsford - Is expected to break ground during the 3rd quarter on three new buildings on Crosby Rd near Hutton. The development totals 280,800 SF and features two rear load buildings and one front load building.

• Billingsley - Their building on Belt Line is near completion and will deliver 100% preleased with 3 tenants during the 3rd quarter of this year.


Activity remains constant with numerous requirements continuing to search for space. Several new requirements came to the market during the 2nd quarter 2013 which include Max Furniture (100,000 SF); Global Harvest Church (55,000 SF); Fidelis (40,000 SF); IDS (25,000 SF); Mechanics Time Savers (25,000 SF); McDowell & Co. (25,000 SF); Florida Tile (20,000 SF); and Tidel Engineering (12,000 SF).

F o r e c a s t

Moving past the halfway point of the year, rental rates will continue to climb as vacancy rates decline. With the North Stemmons – Valwood market experiencing no new development Stream expects a strong second half of the year. Tenants will no longer have the luxury to move at their own speed when it comes to evaluating a new space. Spaces will begin to get leased out from under tenants if they do not act quickly and reasonably. Landlords within the North Stemmons – Valwood submarket will benefit from this competitive atmosphere resulting in limited concessions and stronger rental rates. Stream fully anticipates demand to remain strong if not improve as decision makers are back from summer vacations and more focused on their businesses. Stream believes the North Stemmons – Valwood submarket will join DFW – Airport and GSW in single digit vacancy by the end of the 3rd quarter.

36

SECOND QUARTER 2013 • SOUTHERN DALLAS

L'OREAL BUILD-TO-SUIT

u pVACANCY

u pCONSTRUCTION

u pRENTAL RATES

11.5%

AVAILABILITY

S t a t i s t i c s HISTORICAL AVAILABILITY TRENDSAVAILABLE SQUARE FEET

INVENTORY






2Q123Q124Q121Q132Q 2013

AVAILABILITY

28.9%17.0%17.2%18.2%16.2%16.9%4.2%

10.4%

20.5%17.9%13.7%16.7%14.7%15.3%

5.9%10.5%

21.0%20.5%13.0%13.4%12.4%13.3%

5.5%9.4%

23.0%18.9%13.0%12.3%

9.1%10.8%

5.5%8.1%

15.2%16.9%12.6%17.3%17.9%17.3%

5.5%11.5%

77,309263,560186,494418,533

2,939,1543,885,0501,229,771

5,114,821

507,2061,563,4581,478,5202,420,335

16,429,64522,399,16422,270,112

44,669,276

“ . . .Southern Dallas County remains a hotbed for new development activity.”

The Southern Dallas County Industrial Market took a strong dip in the second quarter of the year. Despite a reasonable amount of deal velocity, it was not enough to counter balance the delivery of new construction and the loss of some sizeable tenants. Vacancy rose 6.6% in Competitive Investor Owned Properties and 3.4% in Overall Investment Grade Inventory. Total absorption for the quarter was a negative 1.5 million SF.

The McGraw-Hill Companies, a long time corporate resident of Desoto, has shuttered its textbook distribution operations in

two buildings. 220 E. Danieldale Road (382,288 SF) and 420 E. Danieldale Road (423,771 SF) were both vacated this quarter and have been placed on the market for sale or lease. This was a large contributor to the absorption loss during the 2nd quarter.

Several factors contributed to the vacancy spike during this quarter. Victory Packaging listed its facilities at 3061 Saner Ave. and 2901 W. Saner Ave. for sale totaling 243,859 SF. DIAB, which produces composite parts for the aerospace, marine, wind technologies and transportation industries, has elected to vacate 196,500 SF at 8700


SECOND QUARTER 2013 • SOUTHERN DALLAS

L A N D L O R D SQUARE FEETT E N A N T

Leasing Activity

Duke Realty

Hillwood Properties

Prologis

Weeks Robinson

USAA

Ridge Property Trust

DRA Advisors

CBRE Realty Trust

Champion Partners

Principal Financial Group

TA Associates

Prime Rail Interests

CalSTRS

First Industrial

AREA Property Partners

Seefried Properties

iStar

Clarion Partners

Major Owners

Continental Cabinets

Unilever

Wal-Mart

Advanced H2O

OHL / Arch Chemical

Continental Tire

Toys-R-Us

Whirlpool

United Natural Foods

Kohl’s

Target

Georgia Pacific

Mobis

Cintas

Service Craft Logistics

Fed-Ex Ground

The Freeman Companies

BMW

Quaker

WhiteWave Foods

American Leather

McGraw-Hill Companies

Solo Cup

Corporate Express

Frito-Lay

Freeman

Conn's

American Standard

Mission Foods

Dart Container Corp

Major Tenants

162,792 SF

155,873 SF

60,075 SF

19,373 SF

Euroboard (seller)

Prologis

Clarion (seller)

Plastic Suppliers (seller)

DC Logistics (buyer)

Johnston Supply

Legacy Lockers (buyer)

Apple Fabricators (buyer)

Autobahn in the Stoneridge Business Park.

On the positive side, Southern Dallas County remains a hotbed for new development activity. There are five (5) build-to-suits under construction totaling 2.8 million SF.


• Prologis Park 20/35: Prologis delivered Building 5 in Prologis Park 20/35. The 653,582 SF cross-dock building has the ability to expand to over 1 million SF and is currently available.

• Quaker Build-to-suit Prologis Park 20/35: Quaker will consolidate and expand its DFW operations into a 1.2 million SF build-to-suit project at Prologis 20/35.

• BMW Build-to-suit Prologis Park 20/35: Prologis is also under construction on a 282,000 SF parts distribution center for BMW. The site will allow for approximately 100,000 SF of expansion.

• L’Oreal Build-to-suit Ridge Logistics Center: Ridge Property Trust is under construction on a 513,000 SF build-to-suit for L’Oreal.

• Ace Hardware Build-to-suit Sunridge Industrial Park: Centerpointe Properties is under construction on a 450,000 SF build-to-suit for Ace Hardware in Sunridge Industrial Park.

• Cummins Design build at Mountain Creek: Hill & Wilkinson is under construction on a 352,572 SF design build for Cummins Southern Plains in Mountain Creek.

F o r e c a s t

The combination of several companies vacating the market and the delivery of new speculative construction, have temporarily derailed what was a strong, consistent recovery in Southern Dallas County. The area remains an attractive location for the largest distribution operations to take advantage of superior logistical infrastructure. Activity in the build-to-suit market is still robust with several large tenant projects currently shopping the market. Supply of quality assets is still not sufficient to meet the long term demand, which should push more speculative development starts during 2013. Stream expects that spike in vacancy rates during the 2nd quarter is only temporary and forecast moderate improvement through the end of the year.

38

SECOND QUARTER 2013 • SOUTH STEMMONS CORRIDOR

1302-1320 MOTOR CIRCLE

u pRENTAL RATES

d o w nVACANCY

u pCONSTRUCTION

8.6%

AVAILABILITY

HISTORICAL AVAILABILITY TRENDS

1Q122Q123Q124Q12

“The South Stemmons

Corridor f inished the

second quarter of 2013

as one of the healthiest

submarkets in the

metroplex.”

The South Stemmons Corridor finished the second quarter of 2013 as one of the healthiest submarkets in the metroplex. The vacancy rate lowered from 8.5% to 7.5% resulting in approximately 976,123 SF of positive net absorption Year-To-Date. The supply of shallow bay institutional grade industrial product is becoming scarcer as several new deals have been completed. Most of the deal flow is for lease or purchase options in the 15,000 to 30,000 SF range. However, NDI Office Furniture and Wilson Office Interiors both signed deals in Brook Hollow totaling more than 55,000 SF each.

There continues to be a high volume of sales transactions fueled by low interest rates. Appropriately priced user buildings are flying off the market but buyers are price conscious and looking for deals. Properties that are overpriced or lacking desirable amenities are not selling.

The North Trinity and Design District is experiencing tremendous deal velocity as there is a strong demand for small user buildings. Properties with good frontage and heavy parking are in high demand. Additionally, new restaurants and bars like Bowl Lounge and Slow Bone have opened and are having a positive effect on the area.


• The Trinity Strand Trail is underway and the first phase should be delivered by mid 2014.

• Multi-family developers are under construction and will be delivering new sites in the Design District, Medical District, and Love Field areas.

• Love Field Airport is expanding and will open a new terminal once the Wright Amendment is lifted.


SECOND QUARTER 2013 • SOUTH STEMMONS CORRIDOR

TENANT/BUYERS SQUARE FEETLANDLORD/SELLERS

Major Activity

Major Owners

Gillis Thomas

Irwin Grossman

Jim Lake Company

MLB Properties

Monet

Prologis

DRA Advisors

Apex Plumbing

Cabot Properties

Charter Holdings

Cienda Partners


East Group

First Industrial

Clampitt Paper

Sealy

SLJ Company

Felder Property Group

Cullum Interests, Inc.

PPRS LP

G&I VII Space Center LP

G&I VII Space Center LP

Turbo Air Group

Regal Jones LLC

EastGroup Properties

ARA

148,300

73,720

55,915

46,800

29,378

27,900

22,688

Steel Sales

NDI Office Furniture, LLC

Wilson Office Interiors

McMahan's Flooring

SLRC Holdings Inc

Roadtex

Squibb Taylor

Major Tenants

Parkland Hospital

Matress Firm

Southwest Airlines

UTSW

Atrium Door

Children’s Hospital

Freeman Exhibitors

Labatt Food


With little new industrial product on the horizon and the redevelopment in the North Trinity and Design District, Stream expects vacancy rates to continue to decrease. Low interest rates will continue to have a positive impact on the market and Stream expects to see a steady stream of user sales. Local businesses seem to be doing well and anticipate seeing more deals in the market as businesses are forced to move in search of more space.

Future Foam

HOBI International

Imlach Collins

quarter 2q2013

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