KNOWLEDGE REPORT Industrial Research & Forecast Report Q4 2017 Colliers International | Greater Cincinnati Market Indicators Relative to prior period Q4 2017 Q1 2018* VACANCY NET ABSORPTION CONSTRUCTION RENTAL RATE** * Projected, relative to prior period ** Warehouse rents MARKET STATS AT A GLANCE Demand for Industrial Space Surges ABSORPTION (SF) 630,941 MARKET ASKING RENT UNDER CONSTRUCTION (SF) VACANCY RATE 4.2% $4.19 4.5 M > ABSORPTION The Cincinnati industrial market recorded positive net absorption of 630,941 square feet during the final quarter of 2017, bringing the year-to-date total to 5.1 million square feet. While not matching the torrid pace of the first half of the year, the momentum continues as evidenced by the growing number of tenant requirements in the market. At the end of 2016, tenant demand totaled over 10 million square feet, leading to the near record occupancy gain early in 2017. Tenant demand has spiked again. As of year-end, tenant requirements totaled 11 million square feet suggesting high levels of net absorption and decreasing vacancy during the first two quarters of 2018. > VACANCY The overall market vacancy rate has increased slightly each of the past three quarters, but the current reading of 4.2 percent is still 50 basis points below its level at the end of 2016. The bulk warehouse and warehouse/ distribution sectors both recorded increases in vacancy to 5.6 percent and 5.2 percent, respectively, due to the addition of new inventory. The supply of available freestanding industrial buildings remains tight, but steady as the vacancy rate for this sector has stabilized at the 4.2 percent level over the past 12 months. > RENTAL RATES The average overall market weighted asking rental rate is $4.19 per square foot, triple net, slightly down from last quarter, but 5.1 percent higher than 12 months ago. Asking rates for bulk warehouse average $3.88 per square feet, a year-over-year increase of 5.4 percent. Bulk warehouse rates have increased by an average of 8.2 percent annually over the past five years. These rent gains have allowed developers to re-visit sites that were ruled too costly in the past, opening up additional land in a site-constrained market. Bulk’s smaller sister product, warehouse/distribution, is in high demand as well with average asking rents increasing by 17.1 percent, year-over-year, to $4.25 per square foot. Freestanding, light industrial buildings are in short supply and rents have responded accordingly. Currently averaging $4.60 per square foot, an annual increase of 13.5 percent, rent growth may spur speculative construction activity in this sector in the near future. > CONSTRUCTION Since the end of the recession, newly completed projects total 16.6 million square feet, while net absorption has equaled roughly 30 million square feet. During this timeframe, vacancy plummeted by over six percentage points. Immediately following the recession, developers took a very cautious approach to speculative construction for a number of years. As demand continued to outpace new supply, construction activity accelerated, reaching a 10 year high of 4.6 million square feet in 2016. An additional 3.6 million square feet was delivered during 2017. Based on the current construction pipeline, it is expected that 4.5 million square feet of new product will be delivered in 2018.
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KNOWLEDGE REPORT - Cincinnati Colliers · 2 Cincinnati Research & Forecast Report | Q4 2017 | Industrial Market Outlook | Colliers International Summary Statistics 4 Q4 2017 Cincinnati
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KNOWLEDGE REPORTIndustrial Research & Forecast Report Q4 2017Colliers International | Greater Cincinnati
Market IndicatorsRelative to prior period
Q4 2017
Q1 2018*
VACANCY
NET ABSORPTION
CONSTRUCTION
RENTAL RATE**
* Projected, relative to prior period** Warehouse rents
MARKET STATSAT A GLANCE
Demand for Industrial Space Surges
ABSORPTION (SF)
630,941
MARKET ASKING RENT
UNDER CONSTRUCTION (SF)
VACANCY RATE
4.2% $4.19
4.5 M
> ABSORPTION The Cincinnati industrial market recorded positive net absorption of 630,941 square feet during the final quarter of 2017, bringing the year-to-date total to 5.1 million square feet. While not matching the torrid pace of the first half of the year, the momentum continues as evidenced by the growing number of tenant requirements in the market. At the end of 2016, tenant demand totaled over 10 million square feet, leading to the near record occupancy gain early in 2017. Tenant demand has spiked again. As of year-end, tenant requirements totaled 11 million square feet suggesting high levels of net absorption and decreasing vacancy during the first two quarters of 2018.
> VACANCY The overall market vacancy rate has increased slightly each of the past three quarters, but the current reading of 4.2 percent is still 50 basis points below its level at the end of 2016. The bulk warehouse and warehouse/distribution sectors both recorded increases in vacancy to 5.6 percent and 5.2 percent, respectively, due to the addition of new inventory. The supply of available freestanding industrial buildings remains tight, but steady as the vacancy rate for this sector has stabilized at the 4.2 percent level over the past 12 months.
> RENTAL RATES The average overall market weighted asking rental rate is $4.19 per square foot, triple net, slightly down from last quarter, but 5.1 percent higher than 12 months ago. Asking rates for bulk warehouse average $3.88 per square feet, a year-over-year increase of 5.4 percent. Bulk warehouse rates have increased by an average of 8.2 percent annually over the past five years. These rent gains have allowed developers to re-visit sites that were ruled too costly in the past, opening up additional land in a site-constrained market.
Bulk’s smaller sister product, warehouse/distribution, is in high demand as well with average asking rents increasing by 17.1 percent, year-over-year, to $4.25 per square foot. Freestanding, light industrial buildings are in short supply and rents have responded accordingly. Currently averaging $4.60 per square foot, an annual increase of 13.5 percent, rent growth may spur speculative construction activity in this sector in the near future.
> CONSTRUCTION Since the end of the recession, newly completed projects total 16.6 million square feet, while net absorption has equaled roughly 30 million square feet. During this timeframe, vacancy plummeted by over six percentage points. Immediately following the recession, developers took a very cautious approach to speculative construction for a number of years. As demand continued to outpace new supply, construction activity accelerated, reaching a 10 year high of 4.6 million square feet in 2016. An additional 3.6 million square feet was delivered during 2017. Based on the current construction pipeline, it is expected that 4.5 million square feet of new product will be delivered in 2018.
Summary & OutlookE-commerce is by far the number one driver of the Cincinnati industrial market during the current expansion cycle. The market benefits from the advanced manufacturing and automotive sectors as well, but the majority of activity is focused on modern big box logistics space. The $1.5 billion Amazon Prime Air hub, which was announced early in 2017, is not yet under construction, but Amazon has initiated operations in a partnership with DHL sharing their facilities at the Greater Cincinnati/Northern Kentucky International Airport (CVG).
This has led to CVG being named the fastest-growing cargo airport in the United States and ranked sixth in North America for cargo operations. When completed in 2020, the Amazon Prime Air project will total 3.3 million square feet on 900 acres leased from CVG, support more than 100 Amazon Prime Air Cargo planes and employee 2,700 people. To date, one Amazon retailer has committed to space in the Northern Kentucky market, but it is likely more will follow as Amazon’s operations accelerate. Increased activity will benefit both the industrial and office markets as partners, e-retailers, vendors and suppliers choose to locate in close proximity to the e-commerce giant.
Another area of interest for industrial development is the I-75 corridor between the northern Cincinnati suburbs and Dayton. Access to both markets’ labor supply, easy access to numerous interstate highways and located halfway between two international airports make this area an attractive option for logistics and e-commerce occupiers.
The Cincinnati region will remain a top market for logistics operations due to its transportation networks, including ground, air and water, low cost of doing business and skilled labor force. These factors will keep occupancy levels high, generate additional demand for space, provide opportunities for new construction and produce rent growth in all industrial property types.
2 Cincinnati Research & Forecast Report | Q4 2017 | Industrial Market Outlook | Colliers International
The average weighted asking rental rate for bulk warehouse space has increased on average by 8.2 percent annually over the past five years and currently equals $3.88 per square foot (NNN).
Sources: Colliers Research, Xceligent, CoStar, Bureau of Labor Statistics
Industrial projects totaling 3.6 million square feet were completed during 2017 and forecasts call for an additional 4.5 million square feet of new supply in 2018.
3 Cincinnati Research & Forecast Report | Q4 2017 | Industrial Market Outlook | Colliers International
Construction PROPERTY NAME PROJECT SIZE SUBMARKET OWNER CLEAR HT SPEC OR BTS TARGETED COMPLETION DATE
Park North at Monroe Bldg 6 & 7 - Amazon 1,300,000 Monroe IDI Gazeley 36' BTS Q2 2018Park North at Monroe Bldg 10 755,911 Monroe IDI Gazeley 36' Spec Q1 2018Logistics One 541,250 Airport Van Trust 36' Spec Q1 2018Logistics Two 259,350 Airport Van Trust 36' Spec Q2 2018Springdale Logistics Center 230,160 Tri County Exeter 32' Spec Q2 2018Florence Logistics Center 218,400 Florence/Richwood Ridgeline Property Group 32' Spec Q2 2018Jacquemin Logistics Center II 182,257 Tri County Pizzuti 32' Spec Q1 2018Commerce Center Dr 176,000 Tri County Becknell 32' Spec Q1 2018Amazon Prime Air Hub 3,330,000 Airport TBD TBD BTS ProposedGE Park Development - 4 Bldgs 1,130,000 Tri County Strategic Capital 32'-36' TBD ProposedPark South at Richwood Bldg B 1,064,765 Florence/Richwood IDI Gazeley 36' TBD ProposedErlanger Commerce Center II 920,000 Florence/Richwood Al Neyer/Hillwood 36' TBD ProposedErlanger Commerce Center I 780,000 Florence/Richwood Al Neyer/Hillwood 36' TBD ProposedWalton Industrial Park 700,000 Florence/Richwood Pure Development 36' TBD ProposedPark South at Richwood Sites K & L 170,000 Florence/Richwood IDI Gazeley 32' TBD ProposedAviation Blvd extension Bldg 1 150,000 Airport Molto 32' TBD ProposedAviation Blvd extension Bldg 2 150,000 Airport Molto 32' TBD ProposedPark North at Monroe Bldg 3 185,775 Monroe IDI Gazeley 32' TBD Proposed
Notable Industrial Sales | 2017PROPERTY NAME/ADDRESS SALE
DATE SALE PRICE BLDG SF BUYER SELLER BUILDING TYPE SUBMARKET
Port Union Commerce Park Bldgs 1-4 Jul-17 $102,100,000 1,646,914 Clarion Partners Founders Properties Bulk Warehouse Tri County
Park North Portfolio Dec-17 $80,000,000 1,300,827 Granite REIT IDI Bulk Warehouse Monroe/Middletown
2101-2301 E Kemper Rd Jul-17 $47,500,000 1,096,612 VEREIT Inc Gorilla Glue Inc Bulk Warehouse Tri County
251 Mount Zion Rd Feb-17 $33,812,000 674,500 The Kroger Co. VanTrust Real Estate Bulk Warehouse Florence/Richwood