The Industrial Sector, Where we are Today

GLOBAL RESEARCH AND CONSULTING ● ECONOMETRIC ADVISORS

THE INDUSTRIAL SECTOR, WHERE ARE WE TODAY10/7/2014

2 GLOBAL RESEARCH AND CONSULTING | ECONOMETRIC ADVISORS

• 60% of all demand during recovery, occurred since Q4 2012

• National availability rate has fallen 370 bps from recession peak, 210 bps during those seven quarters

• Rent growth didn’t begin until 2012

But the recovery accelerated sharply in 2013

INDUSTRIAL MARKET RECOVERING FOR 17 CONSECUTIVE QUARTERS


ABSORPTION RUNNING ABOVE AVERAGE

-90

-70

-50

-30

-10

10

30

50

70

90

Q2

2005

Q4

2005

Q2

2006

Q4

2006

Q2

2007

Q4

2007

Q2

2008

Q4

2008

Q2

2009

Q4

2009

Q2

2010

Q4

2010

Q2

2011

Q4

2011

Q2

2012

Q4

2012

Q2

2013

Q4

2013

Q2

2014

Q4

2014

Q2

2015

Absorption Pre recession Avg Absorption Level

Absorption, msfForecast

Source: CBRE EA Industrial Outlook, Q2 2014.


INDUSTRIAL PRODUCTION GROWTH IS POWERING SPACE DEMAND

80

85

90

95

100

105

110

65

70

75

80

85

90

Mar

-05

Sep

-05

Mar

-06

Sep

-06

Mar

-07

Sep

-07

Mar

-08

Sep

-08

Mar

-09

Sep

-09

Mar

-10

Sep

-10

Mar

-11

Sep

-11

Mar

-12

Sep

-12

Mar

-13

Sep

-13

Mar

-14

Industrial capacity utilization Total industrial production

Index, 2007=100, SA% of Capacity

Source: Federal Reserve, August 2014.


INVENTORIES ARE WHAT MATTER

-50

-40

-30

-20

-10

0

10

20

30

40

50

-100

-50

0

50

100

1989

.1

1990

.1

1991

.1

1992

.1

1993

.1

1994

.1

1995

.1

1996

.1

1997

.1

1998

.1

1999

.1

2000

.1

2001

.1

2002

.1

2003

.1

2004

.1

2005

.1

2006

.1

2007

.1

2008

.1

2009

.1

2010

.1

2011

.1

2012

.1

2013

.1

2014

.1

Net Absorption (L) Change in Real Private Inventories ( R)

Net Absorption, (msf) Change in Real Business Inventories, $ Bil

Changes Inventories and warehouse net absorption have a 76.1% correlation!

Source: CBRE EA Industrial Outlook, Q2 2014 ,U.S. Census Bureau, July 2014.


INVENTORIES CONTINUE RAPID PACE OF EXPANSION

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

1,800

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Business Inventories, $ Bil

Source: U.S. Census Bureau, July 2014.


Rents fell further and faster than seen in previous recessionsRENTAL RECOVERY HAS A WAYS TO GO

80

82

84

86

88

90

92

94

96

98

100

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33

1991 2001 2007

100=prerecession Peak



CONSTRUCTION REMAINS WEAK, AND CONCENTRATED IN A FEW MARKETS


The sector will add 127 MSF in 2014, compared to average annual construction level of about 204 MSF

MarketShare Comp,

Next 12 Months Share of StockDallas/Fort Worth 14.2 5.4Inland Empire 13.3 3.4Houston 6.3 3.6Chicago 6.2 7.9Baltimore 4.1 1.6Total 44.1 21.9


AVAILABILITY RATES CONTINUE TO DECLINE ACROSS MARKETS

0

5

10

15

20

25

Det

roit

Den

ver

Mem

phis

Dal

las

Min

neap

olis

Col

umbu

sIn

dian

apol

isO

akla

ndB

osto

nA

tlant

aH

oust

onS

um o

f Mar

kets

Kan

sas

City

Cle

vela

ndS

eattl

eLo

s A

ngel

esB

altim

ore

Ora

nge

Cou

nty

Cin

cinn

ati

Riv

ersi

deC

hica

goFo

rt W

orth

St.

Loui

sP

hila

delp

hia

Por

tland

New

Yor

kE

diso

nW

ashi

ngto

n, D

CM

iam

iN

ewar

kP

hoen

ix

Availability Rates, %

Prior Low Availability Cycle Peak Availability Q2 2014 Availability


GLOBAL RESEARCH AND CONSULTING ● ECONOMETRIC ADVISORS

THE INDUSTRIAL SECTOR, WHERE ARE WE HEADED?Cover subtitleDate


ENERGY PRODUCTION REDUCING OIL IMPORTS

0

10

20

30

40

50

60

Jan-

03M

ay-0

3Se

p-03

Jan-

04M

ay-0

4Se

p-04

Jan-

05M

ay-0

5Se

p-05

Jan-

06M

ay-0

6Se

p-06

Jan-

07M

ay-0

7Se

p-07

Jan-

08M

ay-0

8Se

p-08

Jan-

09M

ay-0

9Se

p-09

Jan-

10M

ay-1

0Se

p-10

Jan-

11M

ay-1

1Se

p-11

Jan-

12M

ay-1

2Se

p-12

Jan-

13M

ay-1

3Se

p-13

Jan-

14M

ay-1

4

Real Dollars Nominal Dollars

Oil Imports, Billions $

Source: BEA, August 2014.


World LNG Estimated August 2014 Landed Prices

ENERGY REVOLUTION REDUCING NATURAL GAS PRICES, GREAT FOR MANUFACTURING

Source: Waterborne Energy, Inc. Data in $US/MMBtu, FERC, July 2014


ECOMMERCE EXPANSION CONTINUES…BULLISH FOR INDUSTRIAL

Source: CBRE Econometric Advisors, US Census Bureau.

0

50

100

150

200

250

2000

2000

2001

2001

2002

2002

2003

2003

2004

2004

2005

2005

2006

2006

2007

2007

2008

2008

2009

2009

2010

2010

2011

2011

2012

2012

2013

2013

2014

Housing Discretionary Necessities

Retail Sales Index: 2007Q1 =100 Retail Sales Index: 2007Q1 =100


ECOMMERCE EXPANSION CONTINUES…BULLISH FOR INDUSTRIAL

Source: CBRE Econometric Advisors, US Census Bureau.

0

50

100

150

200

250

2000

2000

2001

2001

2002

2002

2003

2003

2004

2004

2005

2005

2006

2006

2007

2007

2008

2008

2009

2009

2010

2010

2011

2011

2012

2012

2013

2013

2014

Housing Discretionary Necessities E-Commerce

Retail Sales Index: 2007Q1 =100


Health and Food Segments Remain OutliersE-COMMERCE SHARE GROWING FOR MOST

Source: CBRE Econometric Advisors , US Census Bureau.

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%El

ectro

nics

and

Appl

ianc

es

Spor

ting

good

s;ho

bby;

book

; mus

icst

ores Cl

othi

ng

Furn

iture

Heal

th

Com

pute

rHa

rdwa

re/S

oftw

are

Food

and

Bev

erag

es

Oth

er

Change in Online Share of Total Retail Sales (2008-2012)


The Biggest Force of ChangeE-COMMERCE


The New Big BoxDEVELOPMENT

TRADITIONAL DISTRIBUTION FACILITY Over 100,000 sq. ft. 24- to 32-foot clear heights 40- by 40-foot bays Minimal employee parking At least 20 dock doors with cross-docking preferred but not necessary

BIG-BOX DISTRIBUTION FACILITY At least 300,000 sq. ft. of space At least 36-foot clear heights 52- by 52-foot or 60- by 50-foot bays Excess land (or parking structures) to

accommodate increased employee parking Minimum of 40 dock doors and cross-

docking


AVAILABILITY RATE WILL CONTINUE FALLING FOR NEXT COUPLE OF YEARS


5

6

7

8

9

10

11

12

13

14

15

-100

-80

-60

-40

-20

0

20

40

60

80

100Q

2 20

04

Q2

2005

Q2

2006

Q2

2007

Q2

2008

Q2

2009

Q2

2010

Q2

2011

Q2

2012

Q2

2013

Q2

2014

Q2

2015

Q2

2016

Absorption Completions Availability Rate

Absorption, Completions, (msf) Availability Rate (%)

Forecast


• In near term industrial demand drivers are performing well• Inventory growth

• Trade Growth

• Industrial production growth

• Longer term structural changes should provide continued support for industrial space• Cheap energy and lower labor costs are seeds for manufacturing

resurgence

• Globalization will continue

• Ecommerce continues to move product from stores to warehouses

STRUCTURAL AND CYCLICAL TRENDS ARE BULLISH FOR THE INDUSTRIAL

The Industrial Sector, Where we are Today

Real Estate

cbre econometric advisors

msf8 global research

sa4 global research

average3 global research

todayglobal research

cbre ea industrial outlook

industrial sector

us census bureau