Summary of CoStar Industrial Call re: State of US Industrial Market Year End 2013

Below are my notes from the CoStar Industrial Call today covering the entire US Industrial Market. Let me know if you have any questions or would like to discuss.

Here is a link for a copy of the slides from the presentation for your reference: click HERE


Summary

Economy:
The talk of tapering has caused interest rates to rise 100 bps in the last year.

GDP:
3.2% as of this morning. Expecting GDP to continue to rise. Many positive signals: goods consumption, purchasing managers index, industrial production index, port traffic, truck tonnage and housing starts are all on the rise

Absorption:
Haven't seen these levels of absorption since 2007.
The best performing markets are: Dallas, Inland Empire, Chicago, Atlanta and Columbus The worst performing markets are: Minneapolis, Lakeland, Birmingham, Augusta and Hartford

Supply:
80 million SF were delivered in 2013, currently there is 98 million SF under construction. 18 of those buildings are over 900,000 SF.

Vacancy - National vacancy rate is 8%

Rent Growth:
2.5% across the country, 141 markets improved and only 69 markets declined. Investors are pricing significant rent growth to justify high 4% CAP rates in coastal markets which are supply constrained.

Notable Rent Growths:
Edison had 9.6%, LA had 8.9%, Orange County had 7.9%, Miami had 7.5%, Dallas-Fort Worth had 6.8%

Market Fundamentals:
Approaching late expansionary phase for many top markets, but still feel we have room for more rent growth especially because of how low rental rates went. still expect strong rent growth until 2015 when markets will start hitting previous peaks.

Construction:
Rents are starting to justify new construction. Rents are approaching the long term trend line. Anticipate  4% rent growth next year.

Capital Markets and Sales Volume:
Up 22% year over year sales volume. CAP rates are in the mid-6% range. Lots of rents and appreciation upside in class B&C industrial, 28' clear and below.

Denver Industrial Real Estate Market Update - January 2014

The Denver industrial market continued to fly high at the end of 2013. As we mention quarterly, the medicinal and recreational marijuana business continues to bolster the industrial sector. As dispensaries scramble to keep up with the surging demand for legal marijuana, I-B zoned properties in the City and County of Denver are being absorbed at a feverish pace.

The market is ripe with investors, users and tenants alike trying to secure properties for indoor grow facilities. Over the past few years the focus has shifted from 5,000-15,000 SF facilities to lease, preferably with an option to purchase, to almost anything for sale or lease over 50,000 SF. 

As a result, several properties that we've considered overpriced for the typical industrial user have finally traded after languishing on the market for months. For example an 80,000 SF building had been on the market for 5+ years priced at $64 PSF, a number so high it received very little interest.  In December it traded for $62 PSF to a grower who plans to mezzanine the entire building!  This is a trend we are hearing more of as growers are trying to maximize their footprint. 

However, the marijuana industry still lacks access to the banking industry which had made large acquisitions a challenge for even well capitalized companies. As a result, properties continually fall out of contract just before closing due to financial reasons.

The trickle-down effect of the marijuana industry has been great for a number of industries as well as evidenced by the solid market numbers this quarter (vacancy decreasing to 5.7%, quarterly absorption at 1.1M, and increased rental rates). Mechanical, electrical, plumbing, architecture firms and general contractors have all seen increased business if they were willing to work with the industry. With well over 1.5 million square feet of real estate attributed to the industry, the positive impact on the industrial real estate market in Denver is undeniable.