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.
Thursday, January 30, 2014
Wednesday, January 29, 2014
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.
Thursday, August 1, 2013
Denver Industrial Market Report - Midyear 2013
The Denver Industrial Market continued its recovery in the 2nd quarter of 2013 and is demonstrating signs of prolonged strength. The three highlights of the quarter were: 1,850,000 SF of positive absorption; almost 600,000 SF of speculative construction broken ground on; and a $0.20 increase in the average quoted lease rates. With the total industrial vacancy rate falling 0.3% to 7.3%, Denver is well below the national industrial vacancy rate of 8.5%.
Modern industrial space (24’+ clear height, large truck courts) remains scarce in all size ranges causing many prospective tenants to remain on the sidelines or forego contemplated moves and/or expansions altogether. The total warehouse market is now at a 5.8% vacancy rate with the East I-70 submarket, the largest sub market, at 6.4%.
Developers have been waiting for sustained increases in rental rates to justify speculative construction. While continued increases in rates are still needed to further justify new projects, especially any under 200,000 SF for economies of scale, developers with a low land basis are rolling projects out in an attempt to stay ahead of the curve. Majestic Realty was the first to break ground in the NE submarket with construction starting on a 500,000 SF building within the Majestic Commercenter, while Prologis is not too far from putting a shovel in the ground at Stapleton Business Center North (391,000 SF). The Bradbury Companies broke ground in the Centennial Industrial Market on a 98,000 SF speculative building this quarter as well. The higher average rental rates in the south submarkets helped justify the smaller building size in this case.
At the end of the quarter interest rates increased by approximately 100 basis points causing a ripple effect of concerns throughout both the residential and commercial real estate markets. Most analyst agree that interest rates really only have one direction to go and that is up, how quickly they increase is yet to be seen. We expect the Fed to closely regulate increases as to not abruptly stall the momentum in the real estate markets, and the overall economy. Many prudent investors and owner/users are seeking out the longest term money as possible to hedge the anticipated higher rates.
For the full Industrial and Office Market Report please visit: Bitzer Newsletter
Thursday, July 25, 2013
Commercial Construction in Denver - Photo Update
It's incredibly exciting to see all of the new developments that are in progress all across Denver spanning the office, retail and industrial sectors. Below are a few pictures that I took over the last week or so of significant projects:
 |
| Cherry Creek Office & Retail 215 Saint Paul Street, Denver |
 | ||||
| 16th Street Mall - Office, Multifamily, Retail 16M - 16th & Market Street |
 |
| Union Station - Office and Retail One Union Station - 16th & Wynkoop St. |
 |
| Union Station Redevelopment |
 |
| ProLogis Industrial Speculative Development 390,000 SF - 56th Ave & Havana Street Breaking ground begins with removing an old Stapleton Airport runway! |
 | |
| Interstate Warehouse Expansion - Cooler/Freezer Stapleton Business Center |
 |
| Majestic 500,000 SF Speculative Industrial Majestic CommerCenter - Aurora |
Wednesday, July 10, 2013
10 Highlights from the NAIOP Mid Year Forecast Breakfast: Here We Grow Again
Yesterday I attended the NAIOP Mid Year Forecast Breakfast held at the Marriott City Center in Denver. With over 300 commercial real estate professionals in attendance, the overall sentiment was very upbeat and optimistic that the Denver commercial real estate market should see continued improvement across all sectors for the unforeseeable future. Below are a few highlights from the panelists.
Office - Doug Wulf, Cassidy Turley Colorado
1. Use imagination and innovation to create new or revitalize old projects.
2. The health of the Denver office market hinges on job growth. Denver currently ranks 8th in the US for job growth in part because of our diversified economy.
3. "Millennial's" have a voice in where companies locate. The current focus is on location and amenities which have showing to promote productivity. Companies will pay 10-30% more for an edgy and modern building.
4. The aging population in the US is leading to a proliferation of medical office properties.
Industrial - T.J. Smith, Colliers
5. The investor demand for industrial property is unprecedented. CAP rates in the low 6's for institutional grade and mid 8's for properties with deficiencies.
6. Quality inventory is very low, leasing concessions are down it is shifting to a landlords market.
7. Multiple spec developments are already underway however current lease rates do not fully support development costs, especially on projects under 100,000 SF.
Investment - Brad Lyons, CBRE
8. There is a wall of capital pursuing national investment deals which is putting continued downward pressure on CAP rates. As a result of the recent jump in interest rates, there has been a slight pullback in interest in non-core assets.
Land - Eric Roth, CBRE
9. The SFR land market is very strong with more builders entering the market instead of PE firms which were the norm in the recent past. Construction costs are up and access to trade labor is very tight.
10. Denver has a big renter pool which should be able to absorb all of the product coming online. Approaching an oversupply of projects.
Yesterday I attended the NAIOP Mid Year Forecast Breakfast held at the Marriott City Center in Denver. With over 300 commercial real estate professionals in attendance, the overall sentiment was very upbeat and optimistic that the Denver commercial real estate market should see continued improvement across all sectors for the unforeseeable future. Below are a few highlights from the panelists.
Office - Doug Wulf, Cassidy Turley Colorado
1. Use imagination and innovation to create new or revitalize old projects.
2. The health of the Denver office market hinges on job growth. Denver currently ranks 8th in the US for job growth in part because of our diversified economy.
3. "Millennial's" have a voice in where companies locate. The current focus is on location and amenities which have showing to promote productivity. Companies will pay 10-30% more for an edgy and modern building.
4. The aging population in the US is leading to a proliferation of medical office properties.
Industrial - T.J. Smith, Colliers
5. The investor demand for industrial property is unprecedented. CAP rates in the low 6's for institutional grade and mid 8's for properties with deficiencies.
6. Quality inventory is very low, leasing concessions are down it is shifting to a landlords market.
7. Multiple spec developments are already underway however current lease rates do not fully support development costs, especially on projects under 100,000 SF.
Investment - Brad Lyons, CBRE
8. There is a wall of capital pursuing national investment deals which is putting continued downward pressure on CAP rates. As a result of the recent jump in interest rates, there has been a slight pullback in interest in non-core assets.
Land - Eric Roth, CBRE
9. The SFR land market is very strong with more builders entering the market instead of PE firms which were the norm in the recent past. Construction costs are up and access to trade labor is very tight.
10. Denver has a big renter pool which should be able to absorb all of the product coming online. Approaching an oversupply of projects.
Well it has been a while since I actively updated this blog but I am recommitting myself to keeping it current and proving my thoughts on both the Denver and the national commercial real estate market. My apologies for the hiatus and hopefully you will find the forthcoming posts of interest and relevance. Thanks!
Wednesday, January 26, 2011
Denver Industrial Real Estate Market Report - 4Q2010
The Denver Industrial Market ended the year with a total positive absorption of 3,412,339 SF and a total vacancy rate of 7.7%. This consistent positive absorption over the past 6 quarters, resulting in a 1% decrease in the vacancy rate since 2Q2009, is a strong indicator that the Denver market remains healthy and should continue its slow and steady recovery in 2011.
The majority of tenants and users continue to stay put in their existing facilities as a result of the lingering uncertainties surrounding the national economy and landlords aggressively working to retain tenants. However, we are seeing fewer downsizing companies and sublease spaces coming to market signaling improved local fundamentals.
Despite the slight uptick in commercial mortgage rates and SBA fee waivers expiring, we anticipate increased user-building sales in 2011 as property owners remain motivated to dispose of listed properties and the available for lease space continues to dwindle. In addition, the lack of new construction for the foreseeable future, condemnation of properties along rail lines for RTD projects, and pent-up demand from the past 24 months should continue to put downward pressure on the vacancy rate and in turn push lease rates and sale prices higher.
We also anticipate additional investment sales in 2011 as the capital markets continue to improve for well located and stable investment grade opportunities. Many would-be sellers and buyers of investment properties have remained on the sidelines since 2009 waiting for signs of life in the investment market and favorable access to capital.
For the full 4Q2010 Office & Industrial Market Report click here:
http://www.bitzerrep.com/pdf/BitzerNewsletter2010Q4[BW].pdf
The majority of tenants and users continue to stay put in their existing facilities as a result of the lingering uncertainties surrounding the national economy and landlords aggressively working to retain tenants. However, we are seeing fewer downsizing companies and sublease spaces coming to market signaling improved local fundamentals.
Despite the slight uptick in commercial mortgage rates and SBA fee waivers expiring, we anticipate increased user-building sales in 2011 as property owners remain motivated to dispose of listed properties and the available for lease space continues to dwindle. In addition, the lack of new construction for the foreseeable future, condemnation of properties along rail lines for RTD projects, and pent-up demand from the past 24 months should continue to put downward pressure on the vacancy rate and in turn push lease rates and sale prices higher.
We also anticipate additional investment sales in 2011 as the capital markets continue to improve for well located and stable investment grade opportunities. Many would-be sellers and buyers of investment properties have remained on the sidelines since 2009 waiting for signs of life in the investment market and favorable access to capital.
For the full 4Q2010 Office & Industrial Market Report click here:
http://www.bitzerrep.com/pdf/BitzerNewsletter2010Q4[BW].pdf
Subscribe to:
Posts (Atom)