Another Record Year For Industrial

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1 Research & Forecast Report OAKLAND METROPOLITAN AREA OFFICE INDUSTRIAL Q1 Q3 Q2 10-Year Nominal Interest Rate Another Record Year For Industrial Market Indicators 10-Year Nominal >> Gross absorption is 1,974,234 square feet year to date >> Vacancy this quarter was 2.1 percent compared to 1.9 percent last quarter >> Net absorption (current quarter) is positive 516,561 square feet On both the national and regional level, major economic indicators continue to trend positive. National unemployment continues to drop, finishing the second quarter at 4.0 percent, down from 4.1 percent in Q1. Despite the Federal Reserve raising interest rates twice within the first six months of, the increased cost of capital seems to be having little impact on continued economic growth as seen in reported import/export volume and consumer confidence, which dipped only slightly from its Q1 peak. Investors continue to pursue favorable, dependable returns for long-term value investments, and looking at commercial real estate in particular, the industrial category having United States Unemployment Rate Rate Interest Unemployment Rate 10-Year Nominal Interest Rate Consumer Confidence Market Trends Relative to prior period Vacancy Q Unemployment Rate Rental Rate Net Absorption 10-Year Nominal Interest Rate Q3 * 4. Construction *Projected Unemployment Rate Summary Statistics I-80/I-880 Corridor Overall Industrial Market Q2 I-80/I-880 Corridor Industrial Market $1.20 $1.08 $0.96 $0.84 $0.72 Overall vacancy increased by 0. in the second quarter of ; rental rates decreased from $0.93 to $0.87 NNN. Following the decrease from first quarter to second quarter, we expect rents to stabilize with the potential of a slight increase. Overall vacancy rate should remain low and stable, as has been the trend for the past several quarters. Overall Vacancy Quarterly Net Absorption Construction Completed Under Construction Overall Asking Rents Overall Industrial Asking Rents Overall Warehouse Asking Rents Overall R&D Flex Asking Rents Previous Quarter 1.9% 264, ,724 2,795,950 $0.92 $0.89 $0.73 $1.60 Current Quarter , ,371 2,439,998 $0.87 $0.92 $0.74 $1.36 U.S. National Economic Indicators Unemployment Rate Labor Force Participation Rate Consumer Price Index Interest Rate - 10 Yr Treasury Business Confidence Index Consumer Confidence Index * Data Source: EDD Labor Market Information Division %

2 delivered positive growth across every US market outperformed all other sectors. Occupancy rates, asking rents, net absorption, as well as the breadth of the development pipeline, all indicate the strength of industrial real estate performance will continue. Looking specifically at the I-80/I-880 Corridor, the economic pulse remains strong as many key market indicators signal growth ahead. Most notably, Oakland s already historically low unemployment rate decreased 0.30 percentage points further, ending the second quarter at 2.7 percent which is among the very lowest in the nation. Employment demand fueled by an advance among economic influencers indicates that the trend will continue. Despite local headwinds from pressures around the workforce crunch, regional economic growth is continuing....the economic pulse remains strong as many key market indicators signal growth ahead. Specifically, the East Bay industrial sector continues to outperform all other product categories across the entire Bay Area market. The continued surging growth of the ecommerce industry continues to drive the high demand for industrial space along the I-80/I-880 Corridor. Total market vacancy rates here, continue hovering around 2.0 percent, a historically low rate for the region. A notable decrease in total vacancy occurred in the R&D/flex category, which reduced from 3.1 percent to 1.7 percent in the second quarter--driven in particular by the Hayward submarket, where the decline was 5.9 percent to 3.2 percent. During the second quarter, a staggering 926,371 square feet of industrial construction was completed, which was the largest inventory increase since Q Second quarter industrial net absorption was relatively high, at 516,561 square feet (which is the lion s share of the yearto-date net absorption totals of 781,527 square feet.) Second quarter industrial market Triple Net (NNN) asking rates increased to $0.92 NNN per square foot, up from $0.87 NNN per square foot of the previous quarter. Overall, the industrial market along the I-80/I-880 Corridor is poised for growth, remaining competitive, as demand for centralized industrial space near urban cores becomes increasingly more popular among both tenants and landlords. 2 Oakland Research & Forecast Report Q2 Industrial Colliers International

3 Richmond Hercules, Pinole, Richmond, San Pablo and El Cerrito 1 Richmond Industrial $0.90 The Richmond market experienced a minor retreat in vacancy as the total submarket vacancy rate increased from 2.2 percent in the first quarter to 7.3 percent in the current quarter. This spike relates directly to the delivery of the Bay Area Logistics Center 707,596 square feet of new warehouse product aimed at attracting firms valuing a prime distribution location for increased competitive advantage. The newly built center offers a much needed supply of prime warehouse space to a demand-ridden market. $0.82 $0.74 $0.66 $0.58 Despite this large influx of inventory into the market, average asking NNN rents remained unchanged at per square foot for industrial and $0.70 for warehouse. The asking rates for R&D/flex space did experience a rise, from $1.02 in first quarter to $1.12 in the second quarter. Overall, it is forecasted that Richmond s market will remain tight. However, it is unclear how the new supply will change the submarket s equilibrium or which firms will soak up the vacancy Richmond Warehouse/Distribution $0.78 $0.75 $0.73 $0.70 $0.68 $0.65 $ Richmond R&D/Flex $1.20 $1.12 $1.04 $0.96 $0.88 BAY AREA LOGISTICS CENTER 2995 ATLAS ROAD RICHMOND CA 3 Oakland Research & Forecast Report Q2 Industrial Colliers International

4 Oakland Oakland and Alameda Oakland s overall vacancy decreased from 1.9 percent to 1.5 percent from the previous quarter. Industrial product vacancy rose slightly from 1.3 percent to 1.9 percent, but vacancy for warehouse/ distribution product decreased from 3.3 percent to 0.5 percent. The notable warehouse/distribution vacancy drop was due in part to a higher volume of smaller leases; as there were no significant lease transactions this quarter. The Industrial product vacancy should continue to lessen, as the lack of new construction to fill demand continues. The shortfall in development stems primarily from a lack of suitable sites, leaving smaller urban infill projects to support new supply needs. The gross absorption in the second quarter was 70,178 square feet against a year-to-date gross absorption of 386,009 square feet, indicating a decrease in migration velocity into Oakland s submarket. Second quarter s net absorption totaled 165,000 square feet, with the year-to-date net absorption totaling 302,209 square feet. Oakland s industrial product has experienced a net absorption of negative 133,473 square feet. Average asking rates for triple-net (NNN) leases increased in the second quarter, in response to the decrease in vacancy rates. The industrial product type increased from $1.08 per square foot in Q1, to $1.16 per square foot. Warehouse asking rates remained unchanged this quarter at $0.75 per square foot. The Oakland transportation and logistics hubs have seen a meaningful increase in both freight and passenger traffic. In the second quarter alone, the Oakland Seaport Complex has experienced a percent increase in import container traffic, an increase largely due to the competitive advantage created by the recent infrastructure improvements at the Oakland Global Logistics Center. Oakland Industrial Oakland Warehouse/Distribution $1.25 $1.00 $1.10 $0.90 $0.95 $0.70 $ Oakland Research & Forecast Report Q2 Industrial Colliers International

5 San Leandro San Leandro and San Lorenzo San Leandro remains a static market, with slight movement within the submarket s indicators and performance. Vacancy rates hinted at upward movement, gaining 0.2 percent from the previous quarter, settling at 1.0 percent. Industrial product type saw a small rise in vacancy from 1.0 percent, from first to second quarter. The recent vacancy increase, paired with a negative net absorption of 75,118 square feet and a gross absorption of 12,551 square feet, suggests an equilibrium between supply and demand might be in place. Despite the increase in vacancy, asking rates increased over last quarter, to an average of $0.83 per square foot per month. Warehouse asking rates in particular experienced a $0.21 jump, ending the quarter at $0.83 per square foot per month; with the delivery of 75,200 square feet of new warehouse product, demanding a premium. San Leandro Industrial San Leandro Warehouse/Distribution $1.20 $1.06 $0.92 $0.78 $0.64 $0.90 $0.82 San Leandro had an increased number of sizable transactions during the second quarter. Most notably, the sale of Williams Street, a 585,517 square foot industrial complex that was purchased as an investment by Colony Industrial. Significant leases included 100 Halcyon Drive (121,643 square feet), and Catalina Street (90,725 square feet.) The narrow market should see some relief from the 879,898 square feet of warehouse supply in development that is slated for completion by year end. Once these development projects are completed, San Leandro will firmly become the second largest warehouse market in the East Bay. 1 San Leandro R&D/Flex $0.74 $0.66 $0.58 $1.44 $1.30 $1.16 $1.02 $0.88 $ Oakland Research & Forecast Report Q2 Industrial Colliers International

6 Hayward Market conditions within the Hayward industrial submarket remain tight. Total vacancy decreased from 2.9 percent to 2.1 percent. While industrial product type remained unchanged at 2.7 percent, marking the third quarter of stable vacancy, the warehouse vacancy dropped from 2.5 percent to 1.4 percent as the result of three notable transactions totaling 216,887 square feet. R&D/flex space also saw a drop in its vacancy rate during second quarter, falling from 5.9 percent to 3.2 percent. Hayward Industrial $0.90 $0.84 $0.78 $0.72 $0.66 Hayward s total industrial gross absorption continues to be the highest in all I-80/I-880 Corridor submarkets, a clear indication of demand for space here. Totaling 726,163 square feet this quarter, Hayward accounted for 67.0 percent of the I-80/I-880 Corridor s total gross absorption in the second quarter. Looking more broadly at year-to-date figures, Hayward accounted for 49.0 percent of the total year-to-date gross absorption. Total net absorption for the current quarter was 445,959 square feet, which was a 17.6 percent increase over the first quarter. Hayward Warehouse/Distribution $0.75 $0.70 $0.65 Overall asking rates for industrial and warehouse product remained stable within Hayward. Asking rents for R&D/flex space increased from $1.30 to $1.44 per square foot. Looking forward at the overall industrial leases set to expire by year s end within the I-80/I-880 Corridor; Hayward in particular accounts for 20 percent of square footage slated to be up for renewal or lease. Paired with Hayward s 576,271 square feet under construction that is due to be delivered by January 2019, this submarket should remain active, driven by a slight up-tick in supply in the following quarters. 1 1 Hayward R&D/Flex $0.55 $1.48 $1.35 $1.22 $1.09 $0.96 $0.83 $ Oakland Research & Forecast Report Q2 Industrial Colliers International

7 Union City The Union City submarket remained stable in the second quarter, mirroring its first quarter performance closely. Overall vacancy rates increased a negligible 0.3 percentage points, finishing the quarter at 1.3 percent, which is hovering at historic lows. The overall asking rates held firm in the second quarter, averaging in the mid s per square foot. Union City s gross absorption was up this quarter over the previous quarter (162,101 square feet versus 33,744 square feet in Q1), but was driven by the warehouse category, and specifically by the 86,401 square feet leased at Whipple Road (occupied by Weber Distribution Warehouse Direct.) Union City s nearfuture supply will have to come from expiring leases totaling 810,573 square feet by year s end, given the lack of notable development in the pipeline, so we would expect an increased supply shortage and higher asking rates, as demand continues to squeeze the market. 1 Union City Industrial Union City Warehouse/Distribution $0.82 $0.74 $0.66 $0.58 $2.00 $1.70 $1.40 $1.10 Union City R&D/Flex $1.50 $1.30 $1.10 $0.9 $0.7 $ WHIPPLE ROAD, UNION CITY, CA 7 Oakland Research & Forecast Report Q2 Industrial Colliers International

8 Newark The Newark submarket continues to tighten, evident in the decrease in total vacancy from 1.7 percent to 1.3 percent from first to second quarter. Of milestone note, the R&D/ flex vacancy dropped from 2.0 percent to 0.0 percent. Relief from the extreme supply shortage is now not forecasted to arrive until approximately May 2019, the revised target completion date for two industrial developments totaling 1,002,266 square feet. Pre-leasing efforts will dictate exact product type, but these developments are expected to include a mix of industrial, warehouse and R&D/flex space. Total gross absorption stood at 105,979 square feet this quarter, which was impressive in the face of such limited supply. This was a sizable jump in gross absorption from the 19,444 square feet in the first quarter. Despite decreasing supply, asking rates remained stable, which we expect to continue until supplies slowly increase with new construction. Newark Industrial Newark Warehouse/Distribution $1.25 $1.10 $0.95 $0.65 $1.10 $1.00 Newark had three noteworthy second-quarter transactions: Facebook leased two separate spaces totaling 451,333 square feet at 7300 Gateway Boulevard and 1 Morton Avenue while Inside Direct leased 80,258 square feet at 7093 Central Avenue. $0.90 $0.70 Overall, the Newark submarket will remain tight for the next twelve months, as demand categorically exceeds current supply which may entice rents to rise. However, asking rents may decrease if the current construction comes to market at once, increasing vacancy rates. 3 2 Newark R&D/Flex $3.00 $ $ $ $2.33 $2.17 $2.00 MORTON COMMERCE CENTER, NEWARK, is comprised of 4 state-of-the-art industrial buildings. It is currently under construction and will be one of the most significant projects with a total of 604,796 square feet. Facebook has pre-leased building 4. 8 Oakland Research & Forecast Report Q2 Industrial Colliers International

9 Significant Lease Activity RICHMOND ConGlobal Industries 555 Maritime Street D512, Oakland May 78,570 - Renewal 80 Aryzta Catalina Street, San Leandro April 90,725 - Renewal OAKLAND United Parcel Service of America 100 Halcyon Drive Building 1, San Leandro June 121,643 - DIrect SAN LEANDRO 580 Weber Distribution Warehouses Whipple Road Building C, Union City April 86,401 - Direct SAN FRANCISCO BAY HAYWARD Facebook 7300 Gateway Boulevard Building 2, Newark June 225,654 - Direct UNION CITY Facebook 1 Morton Avenue Building 4, Newark June 225,679 - Direct NEWARK Inside Source 7093 Central Avenue, Newark April 80,258 - Direct Significant Sale Activity PROPERTY ADDRESS SALE DATE SIZE BUYER TYPE Williams Street, San Leandro April 585,517 Colony Industrial Investment Marina Boulevard, San Leandro May- 122,665 Dublin F2, Inc User Corsair Boulevard, Hayward June 100,320 Hayward 70 LLC User Huntwood Avenue, Hayward May 65,267 Willy Ng User th Street Building D, Union City May 52,000 Exeter Property Group Investment Hayman Street, Hayward April 50,300 DCT Industrial Trust Development 9 Oakland Research & Forecast Report Q2 Industrial Colliers International

10 Market Comparisons INDUSTRIAL MARKET VACANCY VACANCY NET NET TOTAL DIRECT DIRECT SUBLEASE SUBLEASE TOTAL COMPLETED RATE RATE ABSORPTION ABSORPTION SUBTYPE BLDGS INVENTORY VACANT VACANCY VACANT VACANCY VACANT CURRENT CURRENT PRIOR CURRENT YTD RATE RATE QTR QUARTER QUARTER QTR RICHMOND UNDER CONSTRUCTION GROSS AVG ASKING ABSORPTION NNN CURRENT QTR Industrial 230 4,902, , , , (19,351) 37, Warehouse 50 5,606, , , % 775, (26,450) 707, ,574 - $0.70 R&D/Flex 54 3,411,053 6, , , ,595 7, ,916 $1.12 Total ,920, , , ,012, (17,756) 18, , ,574 6,916 $0.70 OAKLAND Industrial ,664, , , , % 1. (153,568) (133,473) ,233 $1.16 Warehouse ,246,965 40, , , , , ,785 55,945 $0.75 R&D/Flex Total 1,039 33,911, , , , % 165, , ,785 70,178 $1.11 SAN LEANDRO Industrial ,902, , , , (75,118) (77,804) ,551 $0.81 Warehouse ,780,091 82, , % 19, ,078 75, ,898 - $0.83 R&D/Flex ,380 2, , , (11,116) (13,276) - - 7,060 $1.30 Total ,529, , % 48, , (66,834) 161,998 75, ,898 19,611 $0.84 HAYWARD Industrial ,949, , , , % , ,692 93, ,763 $0.88 Warehouse ,728, , , ,228 17,305 50, , ,115 $0.77 R&D/Flex 109 4,502, , , , % 122, , ,285 $1.44 Total 1,132 43,180, , , , % 445, , , , ,163 $0.93 UNION CITY Industrial 168 7,883,678 84, , , (12,572) 17, ,172 $0.86 Warehouse 87 7,488, , , % (44,011) (94,011) ,301 $0.78 R&D/Flex ,672 13, , , ,628 $1.35 Total ,242,460 97, , % 218, (51,955) (76,763) ,101 $0.85 NEWARK Industrial 88 4,262,847 61, , , % 1. (2,000) (45,637) - 397,470 46,285 $0.98 Warehouse 32 3,923,778 65, % , % 1. (18,384) (6,350) - 604,796 9,193 $0.90 R&D/Flex 39 3,082, ,501 48, ,501 $2.75 Total ,268, , , , % 42,117 (3,349) - 1,002, ,979 $0.95 MARKET TOTAL Industrial 2,629 68,565,391 1,296, % 156, ,453, (161,589) 16,192 93, , ,004 $0.92 Warehouse ,773,904 1,233, % 169, ,402, % 497, , ,026 2,647, ,554 $0.74 R&D/Flex ,714, , , % 218, % , , ,390 $1.36 Total 3, ,053,457 2,659, , ,074, % 516, , ,371 3,044,794 1,090,948 $0.87 QUARTERLY COMPARISONS AND TOTALS Q2-18 3, ,053,457 2,659, , ,074, % 516, , ,371 3,044,794 1,090,948 $0.87 Q1-18 3, ,127,086 2,233, , ,790, % , , ,724 2,795, ,511 $0.92 Q4-17 3, ,852,362 2,277, , ,654, ,113 1,040, ,136 2,004,816 1,392,485 $0.90 Q3-17 3, ,596,226 2,790, % 453, ,243, % (113,997) 195, ,365 1,912,682 1,064,811 $0.95 Q2-17 3, ,262,861 2,468, % 328, ,796, % 1.9% 122, , ,483 2,127, ,588 $1.01 Q1-17 3, ,101,378 2,478, % 278, ,757, % , , ,373 2,133,324 1,023,550 $0.95 Q4-16 3, ,401,188 2,029, , ,244, ,306 1,209, ,168 1,252,090 $1.12 MARKET CONTACTS: Ken Meyersieck Regional Executive Managing Director San Francisco East Bay Silicon Valley Northern California Central Valley ken.meyersieck@colliers.com CA License No Alex Young, MBA Research Analyst II Oakland alex.young@colliers.com William Chui, CPRC Research Analyst I Oakland william.chui@colliers.com Copyright Colliers International. Colliers International Oakland The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has 1999 Harrison Street, Suite 1750 been made to ensure its accuracy, we cannot guarantee it. Oakland, CA United States No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior 10 Oakland North American Research Research & Forecast & Forecast Report Report 2015 Q4 Q Industrial Office Colliers Market International Outlook Colliers International to acting on any of the material contained in this report. colliers.com/oakland