How Long Can The Boom Times Last For The Industrial Sector? Are Markets Reaching Equilibrium?

Transcription

1 How Long Can The Boom Times Last For The Industrial Sector? Are Markets Reaching Equilibrium? October, 2017 page 1

2 The Market Has Never Been Stronger U.S. Industrial Market page 2

3 Strong Demand In A Slow Growth Environment Logistics/Light Industrial Demand Vs GDP 6% Absorption & GDP (Y/Y) 5% 4% 3% 2% 1% 0% Logistics Light industrial GDP Sources: Moody's Analytics; CoStar Portfolio Strategy As of 17Q1 page 3

4 Logistics Fundamentals In Equilibrium Logistics National Index Fundamentals Annual Change in Demand & Supply (MSF) 12.9% Avg: 10.1% Vacancy & Vacancy Average 8.1% 14% 13% 12% 11% 10% 50 0 (50) 8% 3% 6.5% Annual Rent Growth 6.7% 7.1% 5.3% 5.8% 4.3% 1.6% 2.4% 3.1% 3.9% 2.8% 2.2% 1.9% 2.0% 0.9% 1.3% 0.8% 9% 8% 7% 6% (2%) (7%) 1.0% 0.2% Source: CoStar Portfolio Strategy 0.6% 4.7% 2.9% 0.1% As of 17Q2 page 4

5 Logistics Supply Is Strong Historic Supply Vs Recent Supply 24 Supply (MSF) 21 Supply Above Average Supply Below Average Source: CoStar Portfolio Strategy As of 17Q2 page 5 Inland Empire Chicago Atlanta Dallas FW Memphis Houston Phoenix Columbus OH Philadelphia Saint Louis Cincinnati Nashville Kansas City Charlotte Portland OR Denver Miami New York Minneapolis East Bay Indianapolis Los Angeles Edison Seattle Baltimore Detroit Northern NJ Average Annual Q3-17Q2

6 Demand Is Stronger Historic Demand Vs Recent Demand Demand (MSF) Demand Above Average Demand Below Average (3) Source: CoStar Portfolio Strategy As of 17Q2 page 6 Inland Empire Chicago Dallas FW Atlanta Houston Memphis Seattle Philadelphia Edison Phoenix Cincinnati Saint Louis Baltimore Columbus OH Portland OR Charlotte Denver Kansas City Miami East Bay Nornern NJ New York Los Angeles Indianapolis Nashville Minneapolis Detroit Average Annual Q3-17Q2

7 Logistics Occupancies Strong In All Hub Sizes Total Logistics Market* 99% 97% Current Occupancy Current Occupancy Above Long-Term Average East Bay Washington, DC Long Island Los Angeles Orange County Detroit 95% 93% Lehigh Valley Milwaukee Pittsburgh Atlanta Baltimore Columbus Houston Indianapolis Salt Lake City Inland Empire Miam i Norfolk Palm Beach 91% Memphis Dallas - FW Kansas City 89% Harrisburg Saint Louis Chicago Phoenix Current Occupancy Below Long-Term Average 87% 85% 87% 89% 91% 93% 95% Historical Average Occupancy National Regional Local Source: CoStar Portfolio Strategy *Bubble Size = Market RBA. In Most Cases, Since As of 17Q2 page 7

8 Increased Speculative Construction Logistics Under Construction RBA & Occupancy In National Index Under Construction (MSF) Occupancy (%) Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q1 93% 94% 93% 92% 91% 90% 89% 88% 87% 86% Committed Available Occupancy Source: CoStar Portfolio Strategy As of 17Q1 page 8

9 Logistics Rents To Reach New Peaks Logistics Rents Prerecession, Current, And Forecast Rent ($/SF) $12 $11 $10 $9 $8 $7 $6 $5 $4 $3 $2 Source: CoStar Portfolio Strategy As of 17Q2 page 9 East Bay Los Angeles Inland Empire Miami Orange County Seattle Northern New Jersey Reno Houston Edison Norfolk Philadelphia Nashville Phoenix Lehigh Valley Atlanta Dallas - Fort Worth Chicago Columbus OH Portland OR Detroit Memphis Indianapolis Harrisburg Saint Louis Prerecession Max/Recession Min Range Improved Y/Y Worsened Y/Y 21Q4

10 How Much Has E-Commerce Contributed? The Good page 10

11 E-Commerce Has A Long Runway Online Vs. In-Store Sales $1,100 Quarterly Sales Volume ($B, SA) Change (Y/Y) 40% $1,000 35% $900 30% 25% $800 20% $700 15% $600 10% $500 5% 0% $400 (5%) $ E-Commerce Physical Retail Sales E-Commerce Sales Growth Physical Retail Sales Growth (10%) Sources: U.S. Department of Commerce; Moody's Analytics; CoStar Portfolio Strategy As of 17Q1 page 11

12 Inventories Confirm Supply Chain Expansions Retail Inventories, Sales, & Their Ratio 1.80 I/S Ratio Retail Inventories, Sales ($ Billions, Monthly, SA) $ $ $ $ $ $ $ $0 Inventories Sales I/S Ratio Trend 2012-Present Trend Sources: Moody's Analytics; CoStar Portfolio Strategy As of June '17 page 12

13 U.S. Industrial Is 22 BSF; E-Commerce is 0.6 BSF Breakdown Of The U.S. Industrial Market By Type (Billions SF) Total U.S. Industrial Market U.S. Distribution / Warehouse Market Distribution, 3.4 Service, 0.4 Food Processing, 0.3 Truck Terminal, 0.2 Refrigerated, 0.1 Showroom, 0.1 E-Commerce SF, 0.6, 4% Warehouse, 11.1 Manufacturing, 6.2 Non E-Commerce SF, 13.9, 96% Source: CoStar Portfolio Strategy As of 17Q3 page 13

14 E-Commerce Small Share Of Total, Huge Of New Amazon And Rest Of E-Commerce As Share OF Net Absorption 250 Millions SF E-Commerce Demand As % Of Net Absorption 40% 35% % % 20% % 50 10% 5% Non-Ecommerce Rest Of E-Commerce Amazon 0% Source: CoStar Portfolio Strategy As of 17Q3 page 14

15 How Much Has E-Commerce Contributed? The Scary page 15

16 Troubled Times Getting Worse? Public Retailers Reporting Negative FYE Same Store Sales Growth 70% Share of Public Retailers Reporting Negative Same-Store Sales Growth (Y/Y) 60% 50% Back to Recession Levels 55.0% 40% 30% 20% 10% 0% Sources: SEC Filings; CoStar Portfolio Strategy As of 17Q1 page 16

17 2017 Announced Closures Outpacing 2008 Announced Store Closures By Square Feet 100 Retail SF (Millions) Announced For Closure Q1 Q2 Q3 Q Sources: Business Insider; Clark Howard; ICSC; SEC Filings; RIS; CoStar Portfolio Strategy As of 17Q2 page 17

18 Top 50 Retailers Occupy A Lot Of SF Breakdown Of The U.S. Industrial Market Occupied By Top Retailers Grocers 57 SF 5% E-Commerce 596 SF 50% Top 50 Retailers 532 SF 45% Risk Free??? 369 SF 31% At Risk 163 SF 14% Source: CoStar Portfolio Strategy As of 17Q3 page 18

19 Industrial Is Popular Deals Are Hard To Find Investment Volume page 19

20 Without Industrial Would Underperform The Benchmark NCREIF Returns Vs. Without Industrial % Returns 14% 12% 10% 8% 6% Returns With Industrial Returns W/O Industrial Sources: NCREIF; CoStar Portfolio Strategy As of 17Q2 page 20

21 New Industrial Investors Want To Write Big Checks Industrial Individual Asset Vs. Portfolio Pricing* 14% Cap Rate 12% 10% 8% 6% 4% 2% Individual Assets Portfolios Source: CoStar Portfolio Strategy *Shading = Distance from trailing 90-day mean. Size = Price. As of 17Q1 page 21

22 Strong Volume Driving Down Returns Annual Sales Volume And Quarterly 90 th Percentile Cap Rates % Annual Sales Volume (Billion $) Core Cap Rates 7% 6% 5% 4% Source: CoStar Portfolio Strategy * 2017 Is Annualized Based On First Three Quarters As of 17Q3 page 22

23 Rene Circ, Director Involved in more than $15 billion of transactions Led the international expansion initiative at a public REIT, including Asia, Europe, and North & Central America Sought-after authority on investing in the U.S. industrial market Specialties: Industrial, Market Selection, Investment Structuring page 23