Industrial Meets the Challenge

Transcription

1 Research & Forecast Report LAS VEGAS INDUSTRIAL Q Industrial Meets the Challenge > > Demand for industrial space increased in the second quarter of 2017 Economic Indicators > > Industrial development increased as well, with almost 2 million square feet completed > > Vacancy decreased to a very healthy 5.4 percent INDUSTRIAL Employment RESIDENTIAL Permit Value TRANSPORTATION Taxable Sales -4.4 With Southern Nevada s new industrial construction boom well underway, the results have been encouraging. At midyear 2017, Southern Nevada s industrial market has posted net absorption totaling 3.6 million square feet, alongside 3.7 million square feet of new construction. This has occurred while vacancy has increased from the low of 5.3 percent recorded in the third quarter of 2016 to the current 5.4 percent. Vacancy in the second quarter of 2017 was 0.1 point lower than it was in the first quarter of The overall weighted average asking rate decreased to $0.64 per square foot (psf) on a triple net (NNN) basis in the second quarter of 2017, a $0.01 decrease from one quarter ago. The industrial job market picture in Southern Nevada is not entirely rosy. The job market added 4,000 industrial jobs in (the latest month of data available) compared with April Job growth was not experienced in all sectors. +2.2% -34.1% Market Indicators Relative to prior period Q Q3 2017* Vacancy Net Absorption Completions Rental Rate *Projected Summary Statistics Las Vegas Market Q2-16 Q1-17 Q2-17 Historical Vacancy Rates and Asking Lease Rates Vacancy Rate 5.6% 5.5% 5.4% 6.0% 5.9% 5.8% 5.7% 5.6% 5.5% 5.4% 5.3% 5.2% $0.68 $0.67 $0.66 $0.65 $0.64 $0.63 $0.62 $0.61 $0.60 Asking Rent (P, NNN) $0.62 $0.65 $0.64 Net Absorption () 778,135 1,528,311 2,086,693 New Completions () 661,726 1,783,040 1,959,185 Overall Asking Rents Per Square Foot 5.1% 5.0% 2 Q Q Q Q Q Q Q Q 2015 $0.59 $0.58 Vacancy Asking Rental Rate As it stands, vacancy may still be higher at the end of 2017 than at the beginning of the year, but it will probably not go much higher than 6.0 percent. Warehouse/Distribution $0.54 $0.53 $0.52 Light Distribution $0.58 $0.63 $0.69 Light Industrial $0.63 $0.70 $0.70 Incubator $0.74 $0.82 $0.82 Flex $0.83 $0.88 $0.93

2 The construction sector added 6,800 jobs, and will probably add more as the Valley welcomes the construction of the new Raiders stadium, the expansion of the Convention Center and continued work on Project Neon. Gains were also recorded in manufacturing, which added 300 jobs over the past twelve months. Job losses, however, were experienced in the transportation & warehousing sector, which lost 2,600 jobs, and wholesale sector, which lost 500 jobs. The transportation & warehousing losses may be reversed as new jobs are eventually accounted for at the new warehouse/distribution projects that are being completed and occupied in Unemployment in the Las Vegas-Paradise MSA stood at 4.6 percent as of, down from 5.9 percent in April From April 2016 to, total employment in Southern Nevada increased by 40,600 jobs. Southern Nevada s industrial inventory expanded by 3.7 million square feet in the first half of An additional 4.9 million square feet of industrial space should be completed by the end of the year, putting the likely year-end construction total at 8.6 million square feet. Projects that should be completed in the third quarter are 38 percent pre-leased or build-to-suit, while those slated for completion in the fourth quarter are 30 percent preleased or build-to-suit. With 4.9 million square feet of industrial left to be completed this year, it makes sense to take a look at how quickly the Valley has absorbed the space that has already been completed. Properties completed so far in 2017 had net absorption of 2,682,000 square feet, giving them a vacancy rate of 28 percent. Net absorption in these new properties amounted to 74 percent of all net absorption in the Valley. Net absorption in the second quarter of 2017 was positive in six of the Valley s seven submarkets. The highest net absorption was in North Las Vegas (1,594,891 square feet), followed by Airport (170,147 square feet) and West Central (155,668 square feet). Negative net absorption occurred in Henderson (negative 48,268 square feet). Historical Net Absorption vs. Completions 2,500,000 2,000,000 1,500,000 1,000, ,000 Occupancy vs. Industrial Employment 165, , , , , , , Q Q Q Q 2015 Net Absorption 1 Q Q 2016 Industrial Jobs 2 Q Q Q Q Q Q 2016 Completions 1 Q 2017 Occupancy Rate 1 Q Q Q % 95.5% 95.0% 94.5% 94.0% 93.5% 93.0% Gross absorption was 7.9 million square feet in the first half of 2017, higher than the gross absorption of 5.7 million square feet recorded in the first half of Vacancy decreased to 5.4 percent this quarter and is now 0.2 points lower than one year ago. We expected vacancy to be on the rise through 2017 as the Valley attempted to absorb new development. In fact, demand has kept up with supply this year. The Valley s lowest vacancy rate was in the East Las Vegas submarket (3.1 percent), followed by West Central (4.0 percent) and Airport (5.4 percent). The Valley s highest vacancy was in Northwest (7.5 percent), followed by Henderson (5.7 percent). APR 2016 APR 2017 CHANGE Construction 55,100 61, ,800 Manufacturing 22,000 22, Transportation & Warehousing 39,900 37,300-2,600 Wholesale 22,000 21, Source: Nevada Department of Employment, Training and Rehabilitation The industries most active in occupying industrial space in the first two quarters of 2017 were involved in the wholesale, manufacturing and transportation and warehousing sectors. Local companies took about 37 percent of the leased square footage tracked by Colliers over the first two quarters of Companies headquartered in the Midwest took 20.4 percent, 2 Las Vegas Research & Forecast Report Q Industrial Colliers International

3 11.8 percent of leasing came from the Southwest U.S. (including California) and companies from the Southeast states took about 9.2 percent. The weighted average asking lease rate for industrial space decreased in the second quarter of 2017 to $0.64 psf NNN from last quarter s $0.65. This quarter s average rental rate was $0.02 higher than one year ago. If adjusted for inflation, the weighted average asking lease rate is $0.46 psf NNN, a $0.01 increase from one year ago. The current asking rate, adjusted for inflation, is $0.05 lower than it was during the Valley s last economic recovery period in Units leased in the second quarter of 2017 had effective lease rates that averaged percent of asking rates, a slight dip from 2016 s average of percent. Much of the decrease in the overall weighted average asking lease rate in 2017 is due to the completion of large warehouse/ distribution spaces. If you simply averaged lease rates across the board, you would see a slight increase in asking rents overall, indicating that Southern Nevada s industrial market is retaining its value even in the face of a massive expansion. At mid-year 2017, industrial investment sales volume was $172.5 million in 32 sales totaling 1,701,000 square feet. This is comparable with Average sales price per square foot year-to-date was $101.42, a solid increase from 2016 s average of $ The average cap rate was 7.1 percent, down from 7.2 percent in Southern Nevada s industrial market had over 1.0 million square feet of product marketed for sale as investments at mid-year, with an average asking price of $ psf, and an average cap rate of 7.8 percent. Challenged with an extraordinary amount of new development, Southern Nevada s warehouse/distribution market has met the challenge. While new construction is still a bit ahead of 1 Using the Consumer Price Index, All Urban Consumers, West Region, Class A Cities, = 100 Industrial Development Schedule PROJECT TYPE STATUS SUBMARKET SIZE PRE-LEASING 3rd Quarter ,813,141 38% CJ Pony Parts BTS Warehouse/Distribution UC North Las Vegas 100,000 BTS Henderson Interchange Center Bldg 1 Warehouse/Distribution UC Henderson 130, % Henderson Interchange Center Bldg 2 Warehouse/Distribution UC Henderson 197,120 0% Lincoln Business Center Warehouse/Distribution UC North Las Vegas 338,520 0% LogistiCenter at Las Vegas Blvd Warehouse/Distribution UC North Las Vegas 546,480 0% Marnell Airport Center MAC2 Light Distribution UC Airport 58,195 0% Marnell Airport Center MAC3 Light Distribution UC Airport 74,882 56% Northgate Distribution Center Warehouse/Distribution UC North Las Vegas 570, % Prologis Las Vegas Corporate Center Bldg 12 Warehouse/Distribution UC North Las Vegas 159,211 73% Prologis Las Vegas Corporate Center Bldg 13 Warehouse/Distribution UC North Las Vegas 100, % South15 Airport Center Bldg B Warehouse/Distribution UC Henderson 482,300 0% Sunset Landing Light Industrial UC Airport 54,000 0% 4th Quarter ,053,017 30% Escondido Airport Park Light Industrial PC Airport 30,897 0% Henderson Commerce Center II Bldg U Warehouse/Distribution UC Henderson 50,400 0% Henderson Commerce Center II Bldg V Warehouse/Distribution UC Henderson 54,000 0% Henderson Commerce Center II Bldg W Warehouse/Distribution UC Henderson 81,600 0% Northgate Distribution Center Bldg 5 Warehouse/Distribution UC North Las Vegas 191,026 0% Northgate Distribution Center Bldg 9 Warehouse/Distribution PC North Las Vegas 731,561 0% Prologis I-15 Speedway Logistics Center Bldg 2 Warehouse/Distribution UC North Las Vegas 621, % Prologis Las Vegas Corporate Center Bldg 9 Warehouse/Distribution PC North Las Vegas 130,515 0% Prologis Las Vegas Corporate Center Bldg 14 Warehouse/Distribution PC North Las Vegas 131,750 0% South Jones Industrial Park Light Industrial UC Southwest 29,411 0% 1st Quarter ,890 0% Lamb Industrial Light Distribution PC North Las Vegas 121,890 0% ,057,385 18% 5785 N Hollywood Blvd Warehouse/Distribution PC North Las Vegas 36,000 BTS AirParc South Warehouse/Distribution PC Henderson 181,430 0% AirParc South Light Distribution PC Henderson 30,600 0% Blue Diamond Business Center Bldg 6 Warehouse/Distribution PC Southwest 430,000 0% Clayton Park Incubator PC North Las Vegas 87,900 0% Walnut Warehouse/Distribution PC North Las Vegas 122,495 0% Prologis I-15 Speedway Logistics Center Bldg 3 Warehouse/Distribution PC North Las Vegas 927,440 0% South15 Airport Center Bldg 1 Warehouse/Distribution PC Henderson 86,880 0% South15 Airport Center Bldg 2 Warehouse/Distribution PC Henderson 73,840 0% South15 Airport Center Bldg C Warehouse/Distribution PC Henderson 189,000 0% South15 Airport Center Bldg D Warehouse/Distribution PC Henderson 91,000 0% South15 Airport Center Bldg E Warehouse/Distribution PC Henderson 200,000 0% South15 Airport Center Bldg F Warehouse/Distribution PC Henderson 100,800 0% Switch SuperNAP Warehouse/Distribution PC Southwest 500,000 BTS 3 Las Vegas Research & Forecast Report Q Industrial Colliers International

4 net absorption, the new product being completed in Southern Nevada is clearly meeting a need for such space. We thought that warehouse/distribution vacancy would be nudging upwards over the course of 2017, but at mid-year this does not look to be the case. Warehouse/distribution vacancy was 5.9 percent in the second quarter of 2017, with 1.6 million square feet of net absorption and 2.0 million square feet of new construction. The light distribution market may be experiencing the same cycle as warehouse/distribution did a year ago. Vacancy in light distribution has fallen to 4.5 percent, but net absorption at midyear totaled only 207,776 square feet and only 28,244 square feet in the second quarter of This could mean that the space currently available in Southern Nevada is not meeting the needs of businesses who need light distribution space, and thus new development may be in order. Fortunately, there were 319,077 square feet of light distribution space under construction in the second quarter, in the Airport and Henderson submarkets. If the light distribution market is ready for new construction, the light industrial market is overdue. Vacancy in light industrial projects was only 3.8 percent and net absorption in the second quarter was a very strong 424,557 square feet. Only 83,411 square feet of new light industrial space is now under construction. Hopefully, asking rents hitting $0.70 psf will stimulate new development soon. While the incubator and flex markets are not doing as well as other industrial subtypes, they are much improved since the peak of the Great Recession. Incubator space hit a 7.6 percent vacancy rate in the second quarter of 2017, with mid-year net absorption hitting 55,765 square feet. Flex was 8.9 percent vacant, with year-to-date net absorption at 44,678 square feet. One incubator project is planned to begin construction in the next twelve months, and no flex properties are under construction or planned. The question heading into mid-year was whether or not Southern Nevada could absorb upwards of 9.0 million square feet of new warehouse/distribution space in a single year. Of course, the Valley did better than that during the boom in the early 2000 s, but ten years of recession and recovery left some in doubt of whether the demand for that much space, that quickly, existed. The answer at mid-year appeared to be yes. With 3.7 million square feet of new construction so far in 2017, the Valley has absorbed 3.6 million square feet, putting vacancy at a very reasonable 5.4 percent. Another 4.4 million square feet is scheduled to come online by the end of 2017, and pre-leasing for that space is strong. As it stands, vacancy may still be higher at the end of 2017 than at the beginning of the year, but it will probably not go much higher than 6.0 percent. With Southern Nevada s new industrial construction boom well underway, the results have been encouraging. Investment Sales YTD No. Sales Square Feet Sold 3,526,000 5,832,000 2,759,000 3,309,000 1,701,000 Sales Volume $189.1 MM $496.2 MM $248.8 MM $308.9 MM $172.5 MM Average Price/ $53.65 $85.08 $90.20 $93.35 $ Average Cap Rate 7.0% 7.3% 7.1% 7.2% 7.1% Average Sale Size () 61,000 58,000 53,000 47,000 53,000 *Using the Consumer Price Index, All Urban Consumers, West Region, Class A Cities, = Las Vegas Research & Forecast Report Q Industrial Colliers International

5 NORTHWEST NORTH LAS VEGAS 15 Significant Industrial Sale Activity Hughes Airport Center 95,000 - $12,500,000 $132.00/ May 2017 Warehouse/Distribution WEST CENTRAL EAST LAS VEGAS Hughes Airport Center 88,000 - $10,300,000 $118.00/ Warehouse/Distribution Annie Oakley Drive 215,000 - $15,000,000 $70.00/ Warehouse/Distribution SOUTHWEST 215 AIRPORT HENDERSON Hughes Airport Center 102,000 - $12,000,000 $118.00/ Light Distribution Valley Industrial Park 151,000 - $11,100,000 $73.00/ Light Industrial Lease Activity PROPERTY NAME LEASE DATE LEASE TERM SIZE EFFECTIVE RATE TYPE Sunpoint Business Center Apr months 71,000 $0.43 NNN Warehouse/Distribution 3108 Losee Road May months 58,000 $0.44 NNN Light Industrial Jennifer Park May months 26,000 $0.48 NNN Light Distribution Gibson-Wigwam Business Center May months 9,000 $0.84 NNN Incubator Valley Freeway Centre III Apr months 7,000 $0.70 NNN Flex 5 Las Vegas Research & Forecast Report Q Industrial Colliers International

6 Market Comparisons - Las Vegas Industrial Market TYPE TOTAL INVENTORY DIRECT VACANT DIRECT VACANCY RATE SUBLEASE VACANCY TOTAL VACANT VACANCY RATE CURRENT QUARTER VACANCY RATE PRIOR QUARTER NET ABSORPTION CURRENT QTR NET ABSORPTION YTD COMPLETIONS CURRENT QTR COMPLETIONS YTD UNDER CONSTRUCTION PLANNED CONSTRUCTION WEIGHTED AVG ASKING RENTAL RATE AIRPORT SUBMARKET WH 5,858, , % - 149, % 5.8% 189, , $0.86 LD 3,254, , % 18, , % 5.1% (67,788) (63,670) ,077 - $0.78 LI 2,953, , % - 118, % 4.4% 10,209 26, ,000 30,897 $0.96 INC 1,500, , % 1, , % 11.4% (951) 12, $1.16 FLX 1,509, , % 11, , % 12.5% 38,716 53, $0.94 Total 15,076, , % 31, , % 6.6% 170, , ,077 30,897 $0.93 EAST LAS VEGAS SUBMARKET WH 1,115,454 11, % - 11, % 0.0% (11,000) 14, $0.54 LD 532,163 36, % - 36, % 12.0% 27,600 39, $0.70 LI 1,798,513 50, % - 50, % 5.0% 39,332 36, $0.45 INC 280,959 22, % - 22, % 9.6% 4,781 5, $0.66 FLX 233,692 3, % - 3, % 3.2% 3,994 3, $0.63 Total 3,960, , % - 123, % 4.8% 64,707 98, $0.57 HENDERSON SUBMARKET WH 7,652, , % - 575, % 6.7% (65,733) 319, , , ,950 $0.50 LD 1,685,746 66, % - 66, % 3.6% (6,284) 31, ,000 30,600 $0.59 LI 3,650, , % - 100, % 3.9% 42,528 34, $0.77 INC 496,625 24, % - 24, % 2.8% (10,672) (1,778) $0.59 FLX 1,380,046 80, % - 80, % 6.1% (8,107) (11,448) $0.99 Total 14,866, , % - 847, % 5.5% (48,268) 373, , , ,550 $0.58 NORTH LAS VEGAS SUBMARKET WH 25,085,245 1,528, % 10,000 1,538, % 5.9% 1,403,436 2,197,860 1,583,685 2,915,087 2,628,537 2,079,761 $0.43 LD 5,047, , % 10, , % 5.2% 54, , ,890 $0.55 LI 9,084, , % 0 406, % 5.4% 84,376 38, $0.61 INC 724,573 74, % 0 74, % 12.6% 17,327 38, ,900 $0.61 FLX 796,265 79, % 4,234 83, % 14.3% 34,804 14, $0.96 Total 40,738,512 2,295, % 25,029 2,320, % 6.0% 1,594,891 2,416,648 1,583,685 2,915,087 2,628,537 2,289,551 $0.50 NORTHWEST SUBMARKET WH 224, % % 0.0% $- LD 50,000 11, % - 11, % 22.2% - (11,097) $0.85 LI 341,430 14, % - 14, % 5.2% 3,248 3, $0.69 INC 99,427 17, % - 17, % 23.0% 5,412 (319) $0.78 FLX 740,230 66, % - 66, % 9.2% 1,594 (1,072) $0.89 Total 1,455, , % - 109, % 8.2% 10,254 (9,240) $0.84 SOUTHWEST SUBMARKET WH 15,099,591 1,116, % 14,860 1,131, % 5.3% 24,157 97, , , , ,000 $0.61 LD 7,342, , % 75, , % 5.5% 11,768 75, $0.81 LI 10,505, , % 5, , % 4.7% 110, , ,411 - $0.73 INC 2,353, , % - 146, % 6.4% (272) (10,277) $0.70 FLX 1,685, , % - 188, % 10.8% (6,404) (7,391) $0.89 Total 36,986,206 2,048, % 95,378 2,143, % 5.5% 139, , , , , ,000 $0.69 WEST CENTRAL SUBMARKET WH 2,253, % % 0.8% 17,283 17, $- LD 999,141 78, % - 78, % 8.7% 8,000 8, $0.56 LI 7,792, , % - 308, % 5.8% 134, , $0.71 INC 2,511, , % - 145, % 5.6% (5,491) 12, $0.72 FLX 161,527 19, % - 19, % 12.6% 1,057 (7,992) $1.12 Total 13,719, , % - 552, % 5.2% 155, , $0.71 MARKET TOTAL WH 57,290,304 3,381, % 24,860 3,406, % 5.5% 1,558,104 2,841,704 1,959,185 3,742,025 3,734,447 3,932,711 $0.52 LD 18,911, , % 104, , % 5.6% 28, , , ,490 $0.69 LI 36,127,983 1,380, % 5,000 1,385, % 5.0% 424, , ,411 30,897 $0.70 INC 7,966, , % 1, , % 7.7% 10,134 55, ,900 $0.82 FLX 6,506, , % 15, , % 10.2% 65,654 44, $0.93 Total 126,803,018 6,786, % 152,191 6,938, % 5.8% 2,086,693 3,614,804 1,959,185 3,742,025 4,136,935 4,203,998 $0.64 QUARTERLY COMPARISON AND TOTALS Q ,803,018 6,786, % 152,191 6,938, % 5.8% 2,086,693 3,614,804 1,959,185 3,742,025 4,136,935 4,203,998 $0.64 Q ,843,833 6,913, % 266,170 7,179, % 5.7% 1,528,111 1,528,111 1,782,840 1,782,840 3,952,298 6,739,906 $0.65 Q ,060,993 6,658, % 335,896 6,994, % 5.6% 804,521 3,416, ,700 3,369,037 4,472,122 5,980,699 $0.67 Q ,098,293 6,500, % 372,085 6,872, % 6.0% 955,325 2,612, ,336 2,406,337 3,868,338 5,799,971 $0.65 Q ,457,957 6,815, % 514,396 7,330, % 6.1% 778,135 1,657, ,726 1,766,001 1,940,708 5,764,758 $0.62 Q ,796,231 6,932, % 380,928 7,312, % 5.7% 878, ,886 1,104,275 1,104,275 1,446,539 5,155,620 $0.65 Q ,691,956 6,706, % 110,304 6,816, % 6.3% 515,907 4,949, ,608 1,900,601 2,224,326 4,361,662 $0.63 WH = Warehouse LD = Light Distribution LI = Light Industrial INC = Incubator FLX = Flex 6 Las Vegas Research & Forecast Report Q Industrial Colliers International

7 396 offices in 68 countries on 6 continents United States: 153 Canada: 29 Latin America: 24 Asia Pacific: 79 EMEA: 111 $2.6 billion in annual revenue* COLLIERS INTERNATIONAL LAS VEGAS 3960 Howard Hughes Parkway Suite 150 Las Vegas, Nevada USA MARKET CONTACT: Mike Mixer Executive Managing Director Las Vegas mike.mixer@colliers.com John Stater Research & GIS Manager Las Vegas john.stater@colliers.com 2.0 billion square feet under management 15,000 professionals and staff *All statistics are for 2016 and include affiliates. About Colliers International Colliers International Group Inc. (NASDAQ and TSX: CIGI) is an industry-leading global real estate services company with more than 15,000 skilled professionals operating in 68 countries. With an enterprising culture and significant employee ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include strategic advice and execution for property sales, leasing and finance; global corporate solutions; property, facility and project management; workplace solutions; appraisal, valuation and tax consulting; customized research; and thought leadership consulting. Colliers professionals think differently, share great ideas and offer thoughtful and innovative advice that help clients accelerate their success. Colliers has been ranked among the top 100 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 12 consecutive years, more than any other real estate services firm. For the latest news from Colliers, visit Colliers.com or follow us on Twitter (@Colliers) and LinkedIn. Copyright 2017 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.