Commercial Investment Real Estate

SEP-OCT 2017

Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.

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The industrial market is rid- ing the coattails of explosive growth occurring in the e-commerce sector. But while e-commerce may be grabbing the spotlight and stealing the show, a much bigger supporting cast of industries is helping to power this expansion. E-commerce certainly deserves top billing for its role in not only fueling demand for space, but for spurring transformative change across the entire supply chain of modern distribution and fulfill- ment centers. This includes central hub locations that are within easy reach of both workers and the last mile of customer delivery. "The primary driver of industrial development has been the e-commerce sector in the Cincinnati and Columbus [Ohio] markets," says Loren M. DeFilippo, CCIM, director of research | Ohio for Colliers International in Cincinnati. "Demand for modern Class A logistics facilities has driven vacancy rates to historically low levels." The Cincinnati metro area reported an overall industrial vacancy rate of 3.5 percent in first quar- ter 2017, with more strong demand ahead. Earlier this year, Amazon announced that it had signed an agreement with the Cincinnati/Northern Kentucky International Airport, and the online behemoth plans to invest $1.5 billion to create a Prime Air cargo hub that will include a 3 million- square-foot distribution facility and 350,000-sf loading wing, as well as creating 2,000 jobs. That hub is expected to attract more online retailers to the region, DeFilippo adds. E-commerce, distribution, and third-party logistics continue to dominate the national indus- trial market, accounting for about 25 percent of all leasing activity, according to JLL. However, the lion's share of activity — the other 75 percent — is widespread across many sectors from medical device manufacturing to food processing. "As a general take on things, the economy tends to be in a pretty good place, and a lot of businesses are benefiting from that," says Ryan Severino, chief economist at JLL. GDP has been growing at a rate of 1.5 to 2 percent, and consumer spending remains healthy. "I usually take the temperature of the confi- dence level of the principals of the company, and people are more optimistic," adds Arnold Ng, CCIM, president of Apex Commercial Real Estate in Torrance, Calif. "They are not as resistant to expanding. They are willing to take on more risk, and people are being a little more aggressive in making moves." Industrial is outperforming other property types for vacancies and rent growth, and the lat- est forecast from the Spring 2017 ULI Consensus Forecast remains positive. Industrial vacancies are expected to improve 20 basis points to reach 8 percent by year-end, where it will hold steady in 2018 before climbing slightly to 8.4 percent by the end of 2019. Rent growth for industrial is expected to slow after peaking at 6.6 percent in 2016, but remain above the expected rate of inflation at 4.6 percent in 2017, 3.8 percent in 2018, and 3 percent in 2019, according to the ULI report. Solid Foundation Consumer spending is a big piece of the U.S. economy — a lynchpin in the demand for indus- trial space. It is important to note that despite the explosive growth of e-commerce, nearly 90 percent of all sales are still occurring within brick-and-mortar stores, according to Severino. Regardless of whether consumers are shop- ping online or in stores, that spending is fuel- ing activity all through the supply chain from manufacturing and imports through distribu- tion and logistics. September | October 2017 25

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