CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 1
2020 NORTH AMERICAN INDUSTRIAL OUTLOOK
WEBCAST
Rebecca RockeyGlobal Head of Forecasting
David BitnerAmericas Head of Capital Markets Research
Carolyn SalzerAmericas Head of Logistics & Industrial Research
Tray AndersonLogistics & Industrial Services Lead, Americas
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 2
262.1 336.4ABSORPTION
(MSF)DELIVERIES
(MSF)
4.6% $6.51VACANCY
(%)RENTS(PSF)
North American Industrial 2019 Recap
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 3
NEW SUPPLY SURPASSED DEMAND IN 2019, WILL CONTINUE INTO 2021
RECORD RUN FOR INDUSTRIAL, WILL IT CONTINUE?
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
0
50
100
150
200
250
300
350
400
New Supply (MSF) Net Absorption (MSF) Vacancy Rate (%)
262.1
218.0
336.4
272.2ABSORPTION
(MSF)DELIVERIES
(MSF)
2021 Forecast
2019 Actual
Key Takeaways
ABSORPTION(MSF)
DELIVERIES(MSF)
Source: Cushman & Wakefield Research
Milli
ons
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 4
DEMAND PROFILE OVER 20-YEAR PERIOD
INDUSTRIAL DEMAND’S RECORD RUN
(200,000,000)
(100,000,000)
0
100,000,000
200,000,000
300,000,000
400,000,000
Strongest Five-Year Periods of Net Absorption from 2000Net Absorption (MSF)
#1#3 #4 #2
Source: Cushman & Wakefield Research
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 5
SUPPLY VS DEMAND
MARKET COMPARISON
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
0
5
10
15
20
25
30
35
40
45
50
Deliveries (MSF) Net Absorption (MSF) 2021 Vacancy (%)
Supply vs. Demand: 2020-2021
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 6
CONDITIONS WILL REMAIN HISTORICALLY TIGHT
LOCAL MARKETS FEELING THE PRESSURE
0%
2%
4%
6%
8%
10%
12%
Q4 2021 Vacancy Prior Cycle Lows (2002-2007)
Source: Cushman & Wakefield Research
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 7
PIPELINE VS ABSORPTION
NEW SUPPLY WILL OUTPACE DEMAND IN 2021
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
0
50
100
150
200
250
300
350
400
Construction Pipeline (MSF) Absorption % of UC
Source: Cushman & Wakefield Research
Milli
ons
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 8
BROAD BASED LEASING DEMAND TO CONTINUE
0
100
200
300
400
500
60010,000-50,000 50,001-100,000 100,001-300,000 300,001-500,000 500,001+
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 9
NET ABSORPTION/ASKING RENT
4Q TRAILING AVERAGE
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
(200,000,000)
(100,000,000)
-
100,000,000
200,000,000
300,000,000
400,000,000
Net Absorption, MSF Weighted Asking Rent, $ PSF
Forecast
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 10
459.9 573.4ABSORPTION (MSF) DELIVERIES (MSF)
5.2% $6.95VACANCY (%) RENTS (PSF)
North American Industrial 2020-2021 Outlook
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 12
THEME #1: GROWTH DECELERATING
Note: *In local currency units.Source: U.S. Bureau of Economic Analysis, Statistics Canada, Instituto Nacional de Estadística Geografía e Informática, Moody’s Analytics, Oxford Economics, International Monetary Fund, Cushman & Wakefield Research
2.9%
3.0%
3.1%
3.2%
3.3%
3.4%
3.5%
3.6%
3.7%
3.8%
3.9%
2010-2018Average
2018 2019 2020
Global Real GDP Growth
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
2009Q3-2019Q3 2018 2019 2020F
Real GDP Growth*Canada Mexico U.S.
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 13
THEME #2: PRODUCTION ECONOMY SOFT
Note: *Canada does not have an ISM-equivalent although alternative PMI indices are available for the country (using different methodologies).Source: Oxford Econoomics, Statistics Canada, Board of Governors of the Federal Reserve, Instituto Nacional de Estadística Geografía e Informática,Cushman & Wakefield Research
-2,500
-2,000
-1,500
-1,000
-500
0
500
1,000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
F
Manufacturing JobsCanada Mexico U.S.
-10
-5
0
5
10
15
20
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Output is FallingCanadian Industrial Production Mexican Industrial ProductionU.S. Industrial Production Cass Shipments Index (3-mma)
-34k jobs-333k jobs-22k jobs
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 14
THEME #3: TRADE UNCERTAINTY TO PERSIST
Source: U.S. Department of Treasury, U.S. Congressional Budget Office, Moody’s Analytics, U.S. Bureau of Economic Analysis, Statistics Canada, Instituto Nacional de Estadística Geografía e Informática, PolicyUncertainty.com, Cushman & Wakefield Research
$0
$20
$40
$60
$80
$100
$120
$140
Corporate Tax CutSavings (TCJA)
Individual IncomeTax Savings (TJCA)
Cost of Tariffs
Billio
ns
Tariffs Offsetting Other Tailwinds
2018 2019-40
-30
-20
-10
0
10
20
30
40
50
60
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2018
2019
Business Confidence is DownGlobal Business Confidence North American Business Confidence
U.S.-China trade war begins
Great Recession
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 15
THEME #3: INVESTMENT PULLBACK BROAD-BASED
Source: CPB World Trade Monitor, International Monetary Fund, Cushman & Wakefield Research
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Canada Mexico U.S. NAFTA World
Bilateral Gross Trade Flows with China(Jan-Oct Total, Yr/Yr %Change)
2016 2017 2018 2019
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Investment Pulling BackCanada Mexico U.S.
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 16
THEME #3: INVESTMENT PULLBACK BROAD-BASED
Source: U.S. Bureau of Economic Analysis, Cushman & Wakefield Research
-60%
-40%
-20%
0%
20%
40%
60%
Total FixedInvestment in
Structures
Office Retail (exrestaurants)
Restaurants Warehousing Manufacturing Oil/mining MedicalBuildings
Hotels Single-family Multi-family
U.S. Real Non-residential Fixed Investment
16Q2 vs 15Q2 19Q4 vs 18Q4
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 17
THEME #3: INVESTMENT PULLBACK BROAD-BASED
Source: U.S. Bureau of Economic Analysis, Cushman & Wakefield Research
-60%
-40%
-20%
0%
20%
40%
60%
Total FixedInvestment in
Structures
Office Retail (exrestaurants)
Restaurants Warehousing Manufacturing Oil/mining MedicalBuildings
Hotels Single-family Multi-family
U.S. Real Non-residential Fixed Investment
16Q2 vs 15Q2 19Q4 vs 18Q4
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 18
THEME #3: INVESTMENT PULLBACK BROAD-BASED
Source: U.S. Bureau of Economic Analysis, Cushman & Wakefield Research
-60%
-40%
-20%
0%
20%
40%
60%
Total FixedInvestment in
Structures
Office Retail (exrestaurants)
Restaurants Warehousing Manufacturing Oil/mining MedicalBuildings
Hotels Single-family Multi-family
U.S. Real Non-residential Fixed Investment
16Q2 vs 15Q2 19Q4 vs 18Q4
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 19
THEME #3: INVESTMENT PULLBACK BROAD-BASED
Source: U.S. Bureau of Economic Analysis, Cushman & Wakefield Research
-60%
-40%
-20%
0%
20%
40%
60%
Total FixedInvestment in
Structures
Office Retail (exrestaurants)
Restaurants Warehousing Manufacturing Oil/mining MedicalBuildings
Hotels Single-family Multi-family
U.S. Real Non-residential Fixed Investment
16Q2 vs 15Q2 19Q4 vs 18Q4
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 20
WITH EXCEPTIONS…
THEME #4: LOW INFLATION, LOW INTEREST RATES
Note: *Core PCE inflation, **Private Consumption Deflator, ***Consumer Price IndexSource: U.S. Bureau of Economic Analysis, Statistics Canada, Cabinet Office of Japan, Statistical Office of the European Communities, Oxford Economics, Federal Reserve Bank of Philadelphia Survey of Professional Forecasters, Cushman & Wakefield Research
1.8% 1.8%
1.2%
0.6%
1.5%
0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%1.8%2.0%
U.S.* Canada** Eurozone** Japan** AdvancedEconomies***
Advanced Economy Inflation2010-2019 2018 2019 2020F
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
U.S. 10-year Treasury YieldU.S. Actual 2011Q4 2012Q4 2013Q42014Q4 2015Q4 2016Q4 2017Q42018Q4 2019Q2 2019Q4
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 21
THEME #5: ALL ABOUT THE CONSUMER IN 2020
Source: U.S. Bureau of Labor Statistics, Statistics Canada, Moody’s Analytics, Oxford Economics, Cushman & Wakefield Research
Unemployment Rate (%)
2
4
6
8
10
12
14
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
F
Canada Mexico U.S.
U.S. “Churn” Healthy
Share of Economy Tied to Consumer
Canada
Real Disposable Incomes Rising
Mexico
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
F
Real Spending by Gov't Real Spending by Priv. Sector
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
F
Canada Mexico U.S.
0
1
2
3
4
5
6
7
8
2.0
4.0
6.0
8.0
Jan-
01
Jan-
03
Jan-
05
Jan-
07
Jan-
09
Jan-
11
Jan-
13
Jan-
15
Jan-
17
Jan-
19
Job Openings (millions, LHS)Unemployed Persons per Opening (RHS)
-2-101234567
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
F
Overall Wage Growth Transport/Warehousing Wage Growth
40%
45%
50%
55%
60%
65%
70%
2000
2005
2010
2015
2020
Canada Mexico U.S.
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 22
DOWNSIDE RISKS ARE NOT INSIGNIFICANT
Source: Cushman & Wakefield Research
PROTESTS
Protests in Hong Kong, Catalonia, Latin America creating political and business uncertainty.
NAIRU
The U.S. Economy has gone beyond the non-accelerating inflation rate of unemployment (NAIRU).
YIELD CURVE
The yield curve inverted at different points in 2019. Historically, an inverted yield curve has been a solid predictor of recessions.
U.S. ELECTIONS
Stark policy differences between candidates is likely to create uncertainty & cause a slowdown.
TRADE
The Phase 1 Deal between the U.S. & China does not address the thornier issues. This could easily flare up again and tariffs could ramp back up.
BUSINESS DEBT
Lending to highly leveraged non-financial businesses and bond issuance by such firms is a risk as is the shadow banking system.
STOCK VALUES
Stock values and housing values are at record highs – can’t go up forever & affordability issues.
BREXIT SCENARIOS
Could fracture the Eurozone and ultimately reverberate back to the U.S.
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 24
OUTSTRIPPING GROWTH IN OTHER PRODUCT TYPES
RISING DEMAND FOR INDUSTRIAL ASSETS…
Rolling 4-Quarter Transaction ActivityDollars in billions
0
50
100
150
200
250
2000
Q4
2001
Q2
2001
Q4
2002
Q2
2002
Q4
2003
Q2
2003
Q4
2004
Q2
2004
Q4
2005
Q2
2005
Q4
2006
Q2
2006
Q4
2007
Q2
2007
Q4
2008
Q2
2008
Q4
2009
Q2
2009
Q4
2010
Q2
2010
Q4
2011
Q2
2011
Q4
2012
Q2
2012
Q4
2013
Q2
2013
Q4
2014
Q2
2014
Q4
2015
Q2
2015
Q4
2016
Q2
2016
Q4
2017
Q2
2017
Q4
2018
Q2
2018
Q4
2019
Q2
2019
Q4
Apartment Industrial Office Retail
171B / +1.7% YoY
132B / +1.6% YoY
101B / +17.4% YoY
51B / -33.8% YoY
Source: RCA, Cushman & Wakefield Research
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 25
OUTSTRIPPING GROWTH IN OTHER PRODUCT TYPES
…ACROSS MARKET TIERS…
Rolling 4-Quarter Industrial Transaction ActivityDollars in billions
36B / +15.6% YoY
14B / +2.9% YoY
41B / +2.5% YoY
0
5
10
15
20
25
30
35
40
45
50
2000
Q4
2001
Q2
2001
Q4
2002
Q2
2002
Q4
2003
Q2
2003
Q4
2004
Q2
2004
Q4
2005
Q2
2005
Q4
2006
Q2
2006
Q4
2007
Q2
2007
Q4
2008
Q2
2008
Q4
2009
Q2
2009
Q4
2010
Q2
2010
Q4
2011
Q2
2011
Q4
2012
Q2
2012
Q4
2013
Q2
2013
Q4
2014
Q2
2014
Q4
2015
Q2
2015
Q4
2016
Q2
2016
Q4
2017
Q2
2017
Q4
2018
Q2
2018
Q4
2019
Q2
2019
Q4
Major Secondary Tertiary
Source: RCA, Cushman & Wakefield Research
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 26
OUTSTRIPPING GROWTH IN OTHER PRODUCT TYPES
…PRODUCT TYPES…
Industrial Transaction ActivityDollars in billions, Year-over-year percent change (labels)
+23%+15%
+9%
+7%
+16%+36%
0
5
10
15
20
25
30
2014
2015
2016
2017
2018
2019
2014
2015
2016
2017
2018
2019
2014
2015
2016
2017
2018
2019
2014
2015
2016
2017
2018
2019
2014
2015
2016
2017
2018
2019
2014
2015
2016
2017
2018
2019
Under 50K 50 to 100K 100 to 300K 300 to 500K Over 500K
Warehouse FlexSource: RCA, Cushman & Wakefield Research
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 27
PARTICULARLY FROM MORE DEFENSIVE CAPITAL GROUPS
…INVESTOR GROUPS…
11%9%
14%11% 12%
30%
9%7%
19%
5% 5%
14%11%
10%
19%
2008 2014 2019 2008 2014 2019 2008 2014 2019 2008 2014 2019 2008 2014 2019
Private Institutional Public Foreign Overall
Industrial Share of Acquisition ActivityPercent of total (%)
Source: RCA, Cushman & Wakefield Research
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 28
BANK AND CMBS EXECUTIONS PARTICULARLY ROBUST IN 2019
…AND LENDERS
Industrial Loan Origination VolumeDollars in billions, Year-over-year percent change (labels)
+89%
+119%+38%
+79%+46%
0
10
20
30
40
50
60
2014
2015
2016
2017
2018
2019
2014
2015
2016
2017
2018
2019
2014
2015
2016
2017
2018
2019
2014
2015
2016
2017
2018
2019
2014
2015
2016
2017
2018
2019
Bank CMBS Insurance Debt Fund Other
Source: RCA, Cushman & Wakefield Research
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 29
CONTINUED COMPRESSION IN SECONDARY MARKETS AS CAPITAL SEEKS YIELD
CAP RATES NEAR ALL-TIME LOWS
Industrial Average Transaction Cap RatesPercent (%)
5.5%5.9%
6.2%6.0%
6.6%
7.0%
4%
5%
5%
6%
6%
7%
7%
8%
8%
9%
'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Major Secondary TertiaryClass A Class B
Source: RCA, Cushman & Wakefield Research
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 30
RECORD LOW CAP RATES ACROSS TOP MARKETS
Warehouse Average Transaction Cap RatesPercent (%)
0%
1%
2%
3%
4%
5%
6%
7%
8%
2019 Previous Cycle LowSource: RCA, Cushman & Wakefield Research
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 31
THE FALL IN RATES HAS REWOUND INDUSTRIAL VALUATION TO 2014 LEVELS
BUT VALUATIONS ARE STILL ATTRACTIVE
Industrial Risk PremiaBasis points (bps)
0
100
200
300
400
500
600
700
800
900
2007
Q3
2007
Q4
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
2010
Q3
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
2016
Q2
2016
Q3
2017
Q1
2017
Q2
2017
Q3
2017
Q4
2018
Q1
2018
Q2
2018
Q3
2018
Q4
2019
Q1
2019
Q2
2019
Q3
10Y Tsy Debt Premium Equity Premium
170 bps / -1.1 SD
265 bps / 1.0 SD
Long-term avg:182 bps
Long-term avg:254 bps
Source: RCA, Federal Reserve, Cushman & Wakefield Research
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 32
INDUSTRIAL OFFERS INVESTORS “HEADS I WIN, TAILS I WIN” OPPORTUNITY
EXTENDED PERIOD OF INDUSTRIAL OUTPERFORMANCE
NCREIF National Property Index Quarterly Annualized Total ReturnPercent (%)
170 bps / -1.1 SD
265 bps / 1.0 SD
Long-term avg:182 bps
Long-term avg:254 bps
-5%
0%
5%
10%
15%
20%
25%
30%
Mar
-10
Jun-
10Se
p-10
Dec
-10
Mar
-11
Jun-
11Se
p-11
Dec
-11
Mar
-12
Jun-
12Se
p-12
Dec
-12
Mar
-13
Jun-
13Se
p-13
Dec
-13
Mar
-14
Jun-
14Se
p-14
Dec
-14
Mar
-15
Jun-
15Se
p-15
Dec
-15
Mar
-16
Jun-
16Se
p-16
Dec
-16
Mar
-17
Jun-
17Se
p-17
Dec
-17
Mar
-18
Jun-
18Se
p-18
Dec
-18
Mar
-19
Jun-
19Se
p-19
Dec
-19
Apartment Industrial Office Retail Overall
14.4%
6.2%
-0.4%
5.8%
6.8%
Source: NCREIF, Cushman & Wakefield Research
CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 34
Thank YouTray AndersonLogistics & Industrial Services Lead, [email protected]
Carolyn SalzerAmericas Head of Logistics & Industrial [email protected]
Rebecca RockeyGlobal Head of [email protected]
David BitnerAmericas Head of Capital Markets [email protected]
©2020 Cushman & Wakefield. The material in this presentation has been prepared solely for information purposes, and is strictly confidential. Any disclosure, use, copying or circulation of this presentation (or the information contained within it) is strictly prohibited, unless you have obtained Cushman & Wakefield’s prior written consent. The views expressed in this presentation are the views of the author and do not necessarily reflect the views of Cushman & Wakefield. Neither this presentation nor any part of it shall form the basis of, or be relied upon in connection with any offer, or act as an inducement to enter into any contract or commitment whatsoever. No representation or warranty is given, express or implied, as to the accuracy of the information contained within THIS PRESENTATION, and Cushman & Wakefield is under no obligation to subsequently correct it in the event of errors.