cushmanwakefield.com I 1 Cincinnati Industrial Q1 2019 MARKETBEAT Economy Greater Cincinnati has been growing as a center for distribution and logistics. Additionally, the region was also named one of the best U.S. cities for manufacturing jobs by a Chicago- based marketing company called Digital Third Coast. The company studied Census data and employment information from the Bureau of Labor Statistics to rank more than 200 metro areas. Cincinnati was the 32nd-highest ranked region for manufacturing jobs, ahead of peer cities like St. Louis. The region’s unemployment rate increased slightly during the past year, from 3.9% to 4.0%, which is above the current national unemployment rate of 3.8%. Market Overview Something finally had to give. After more than a year of extremely low vacancy levels combined with record-setting net absorption, direct net absorption in the Cincinnati market for Q1 2019 was only 201,000 square feet (sf). However, direct vacancy remained at a near-record low 2.8%, which is a 90-basis point (bps) decrease over the prior year. Outside of office service buildings, vacancy in all major product categories and submarkets was less than 4.5% in Q1 2019. New construction deliveries have been an ongoing source of growth and positive absorption in Greater Cincinnati. In Q1 2019, only four projects totaling 520,000 sf were delivered, including the 308,000-sf West Chester Trade Center 1 bulk distribution building in the Northwest submarket. TSC Apparel moved into 196,000 sf at West Chester Trade Center 1 in Q1 2019, absorbing more than 60% of the building. As in much of 2018, the pipeline of buildings under construction was robust, with nearly 8.0 million square feet (msf) underway in Q1 2019. Along with build-to-suit projects, more than 5.0 msf under construction was in speculative bulk distribution buildings. Most of these speculative buildings will be completed by mid- 2019, and as of Q1, have not been pre-leased. At 7.0 msf, 2018 witnessed the largest amount of positive net absorption in the Cincinnati market since 2005. In the first quarter of 2018 alone, the market experienced more than 1.7 msf of net absorption. By comparison, net absorption in Q1 2019 was 201,000 sf. Unlike prior quarters, a number of new bulk distribution vacancies in excess of 100,000 sf neutralized the large new leases that commenced in Q1 2019. Even with a modest figure, the market has now registered 31 consecutive quarters of positive net absorption. The main drivers of positive absorption for the first quarter were major leases in recently-completed buildings. Shaw Industries and Hollar, Inc. both moved into the Union Centre Logistics Park 1 on Seward Road in Fairfield, OH, leasing 129,000 sf and 126,000 sf respectively. Built in 2017, the 476,000-sf Union Centre Logistics Park 1 was 86% occupied by the first quarter. Flink Ink and Wayfair both moved into 42,000-sf spaces at Jacquemin Logistics Center I in West Chester, OH, which pushed building occupancy to more than 75% in Q1 2019. CINCINNATI INDUSTRIAL Overall Vacancy Overall Net Absorption/Overall Asking Rent 4-QTR TRAILING AVERAGE Market Indicators (Overall, All Property Types) Q1 18 Q1 19 12 Month Forecast Overall Vacancy 3.7% 3.0% Net Absorption (sf) 1.7M -92k Under Construction (sf) 7.7M 7.9M Average Asking Rent* $4.34 $4.38 Economic Indicators Q1 18 Q1 19 12 Month Forecast Cincinnati Employment 1.10M 1.12M Cincinnati Unemployment 3.9% 4.0% U.S. Unemployment 4.1% 3.8% $3.20 $3.40 $3.60 $3.80 $4.00 $4.20 $4.40 -0.2 0.2 0.6 1.0 1.4 1.8 2.2 2011 2012 2013 2014 2015 2016 2017 2018 2019 Net Absorption, MSF Asking Rent, $ PSF 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 2011 2012 2013 2014 2015 2016 2017 2018 2019 Historical Average = 5.8% Numbers above are quarterly averages. January/February 2019 data used to represent Q1 2019 for Cincinnati. *Rental rates reflect net asking $psf/year
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cushmanwakefield.com I 1
CincinnatiIndustrial Q1 2019
MARKETBEAT
Economy Greater Cincinnati has been growing as a center for distribution and logistics. Additionally, the region was also named one of the best U.S. cities for manufacturing jobs by a Chicago-based marketing company called Digital Third Coast. The company studied Census data and employment information from the Bureau of Labor Statistics to rank more than 200 metro areas. Cincinnati was the 32nd-highest ranked region for manufacturing jobs, ahead of peer cities like St. Louis. The region’s unemployment rate increased slightly during the past year, from 3.9% to 4.0%, which is above the current national unemployment rate of 3.8%.
Market OverviewSomething finally had to give. After more than a year of extremely low vacancy levels combined with record-setting net absorption, direct net absorption in the Cincinnati market for Q1 2019 was only 201,000 square feet (sf). However, direct vacancy remained at a near-record low 2.8%, which is a 90-basis point (bps) decrease over the prior year. Outside of office service buildings, vacancy in all major product categories and submarkets was less than 4.5% in Q1 2019.
New construction deliveries have been an ongoing source of growth and positive absorption in Greater Cincinnati. In Q1 2019, only four projects totaling 520,000 sf were delivered, including the 308,000-sf West Chester Trade Center 1 bulk distribution building in the Northwest submarket. TSC Apparel moved into 196,000 sf at West Chester Trade Center 1 in Q1 2019, absorbing more than 60% of the building.
As in much of 2018, the pipeline of buildings under construction was robust, with nearly 8.0 million square feet (msf) underway in Q1 2019. Along with build-to-suit projects, more than 5.0 msf under construction was in speculative bulk distribution buildings. Most of these speculative buildings will be completed by mid-2019, and as of Q1, have not been pre-leased.
At 7.0 msf, 2018 witnessed the largest amount of positive net absorption in the Cincinnati market since 2005. In the first quarter of 2018 alone, the market experienced more than 1.7 msf of net absorption. By comparison, net absorption in Q1 2019 was 201,000 sf. Unlike prior quarters, a number of new bulk distribution vacancies in excess of 100,000 sf neutralized the large new leases that commenced in Q1 2019. Even with a modest figure, the market has now registered 31 consecutive quarters of positive net absorption.
The main drivers of positive absorption for the first quarter were major leases in recently-completed buildings. Shaw Industries and Hollar, Inc. both moved into the Union Centre Logistics Park 1 on Seward Road in Fairfield, OH, leasing 129,000 sf and 126,000 sf respectively. Built in 2017, the 476,000-sf Union Centre Logistics Park 1 was 86% occupied by the first quarter.
Flink Ink and Wayfair both moved into 42,000-sf spaces at Jacquemin Logistics Center I in West Chester, OH, which pushed building occupancy to more than 75% in Q1 2019.
CINCINNATI INDUSTRIAL
Overall Vacancy
Overall Net Absorption/Overall Asking Rent 4-QTR TRAILING AVERAGE
Net Absorption, MSF Asking Rent, $ PSFOverall Vacancy
2
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
2011 2012 2013 2014 2015 2016 2017 2018 2019
Historical Average = 5.8%
Numbers above are quarterly averages. January/February 2019 data used to represent Q1 2019 for Cincinnati.
*Rental rates reflect net asking $psf/year
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CincinnatiIndustrial Q1 2019
MARKETBEAT
Two identical 182,000-sf Jacquemin Logistics Center buildings were delivered in Q1 2018, and Building II was fully occupied by Q3 2018.
In Florence, KY, the 218,000-sf Florence Logistics Center was fully-occupied in Q1 after Trac Intermodal moved into 102,000 sf. Nearby in Hebron, KY, E-commerce firm iHerb expanded by 176,000 sf to occupy the entire 387,000-sf Park West International N2 building on Worldwide Boulevard. At the recently-completed Airpark International #26 bulk distribution building in Hebron, KY, Atlas Air moved into 58,000 sf.
Home building products manufacturer Pivotek leased the entire 123,000-sf building at 910 Lila Avenue in Milford, OH, after the facility had been vacant for 18 months. Milford is part of the Central submarket, which had only a 3.0% vacancy rate in Q1 2019.
Other notable leases of the quarter included Class-A bulk renewals near the CVG airport in Northern Kentucky. Veritiv renewed the entire 483,000-sf Prologis Park 275 #1 building, while UPS renewed 300,000 sf at Park West International V on Worldwide Boulevard. Further north in Harrison, OH, Scott Fetzer Co. renewed its lease of the entire 309,000-sf manufacturing facility at 100 Production Drive.
Bulk distribution asking lease rates passed the $4.00 threshold in 2018 and the $4.12 per square foot (psf) NNN rate in Q1 2019 was more than a 4.0% increase on a year-over-year basis. The average asking rate across product categories was $4.40 psf, which was slightly higher than the prior year.
Five transactions in excess of $9.5 million each took place among investors during an active first quarter. As part of a multi-market portfolio sale, Boston-based ILPT REIT bought two buildings in Northern Kentucky. ILPT acquired the 604,000-sf Park South at Richwood - G complex for $38.6 million ($64 psf) and 1985 International Way (189,000 sf) in Hebron, KY, for $11.5 million ($61 psf). In West Chester, OH, Exeter Property Group acquired the 245,000-sf bulk distribution building at 4700 Muhlhauser Road for $16.0 million ($65 psf). STAG Industrial purchased the 176,000-sf Florence Commerce Center in Kentucky for $9.9 million ($56 psf).
Outlook• While not yet finished, the delivery of new speculative
product in mid-2019 will significantly increase vacancy in the Greater Cincinnati market.
• With newly delivered product, tenants will have more options of available bulk distribution buildings. However, average asking bulk lease rates will remain well over $4.00 psf.
• Considering Q1 as an early indicator, 2019 net absorption may only be half of the record-setting 7.0 msf of absorption seen in 2018.
Q1 2019 DELIVERIES AND CURRENT CONSTRUCTION Of 8.0 msf in the construction pipeline, more than 7.0 msf is bulk distribution product.
FIRST QUARTER NET ABSORPTION While historically robust, Q1 2019 net absorption was comparatively low.
NET ABSORPTION - DELIVERIES - VACANCY 2019 started with low vacancy combined with modest net absorption and deliveries.
Q1 2019 DELIVERIES AND CURRENT CONSTRUCTION
0.00.51.01.52.02.53.03.54.04.55.05.56.0
Bulk Distribution:SPEC
Bulk Distribution:BTS
Manufacturing Light Industrial Office Warehouse
Delivered In 2019 Currently Under Construction
1.67 MSF Total
0.74 MSF Total 0.60 MSF Total
0.00 MSF Total
Of nearly 8.0 MSF in the construction pipeline, more than 7.0 MSF is bulk distribution product.
MSF
5.41 MSF Total
2019 started with low vacancy combined with modest net absorption and deliveries.
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
-6.0-4.0-2.00.02.04.06.08.0
FY'10
FY'11
FY'12
FY'13
FY'14
FY'15
FY'16
FY'17
FY'18
Q1'19
Vaca
ncy
Rat
e
MSF
Direct Net Absorption Deliveries Direct Vacancy Rate
NET ABSORPTION - DELIVERIES - VACANCY
0.2
-1.0
0.2
1.21.6
2.5
0.8
4.3
1.7
0.2
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Q12010
Q12011
Q12012
Q12013
Q12014
Q12015
Q12016
Q12017
Q12018
Q12019
FIRST QUARTER DIRECT NET ABSORPTIONWhile historically robust, Q1 2019 net absorption was comparatively low.
TOTAL INDUSTRIAL 287,777,070 7,953,269 2.8% 200,646 200,646 7,901,155 $4.40
*Rental rates reflect net asking $psf/year
CincinnatiIndustrial Q1 2019
MARKETBEAT
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