North American Industrial Highlights 4Q-12

Q4 2012 | INDUSTRIAL

NORTH AMERICA

HIGHLIGHTS

Industrial Measures are in
a Near-Perfect V Formation.
K.C. CONWAY EMD | Market Analytics

Key Takeaways
MARKET INDICATORS
Relative to prior period • Q4 was the best quarter for industrial warehouse property transactions since Q3 2007.
Industrial warehouse property transactions were up 4% in 2012 to $36.9 billion. Approximately
37% of these transactions ($13.5 billion) occurred in Q4 2012
US US Canada Canada
Q4 Q1 Q4 Q1 • 2012 net absorption in Colliers’ 75 primary North American industrial markets surpassed 160
2012 2013* 2012 2013* million square feet. 70.9 MSF were absorbed in Q4, or 40% of the 2012 total. Approximately
VACANCY 90% of Q4 leasing activity occurred in the U.S.
• 30% of Q4 North American net absorption occurred in just five MSAs: Toronto (4.95 MSF),
NET ABSORPTION     Detroit (4.7 MSF), Los Angeles – Inland Empire (4.4 MSF), Dallas/Ft. Worth (3.2 MSF), and
CONSTRUCTION Memphis (2.9 MSF). All five markets are home to the nation’s busiest intermodal rail operations,
with the exception of Chicago.
RENTAL RATE**
• The North American industrial vacancy rate dropped 30 basis points in Q4 to end 2012
*Projected, relative to prior period below 9.0%. The North American vacancy rate ended 2012 at 8.42%, and the U.S. vacancy
**Warehouse rents
rate at 8.92%.
• Ten major North American markets have vacancy rates at or below 6.5 percent. Montreal (4.3%)
and Calgary (5.0%) in Canada; Orange County, CA (4.9%), Omaha (5.1%), Houston (5.2%),
N.A. INDUSTRIAL MARKET Indianapolis (5.3%), Long Island, NY (5.6%), Seattle (5.8%), Los Angeles – Inland Empire (6.5%)
SUMMARY STATISTICS, Q4 2012 and Milwaukee (6.5%) in the U.S.

NORTH AMERICAN INDUSTRIAL VACANCY, INVENTORY AND ABSORPTION | Q4 2012
US CAN NA

VACANCY RATE 8.92 4.25 8.42

Change from Q3 2012 (%) -0.31 -0.24 -0.30

ABSORPTION (MSF) 64.0 6.9 70.9

NEW CONSTRUCTION (MSF) 24.0 3.7 27.7

UNDER CONSTRUCTION (MSF) 56.0 14.1 70.1 Absorption Per Market (SF)
q3 '12 - q4 '12

3,000,000

ASKING RENTS 1,500,000

US CAN 300,000
PER SF (USD/CAD) -300,000

-1,500,000

Average Warehouse/ -3,000,000
4.82 7.55
Distribution Center
Sq. Ft. By Region
Change from Q3 2012 (%) 1.07 0.66 4 billion
4.00000000
2 billion
2.00000000
400 mil
4.00000000

Occupied SF Sq. Ft.
Occupied
Vacant SF Sq. Ft.
Vacant

WWW.COLLIERS.COM

HIGHLIGHTS | Q4 2012 | INDUSTRIAL | NORTH AMERICA

• Post-Panamax readiness progresses on the East Coast: Baltimore
joined Norfolk, VA, as the only other post-Panamax port on the East Coast
in 2012. New York is progressing with project to raise the Bayonne
Bridge 60 feet. Miami has ordered new post-Panamax cranes. Charleston
is on track as well.

Geese migrating in their iconic “V formation” use significantly less energy than
flying solo

Port of Baltimore has deployed new PPMX cranes WHAT DO NATURE AND PHYSICS TELL US ABOUT
Photo: dol.gov THE “V FORMATION,” AND HOW DOES IT APPLY TO
INDUSTRIAL REAL ESTATE?
Geese are iconic North American birds, most often seen migrating in
a signature V formation. This is no accident: the formation is more
aerodynamically efficient, reducing the energy the geese expend in flight
by as much as 50 percent. This is analogous to what’s happening in North
American industrial real estate with the growth in e-commerce and the
expansion of the Panama Canal lock system. Just as Mother Nature
aided geese in configuring their flight, so too is “Mother Intermodal”
guiding distributors, producers, retailers and suppliers to re-engineer their
supply chains.

The driving force behind demand for industrial real estate as we approach
the first post-Panamax decade (2015–2025) is efficiency: reduced cost,
handling, and time. Several factors are forcing rapid evolution, eliminating
the traditional choke points and “drag” in the system. Container ships
two or three times the size of those in service today will soon make regular
calls on North American ports, and not just on the West Coast. New
hours-worked rules for over-the-road truck freight carriers will shift
freight to intermodal and rail. Increasing demand for same-day delivery of
goods purchased online will force more collaboration between air cargo
Existing Bayonne Bridge to be raised 60 feet by 2015 and ocean container distribution in both port and air cargo markets, such
Photo: Ines Hegedus-Garcia as Memphis (FedEx) and Louisville (UPS).

• Four of the top 5 U.S. cities for in investment were port cities, The effects of this natural streamlining process are already visible.
according to AFIRE (the Association for Foreign Investment in Real This report examines key Q4 2012 metrics pertaining to absorption,
Estate): New York, San Francisco, Houston and Boston. Houston was vacancy, rail carload volume and intermodal traffic, which define the new
also in the top five globally for the first time. V formation driving the future demand for North American industrial real
• Recovery in housing is an overlooked industrial demand driver that will estate, and provide the real definition of INTERMODAL: Industrial Now
gain additional traction in 2013. Turns Especially to Rail to Move Ocean Distribution Across Land.

P. 2 | COLLIERS INTERNATIONAL


INDUSTRIAL OUTLOOK 2013 Right now, manufacturers and retailers are intensely focused on developing
2H 2012 North American outlook reports focused on mixed economic the most efficient path for goods and materials moving around the
signals and post-Panamax readiness of U.S. ports to understand why globe, traversing both ocean and land. This requires the integration of
industrial real estate has continued to perform well. With the benefit sophisticated logistics to reduce transportation, warehousing and handling
of hindsight, it’s increasingly clear that the fiscal headwinds and costs, as well as reducing time to deliver finished goods to consumers. The
unemployment riptides are not powerful enough to capsize continued logistics technology driving these efficiencies, along with rising energy costs
industrial performance in 2013. and expanding trade routes made possible by the Panama Canal expansion,
are changing where industrial real estate is most in demand.
The driving force behind industrial development, leasing and transaction
activity remains enhanced efficiencies: more movement of raw materials For these reasons, traditional industrial economic indicators such as
and processed goods, more global trade with emerging markets in Latin GDP, the Institute for Supply Management’s Purchasing Managers Index
America, more e-commerce, and more domestic manufacturing. And (PMI), and Federal Reserve District Bank manufacturing surveys, all fail
more must be achieved with less: less time to move goods, less energy to explain the boom in industrial real estate. This quarter’s analysis of
consumption and less labor-intensive handling of goods and materials at industrial leasing, transaction and development activity highlights five
ports. These changes have resulted in ongoing port labor strife, which will emerging trends related to this observation, which will become more
continue as the implementation of these efficiencies results in job losses pronounced as we approach the first post-Panamax decade (2015–2025).
at ports and along the supply chain. Unlike the industrial boom periods in These five trends will explain why the V formation for industrial real estate
the 20th century that resulted in the construction of factories employing development and investment in 2013 is pointed toward port markets,
thousands of laborers, the modern manufacturing returning to the U.S. inland distribution markets with dominant intermodal facilities (e.g.,
today is highly technical and automated, requiring a leaner and more Atlanta, Memphis, Dallas, Denver, Los Angeles and Philadelphia), and a
educated workforce with skills in engineering, IT and robotics. handful of dominant air cargo markets, such as Memphis and Louisville.

OF THE LEASES SIGNED THIS QUARTER*, DID MOST TENANTS...? 3-MONTH FORECAST FOR VACANCY LEVELS (relative to current quarter)

Contract Hold Steady Expand Up Same Down

100% 3.2% 100% 5.0%
8.3% 4.8% 5.3% 11.8% 8.3% 9.1% 9.0%
90% 16.7% 90% 22.2%
80% 80% 33.3%
17.6% 30.0% 23.6% 26.9%
42.9% 38.1% 11.1%
70% 46.0% 45.3% 70% 41.7%
66.7%
60% 41.7% 60%
50.0%
50% 50%
40% 40%
66.7% 66.7% 70.6% 65.0% 67.3% 64.2%
30% 30%
52.4% 50.0%
20% 38.1% 41.7% 38.1% 38.7% 20%
33.3%
10% 16.7% 10%
0% 0%
Midwest Northeast South West Canada U.S. N.A. Midwest Northeast South West Canada U.S. N.A.

*Excluding renewals

CHARACTERIZE CURRENT INDUSTRIAL RENTS IN YOUR MARKET 3-MONTH FORECAST FOR RENTS (relative to current quarter)

Up Same Down
Declining Bottoming No Clear Direction Increasing Peaking 100%
90% 16.7%
80% 33.3% 33.3%
N.A. 3 45.5% 40.3%
1.5% 19.7% 27.3% 48.5% 3.0% 47.1%
70% 55.0%
60%
Canada 9.1% 36.4% 27.3% 18.2% 50%
75.0%
40%
30% 66.7% 66.7% 58.2%
52.9% 54.5%
U.S. 21.8% 25.5% 52.7% 20% 45.0%
10% 8.3%
0% 20% 40% 60% 80% 100% 0% 1.5%
Midwest Northeast South West Canada U.S. N.A.

COLLIERS INTERNATIONAL | P. 3


Differentiating trends are:
• Port markets will distinguish themselves if they...
MEMPHIS NOW #1 IN AIR GLOBAL CARGO
• …are post-Panamax ready;
According to Airports Council International,
• …occupy a commodity or product niche, such as coal Memphis in February overtook Hong Kong and
(Norfolk, VA), grain (Seattle), autos (Baltimore and Shanghai to top the list of Asian, European and
Jacksonville), poultry or pharmacy (Savannah); or North American air cargo markets, as measured by metric tons
of air cargo handled annually. With its BNSF intermodal facility,
• …are aligned with the national intermodal rail system; that
Colliers recognizes Memphis as the top North American market
is, physically connected to one of the seven Class-1 North for e-commerce.
American railroads. Tampa, Jacksonville, Charleston,
Savannah, Philadelphia, Mobile, and New Orleans are
examples along the East and Gulf coasts.
• Intermodal and logistics differentiate top-tier inland distribution
MSAs (e.g., Atlanta, Memphis, Louisville, Columbus, Indianapolis, BEHIND THE STATISTICS & BEYOND THE BASICS
Dallas, Kansas City and Denver) from those that will be ancillary to the Colliers monitors industrial property conditions in 75 North American
national supply chain (e.g., Orlando, Birmingham, Charlotte, Las Vegas markets from Miami to Montreal, totaling 16.1 billion square feet of
and California’s Central Valley). inventory. Approximately 90 percent (14.4 billion square feet) of this
• Inland waterways are diminishing in importance as a means of inventory is located in the United States.
moving bulk cargo, due to the inefficiency and unreliability of this
mode of transportation owing to unpredictable drought or flood. The West and Midwest regions constitute approximately half of the North
• Changes to environmental and labor regulations are driving cargo American industrial warehouse space (8.0 billion square feet), and also
away from trucking and toward rail. accounted for approximately half of the annual net leasing activity in
• Air cargo facilities are vital to e-commerce. In 3–5 years, there will North America. The South is the next largest region, with 4.2 billion
be at most a half-dozen dominant U.S. air cargo markets. Candidates square feet of industrial warehouse space, or 26 percent of the North
include Memphis, Louisville, Columbus, Miami, New York, Los American inventory. The expansion of the Panama Canal, and the addition
Angeles, Seattle and Denver. Because of the costs involved, air cargo of at least five more Panamax-ready ports to the East and Gulf coasts,
in the U.S. will follow the same hub-and-spoke model adopted by will only enhance the market share of key inland and port distribution
passenger air carriers to maximize traffic. markets in the Southeast and Southwest by 2015.

NORTH AMERICAN INDUSTRIAL OVERVIEW | Q4 2012

MEASURE NORTH AMERICA CANADA UNITED STATES WEST/MIDWEST SOUTH NORTHEAST

# of Markets 75 12 63 33 21 9

Inventory (MSF) 16,121.4 1,720.4 14,401.0 8,018.6 4,159.8 2,222.6

% of N.A. Inventory 100.0 10.7 89.3 49.7 25.8 13.8

New Supply (MSF) 27.7 3.7 24.0 11.6 10.5 2.0

% of N.A. New Supply 100.0 13.2 86.8 41.7 37.8 7.3

Vacancy (%) 8.42 4.25 8.92 8.37 9.57 9.67

Absorption (MSF) 70.9 6.9 64.0 36.1 21.9 6.0

% of N.A. Absorption 100.0 9.7 90.3 50.9 30.9 8.5

Leadership Markets Toronto—tops in Detroit, Los Angeles, Los Angeles, San Diego, Atlanta, Charlotte, Philadelphia, New
absorption; and then Dallas, Memphis, Bakersfield, Denver, Dallas, Houston, Jersey – Central and
Montreal and Calgary Philadelphia, Phoenix, Seattle, Greenville SC, Louis- Washington, DC with
(lowest vacancy rates) Louisville and Atlanta Chicago, Columbus, ville, Memphis, Nashville >1.0 MSF net
in absorption; and then Detroit and Indianapolis and absorption in Q4
Southern California and with >1.0 MSF of net Richmond with
Los Angeles, Houston, absorption Q42012 1.0 MSF net absorption
Indianapolis and in Q42012
Seattle with respect to
lowest vacancy

Laggard Markets Halifax and NE (Hartford, Boston, Central Valley of Birmingham, Savannah, Hartford, Boston
Waterloo with and Long Island). California and Omaha Orlando, and Little Rock and Long Island with
vacancy rates >6.5% Central Valley of with <250k SF net with <250k SF in net negative absorption in
California (Fresno, absorption in Q4 2012 absorption in Q4 2012 Q4 0212
Stockton and
secondary SE markets
inland from ports and
lacking intermodal
facilities (Birmingham
and Orlando)



TOP 20 NORTH AMERICAN INDUSTRIAL MARKETS | VACANCY
2012 finished with progress on all fronts.
• North American and U.S. industrial vacancy rates below
9.0 percent (8.42% and 8.92%, respectively) Q4
VACANCY MARKET
MSA VACANCY
• Q4 was the best quarter since Q3 2007 and the financial crisis, RANKING PROFILE
RATE (%)
with $36.9 billion in transactions, making investor demand for
industrial real estate second only to multifamily 3rd largest
• Lease activity surged at year-end, with 45% of 2012’s 1 Vancouver 3.67 Canadian

CANADA
163.5 MSF of net absorption coming in Q4 industrial market

• Addition of another post-Panamax port (Baltimore) and another Largest Canadian
2 Toronto 4.13
industrial market
major intermodal facility (Philadelphia)
Following four consecutive quarters of improving demand metrics with 2nd largest
3 Montreal 4.34 Canadian
limited new supply, the overall picture is of a property type in balance.
industrial market
As a result, new construction is both warranted and feasible. 4th largest
4 Calgary 5.05 Canadian
industrial market
U.S. INDUSTRIAL MARKET | Q4 2010–Q4 2012 Top-20 North
5 Honolulu 3.75

UNITED STATES
American port
Busiest North
70.0 14.0 6 Los Angeles 4.21 American TEU
60.0 10.80 10.56 12.0 container port
10.29 10.01 9.77 9.68 9.43
50.0 8.92 10.0
8.42 7 Orange County 4.90 -
Vacancy %

40.0 8.0

30.0 6.0 Busiest
8 Houston 5.15
Gulf Coast port
20.0 4.0
Developing
10.0 2.0
9 Indianapolis 5.26 Canadian
- - Intermodal link
Q4 Q1 2011 Q2 Q3 Q4 Q1 2012 Q2 Q3 Q4
Port of New York
Absorption MSF Completions MSF Vacancy % 10 Long Island 5.59
influence

Top-20 North
11 Seattle 5.82
American port
Vacancy Top-5 North
From a regional perspective, Canada has the lowest average vacancy rate 12 LA – Inland Empire 6.45 American
intermodal facility
in North America at 4.25 percent; the Northeast U.S. has the highest, at
9.67 percent. The West and Midwest are the only two U.S. regions with Key Great Lakes
13 Milwaukee 6.51
region port
vacancy rates below 9.0 percent—7.88 percent and 8.79 percent,
respectively. Top-20 North
14 Miami 6.57 American port to
Latin America
Top-10 North
US CAN NA 15 Kansas City 6.72 American
intermodal facility
Vacancy Rate 8.92% 4.25% 8.42% Top-20 North
16 Portland 7.18 American port;
Change from Q3 2012 -0.31% -0.24% -0.30% autos & agriculture
Proximity to Great
17 Grand Rapids 7.29
Lakes ports & rail
Drilling deeper into the five North American office regions, vacancy
Cruise ship port
improved the most in the primary port and inland distribution markets 18 West Palm Beach 7.29
influence
with large intermodal facilities. In Canada, among the three large industrial
markets (at least 100 MSF of inventory), the vacancy rates are lowest in Top-10 intermodal
19 Denver 7.45
& air cargo
Vancouver (3.67%), Toronto (4.13%) and Montreal (4.34%). There are 15
U.S. markets with a vacancy rate below 7.5 percent, approximately 100 North American 7.50
basis points below the North American average. It is important to note that Average
13 of the 15 U.S. markets with the lowest industrial vacancy rates
Intermodal and rail
are top-20 North American port or top-10 inland distribution markets with 20 Minneapolis 8.12
linkage to Canada
major intermodal rail.



Absorption
The final tally on 2012 net industrial absorption was not in the cards Looking forward to 2013, the only brake on industrial leasing activity in key
at mid-2012, when it appeared that retailers and manufacturers were port and intermodal markets will be the delayed delivery of new space
pulling back from warehouse leasing activity and capital expenditures under construction: Los Angeles, Houston, Seattle and Memphis can’t
for supply-chain makeover. However, despite the market’s anxiety over complete new space fast enough to keep pace with demand. Market forces
the November 2012 election and the Fiscal Cliff, net industrial absorption will see disproportionately higher 2H 2013 net leasing activity than
had its best performance in 2012 since the 2008–2009 financial 1H 2013, as was the case in 2012.
crisis, and Q4 net absorption accounted for 45 percent of aggregate 2012
net leasing activity. Construction Activity
There is no change from the prior North American Outlook report.
Which markets outperformed and why? As was revealed by the year-end Bottom line: there remains a dearth of new speculative warehouse
vacancy statistics, there is another strong correlation to port and development. Construction activity is still subdued, and predominantly
intermodal markets with two wrinkles: Detroit (influenced by the auto driven by owner-users expanding e-commerce capabilities by redeveloping
recovery), and Phoenix (influenced by the housing recovery). The fiscal their supply chain. National retailers such as Amazon, Family Dollar,
headwinds and unemployment riptides are not powerful enough to FedEx, Home Depot, Lowes, Publix, Target, Tractor Supply and Whole
capsize continued industrial performance because development and Foods are constructing in excess of 9.0 MSF of modern distribution and
leasing activity is fueled by distributors, manufacturers, retailers and logistics centers from coast to coast. These new centers account for
shippers who need to re-engineer their supply chain to gain efficiencies approximately 30 percent of the 32 MSF of new warehouse construction
required in the post-Panamax era, just two years away. Eight of the top under way at year-end 2012. Another 30 percent of this total is for
ten U.S. markets for both Q4 and CY 2012 absorption were top-ten modern parts and distribution centers for manufacturers, such as Boeing,
North American port or intermodal industrial markets. Volkswagen and Whirlpool.

TOP 10 U.S. INDUSTRIAL MARKETS | ABSORPTION ABSORPTION (SF) | SELECT U.S. MARKETS | Q4 2012

Millions
MSA Q4 2012 (MSF) MSA CY 2012 (MSF)
0.0 2.0 4.0 6.0 8.0

Chicago, IL
Chicago 13.438
1 7.006 Chicago Detroit, MI
(Intermodal) (Intermodal)
Los Angeles - Inland Empire, CA
Detroit Dallas-Ft. Worth, TX
Dallas/ 9.728
2 (Auto + 4.685 Los Angeles, CA
Ft. Worth (Intermodal)
Housing) Atlanta, GA
Los Angeles– Indianapolis, IN
9.169
3 Inland Empire 4.405 Detroit
(Auto-recovery) New Jersey - Central
(Intermodal)
New Jersey - Northern
Dallas/
Los Angeles– 8.470 Savannah, GA
4 Ft. Worth 3.223
Inland Empire (Intermodal)
(Intermodal)

Memphis Los Angeles– 8.375
5 2.905
(Intermodal) Coastal (Port)
ABSORPTION (SF) | CANADIAN MARKETS | Q4 2012
Philadelphia
7,400
6 (Port + 2.900 Atlanta Millions
(Intermodal)
Intermodal) -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5

Phoenix 6.245 Toronto, ON
7 2.519 Houston Vancouver, BC
(Housing) (Port)
Edmonton, AB
Regina, SK
Los Angeles 5.137 Saskatoon, SK
8 2.235 Phoenix Ottawa, ON
(Port) (Housing Recovery)
Waterloo Region, ON
Victoria, BC
Louisville 4.916 Montréal, QC
9 2.227 Columbus
(Air Cargo) (Air Cargo) Calgary, AB
Halifax, NS
Winnipeg, MB
Richmond 3.916
10 2.223 Seattle
(Port) (Port)



The 5 states with the most warehouse construction under way, along with
their largest distribution or logistics project: BURGEONING OPPORTUNITY IN
DISTRIBUTION FOR HEALTHCARE
United Parcel Service (UPS) has jumped out as
TOTAL NEW a leader in developing a healthcare distribution
LARGEST DISTRIBUTION/
STATE CONSTRUCTION network. Approximately 6.0 MSF of distribution space is
LOGISTICS PROJECT U/C
UNDERWAY (MSF)
dedicated to healthcare distribution in the U.S., Canada and
Europe, and UPS is adding 800,000 SF more in 2013—the
1 Georgia 3.4 1.4 MSF by Lowes largest portion in Atlanta. In the U.S., UPS is focused on
growing this distribution niche in Atlanta, Louisville, Mira Loma,
2 Tennessee 1.8 1.0 MSF by Amazon CA and Reno. In light of the aging U.S. population and a rapidly
growing healthcare industry, healthcare distribution is certainly
800k SF by Rubbermaid ; a niche to monitor. However, its higher regulatory scrutiny and
3 Ohio 1.7 unique design requirements (such as temperature-controlled
400k by Target
facilities) are steep barriers to entry for those lacking capital
4/5 California 1.5 300,000 SF by Chino and knowledge of the healthcare industry.

4/5 Arizona 1.5 600,000 SF by Estrela Logistics

However, rising construction costs are a concern that spans all commercial
Capital for new construction is scarce, as banks remain on the sidelines property types. It may surprise many to learn that construction costs
unless the warehouse project is a build-to-suit for owner occupancy or is never actually declined during the 2008–2009 financial crisis and the
pre-leased to ensure break-even debt service. The risk of overbuilding is ensuing recession. As documented by ENR Construction, costs have risen
low, given the scarcity of debt capital for speculative construction and the 17% since the end of 2007, and are up over 5.0 percent since February
limited degree of speculative warehouse construction under way at 2011. Investors and developers considering new construction investments
year-end 2012 (less than 10 MSF), so prospects for further improvement should budget construction cost increases at double the CPI for 2013 and
in both vacancy and rental rates remain favorable for 2013. 2014, due to pressures on labor and materials.

ENGINEERING NEWS-RECORD’S CONSTRUCTION COST INDEX

YEAR JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC AVG

2013 9437 9453 NOTE: CONSTRUCTION COSTS NEVER DROPPED POST-2007 & ARE RISING AT A FASTER PACE.

2012 9176 9198 9268 9273 9290 9291 9324 9351 9341 9376 9398 9412 9308

2011 8938 8998 9011 9027 9035 9053 9080 9088 9116 9147 9173 9172 9070

2010 8660 8672 8671 8677 8761 8055 8844 8837 8836 8921 8951 8952 8799

2009 8549 8533 8534 8528 8574 8578 8566 8564 8586 8596 8592 8641 8570

2008 8090 8094 8109 8112 8141 8185 8293 8362 8557 8623 8602 8551 8310

2007 7880 7880 7856 7865 7942 7939 7959 8007 8050 8045 8092 8089 7966

2006 7660 7689 7692 7695 7691 7700 7721 7722 7763 7883 7911 7888 7751

2005 7297 7298 7309 7355 7398 7415 7422 7479 7540 7563 7630 7647 7446

2004 6825 6862 6957 7017 7065 7109 7126 7188 7298 7314 7312 7308 7115

2003 6581 6640 6627 6635 6642 6694 6695 6733 6741 6771 6794 6782 6694

2002 6462 6462 6502 6480 6512 6532 6605 6592 6589 6579 6578 6563 6538

2001 6281 6272 6279 6286 6288 6318 6404 6389 6391 6397 6410 6390 6343

2000 6130 6160 6202 6201 6233 6238 6225 6233 6224 6259 6266 6283 6221

INDEX METHODOLOGY: 200 hours of common labor at the 20-city average of common labor rates, plus 25 cwt of standard structural steel shapes at the mill price prior to 1996 and the fabricated
20-city price from 1996, plus 1.128 tons of portland cement at the 20-city price, plus 1,088 board-ft of 2x4 lumber at the 20-city price.



Transaction Activity CONCLUSION
Industrial warehouse property transactions were up 4 percent in 2012 Let’s return to the question posed at the beginning of this report:
to $36.9 billion, despite a dearth of portfolios and investment-grade
warehouses for sale. Approximately 37 percent of these transactions Q. What do nature and physics tell us about the V formation, and
(13.5 billion) occurred in Q4 2012, making it the most active quarter for how is it applicable to industrial real estate?
industrial warehouse transactions since Q3 2007. Cap rates continue to
A. It tells us that it is the most efficient pattern of movement that
compress, and prices were up 6 percent over 2011, according to Real
expends 50 percent less energy.
Capital Analytics Industrial Year in Review.

Capital Markets The North American industrial markets are re-engineering their supply
What is better than improving office property type fundamentals? For chains and distribution channels with a V formation in mind—and a goal
those that purchased any of the 4,000 industrial warehouse properties of achieving enhanced efficiencies in both costs and time. The growth
that traded in 2012, the answer is availability of capital. Domestic and in e-commerce and expansion of the Panama Canal lock system are
foreign sources are flush with capital ready to invest in tangible assets converging to force manufacturers, retailers, and suppliers to make
like real estate, that can offer 2.5 to 3.0 times the yield offered by the large CapEx investments in new facilities, particularly in markets aligned
U.S. government’s 10-year Treasury bond. And, the CMBS debt markets with post-Panamax ports, with intermodal facilities along one or more
are opening up again after four consecutive years of annual new issuance Class-1 railroads, and in proximity to the most efficient overnight air
below $50 billion. Underwriting terms and pricing spreads have also cargo airports.
compressed in favor of borrowers. Improving market conditions have

$@
enabled even properties with elevated vacancy rates to become
financeable again due to the low DSCR hurdle provided by sub-5.0
percent interest rates and 90 percent LTVs. Declining CMBS delinquency
rates have further aided new issuance interest, and have CMBS investors
enthusiastic about 2013 new issuance increasing 50 percent over
2012’s $50 billion level to 75 billion. If you have tenants, and can meet a
1.4 DSCR using a 4.5% loan coupon, the capital markets are once again
open to refinance your industrial building.

PERCENTAGE 30+ DAYS DELINQUENT BY PROPERTY TYPE

JAN ‘13 DEC ‘12 NOV ‘12 3 MON 6 MON 1 YEAR

INDUSTRIAL 11.32 11.24 11.48 11.53 11.72 12.14

LODGING 11.77 11.73 12.24 11.24 13.06 12.09
Industrial markets V formation
MULTIFAMILY 13.43 13.98 14.21 14.26 15.69 15.39

OFFICE 10.48 10.66 10.37 10.20 10.69 8.90
The driving force behind demand for industrial real estate as we approach
RETAIL 7.79 7.62 7.75 8.03 8.03 7.88 the first post-Panamax decade is increased efficiency, in order to offset
global competition and pressure of a global economic climate mired
Source: Trepp – January 2013 CMBS Delinquency Report in debt, and likely to see ongoing tepid GDP growth.



UNITED STATES | INDUSTRIAL SURVEY
INVENTORY NEW CURRENTLY UNDER
ABSORPTION VACANCY RATE VACANCY RATE
MARKET DEC. 31, 2012 CONSTRUCTION CONSTRUCTION
Q4 2012 (SF) SEPT. 30, 2012 (%) DEC. 31, 2012 (%)
(SF) Q4 2012 (SF) (SF)

NORTHEAST
Baltimore, MD 225,922,841 67,120 392,620 777,065 10.53 10.21
Boston, MA 154,079,047 128,874 1,109,585 (263,862) 17.14 17.38
Hartford, CT 97,321,923 224,061 - (273,114) 8.93 9.19
Long Island, NY 161,321,096 - - (385,086) 5.36 5.59
New Jersey – Central 353,576,306 287,800 1,027,000 1,032,423 9.39 9.17
New Jersey – Northern 374,424,353 - - 824,363 8.55 8.35
Philadelphia, PA 409,316,988 1,265,000 2,204,530 2,900,169 10.18 9.75
Pittsburgh, PA 168,333,439 - 146,313 191,368 8.32 8.21
Washington, DC 278,296,443 49,600 1,933,098 1,223,202 11.14 10.71
Northeast Total 2,222,592,436 2,022,455 6,813,146 6,026,528 9.87 9.67
SOUTH

Atlanta, GA 608,573,705 1,370,640 4,521,578 1,791,217 12.71 12.41
Birmingham, AL 110,692,974 - 150,000 136,337 9.57 9.39
Charleston, SC 32,042,029 200,000 768,000 338,899 10.86 10.36
Charlotte, NC 295,314,817 160,988 509,765 1,615,340 12.28 11.78
Columbia, SC 37,853,794 - - 58,608 8.90 8.78
Dallas-Ft. Worth, TX 717,071,304 1,693,118 1,279,743 3,223,281 9.72 9.48
Ft. Lauderdale-Broward, FL 123,353,931 - 381,969 (14,666) 8.34 8.35
Greenville/Spartanburg, SC 183,028,727 1,015,740 - 1,730,134 9.61 9.16
Houston, TX 482,535,159 949,497 2,554,598 1,440,472 5.26 5.15
Jacksonville, FL 121,961,127 41,808 - 512,271 10.47 10.08
Little Rock, AR 45,018,927 18,376 497,443 59,518 11.29 11.17
Louisville, KY 180,269,470 16,000 - 2,227,336 10.19 8.96
Memphis, TN 217,057,417 1,372,305 1,219,892 2,905,072 13.25 12.46
Miami, FL 220,661,704 53,000 1,008,421 858,752 6.94 6.57
Nashville, TN 88,921,700 1,300,000 - 1,369,010 9.03 8.82
Orlando, FL 145,229,723 87,814 - 136,471 10.25 10.21
Raleigh, NC 120,097,770 36,554 135,696 254,180 10.42 10.23
Richmond, VA 112,863,513 2,146,494 482,489 2,223,096 10.24 9.98
Savannah, GA 44,421,300 - 881,000 144,657 12.16 11.84
Tampa Bay, FL 212,832,724 - 35,519 734,755 9.70 9.36
West Palm Beach, FL 60,002,683 - 20,900 186,192 7.60 7.29
South Total 4,159,804,498 10,462,334 14,447,013 21,930,932 9.90 9.57



UNITED STATES | INDUSTRIAL SURVEY (continued)
INVENTORY NEW CURRENTLY UNDER
MARKET DEC. 31, 2012 CONSTRUCTION CONSTRUCTION
Q4 2012 (SF) SEPT. 30, 2012 (%) DEC. 31, 2012 (%)
(SF) Q4 2012 (SF) (SF)

MIDWEST
Chicago, IL 1,310,785,800 900,153 4,768,149 7,006,883 10.04 9.53
Cincinnati, OH 274,600,585 - 553,338 856,364 9.53 9.22
Cleveland, OH 477,772,867 153,492 22,538 738,868 9.18 9.05
Columbus, OH 211,821,516 448,665 924,103 1,455,132 9.11 8.76
Detroit, MI 556,741,643 1,640,405 - 4,685,051 12.03 11.45
Grand Rapids, MI 108,946,869 - 285,000 370,606 7.56 7.29
Indianapolis, IN 282,953,005 1,306,295 2,303,616 1,091,779 5.21 5.26
Kansas City, MO-KS 234,052,197 212,441 2,466,743 761,402 6.96 6.72
Milwaukee, WI 223,336,664 322,050 - 358,540 6.57 6.51
Minneapolis/St. Paul, MN 252,239,046 647,000 1,585,000 764,750 8.35 8.12
Omaha, NE 67,749,057 - 35,636 153,296 5.41 5.09
St. Louis, MO 260,993,881 - 209,050 487,411 8.61 8.42
Midwest Total 4,261,993,130 5,630,501 13,153,173 18,730,082 9.13 8.79
WEST
Bakersfield, CA 33,401,923 495,000 291,085 1,026,063 4.45 2.80
Boise, ID 35,010,541 169,680 210,000 643,826 10.92 9.51
Denver, CO 215,855,262 340,928 855,271 1,298,425 7.86 7.45
Fairfield, CA 46,831,953 - 48,133 514,997 12.40 11.30
Fresno, CA 48,600,000 - - 214,000 9.70 9.26
Honolulu, HI 39,179,616 - - 205,646 4.27 3.75
Las Vegas, NV 109,030,779 - 658,320 284,707 16.05 15.53
Los Angeles – Inland Empire, CA 386,235,800 1,759,500 8,741,800 4,405,800 6.89 6.45
Los Angeles, CA 882,677,700 848,500 1,608,600 2,235,500 4.35 4.21
Oakland, CA 141,540,855 - 517,575 99,250 8.46 8.23
Orange County, CA 200,123,900 - 183,200 (576,500) 4.60 4.90
Phoenix, AZ 272,634,685 2,008,075 4,683,704 2,519,378 13.09 12.81
Pleasanton/Walnut Creek, CA 33,187,680 - - 918,170 12.99 10.22
Portland, OR 200,393,745 - 2,170,447 186,166 7.27 7.18
Reno, NV 87,415,483 - - 399,516 11.43 10.97
Sacramento, CA 188,076,142 - 235,553 720,631 13.30 12.92
San Diego, CA 186,979,756 129,845 172,656 1,031,268 10.36 9.87
San Francisco Peninsula, CA 41,071,873 - - (242,772) 9.26 9.85
San Jose/Silicon Valley 251,868,566 99,800 111,100 (77,141) 10.69 10.73
Seattle/Puget Sound, WA 262,474,244 - 693,758 1,150,355 6.50 5.82
Stockton/San Joaquin County, CA 94,049,012 29,095 - 377,094 13.77 13.45
West Total 3,756,639,515 5,880,423 21,181,202 17,334,379 8.20 7.88
U.S. TOTAL 14,401,029,579 23,995,713 55,594,534 64,021,921 9.22 8.92



UNITED STATES | INDUSTRIAL SURVEY | SALES PRICE AND CAP RATE AS OF DECEMBER 2012

SALES PRICE CAP RATE VACANCY FORECAST ABSORPTION FORECAST RENT FORECAST
MARKET
(USD PSF) (%) (3 MONTHS) (3 MONTHS) (3 MONTHS)

NORTHEAST
Baltimore, MD 60.74 6.36 
Boston, MA 65.00 
Hartford, CT 38.00 8.50 
Long Island, NY 67.44 7.67 Close to zero
New Jersey – Central 59.00 6.30 
New Jersey – Northern 67.00 
Philadelphia, PA 58.95 7.84 
Pittsburgh, PA 50.00 7.75 
Washington, DC 151.43 6.52 
Northeast Total* 68.62 7.28
SOUTH

Atlanta, GA 38.06 7.90 
Birmingham, AL
Charleston, SC 46.00 7.50 
Charlotte, NC
Columbia, SC 
Dallas-Ft. Worth, TX 60.00 7.30 
Ft. Lauderdale-Broward, FL 51.00 4.16 
Greenville/Spartanburg, SC 
Houston, TX 63.00 7.90 
Jacksonville, FL 32.00 9.00 
Little Rock, AR 65.45 9.00 Close to zero
Louisville, KY
Memphis, TN 32.50 7.75 
Miami, FL 85.00 7.00 
Nashville, TN 35.00 10.32 
Orlando, FL 52.00 7.50 
Raleigh, NC
Richmond, VA Close to zero
Savannah, GA 36.00 8.50 Close to zero
Tampa Bay, FL 30.09 8.75 
West Palm Beach, FL 85.00 6.94 
South Total* 50.79 7.82

* Straight averages used.



UNITED STATES | INDUSTRIAL SURVEY | SALES PRICE AND CAP RATE AS OF DECEMBER 2012 (continued)

MARKET
(USD PSF) (%) (3 MONTHS) (3 MONTHS) (3 MONTHS)

MIDWEST
Chicago, IL 52.00 6.30 Close to zero
Cincinnati, OH
Cleveland, OH
Columbus, OH 25.61 8.75 
Detroit, MI 21.60 9.90 
Grand Rapids, MI 35.59 9.88 
Indianapolis, IN 40.00 6.75 
Kansas City, MO-KS 30.00 
Milwaukee, WI 50.00 9.00 
Minneapolis/St. Paul, MN 37.53 
Omaha, NE 
St. Louis, MO
Midwest Total* 36.54 8.43
WEST

Bakersfield, CA 38.00 10.00 
Boise, ID 102.00 9.60 
Denver, CO 60.00 8.20 
Fairfield, CA 82.31 7.40 
Fresno, CA 42.00 9.00 Close to zero
Honolulu, HI 219.00 8.00 
Las Vegas, NV Close to zero
Los Angeles – Inland Empire, CA 69.00 7.00 
Los Angeles, CA 91.00 7.00 Close to zero
Oakland, CA 90.00 6.50 
Orange County, CA 125.00 6.25 
Phoenix, AZ 48.00 8.00 
Pleasanton/Walnut Creek, CA 
Portland, OR 60.88 
Reno, NV
Sacramento, CA 45.39 
San Diego, CA 112.13 8.50 
San Francisco Peninsula, CA 250.00 7.00 Close to zero
San Jose/Silicon Valley 105.00 6.00 Close to zero
Seattle/Puget Sound, WA 
Stockton/San Joaquin County, CA 
West Total* 96.23 7.75
U.S. TOTAL* 67.25 7.79




UNITED STATES | INDUSTRIAL SURVEY | RENTS AS OF DECEMBER 2012
WAREHOUSE/DISTRIBUTION BULK FLEX/SERVICE TECH/R&D
MARKET SPACE SPACE SPACE SPACE
(USD PSF) (USD PSF) (USD PSF) (USD PSF)

NORTHEAST
Baltimore, MD 4.72 4.73 11.03
Boston, MA 5.83 5.58 6.39 11.29
Hartford, CT 3.98 3.50 6.50 6.50
Long Island, NY 9.07 9.13 16.08
New Jersey – Central 4.37 3.49 11.85 11.33
New Jersey – Northern 6.28 5.98 10.11 12.26
Philadelphia, PA 4.25 4.14 7.00 11.00
Pittsburgh, PA 4.47 4.10 11.42 11.42
Washington, DC 6.73 5.59 11.27 14.44
Northeast Total* 5.52 5.14 10.18 11.18
SOUTH

Atlanta, GA 3.17 2.83 7.41 10.41
Birmingham, AL 7.38 4.07 9.38
Charleston, SC 3.85 4.30 6.25 16.25
Charlotte, NC 3.34 3.54 8.70
Columbia, SC 4.00 4.00
Dallas-Ft. Worth, TX 3.15 2.70 6.90 8.40
Ft. Lauderdale-Broward, FL 6.14 5.84 9.37 7.95
Greenville/Spartanburg, SC 2.75 2.95 6.33
Houston, TX 5.36 4.36 7.08 8.07
Jacksonville, FL 3.72 3.10 8.93
Little Rock, AR 2.68 2.74 7.35
Louisville, KY 3.40 3.42 7.24 6.00
Memphis, TN 2.47 2.50 4.75 9.00
Miami, FL 7.73 7.16 9.73 12.00
Nashville, TN 2.95 8.38 8.52 7.50
Orlando, FL 4.40 4.22 8.45 8.60
Raleigh, NC 3.63 4.28 9.74
Richmond, VA 3.36 8.17
Savannah, GA 3.95 3.75 7.00 10.00
Tampa Bay, FL 4.52 3.86 7.44 5.35
West Palm Beach, FL 6.81 6.13 10.92 7.00
South Total* 4.23 4.21 7.98 8.96




UNITED STATES | INDUSTRIAL SURVEY | RENTS AS OF DECEMBER 2012 (continued)
WAREHOUSE/DISTRIBUTION BULK FLEX/SERVICE TECH/R&D
MARKET SPACE SPACE SPACE SPACE
(USD PSF) (USD PSF) (USD PSF) (USD PSF)

MIDWEST
Chicago, IL 3.71 2.67 7.45
Cincinnati, OH 3.53 2.88 6.13 6.13
Cleveland, OH 3.30 2.86 7.84
Columbus, OH 2.62 2.51 4.66 4.82
Detroit, MI 3.70 3.59 7.24 7.20
Grand Rapids, MI 3.15 3.09 4.37 4.37
Indianapolis, IN 3.67 3.24 8.02
Kansas City, MO-KS 4.20 3.48 8.90 7.32
Milwaukee, WI 4.68 3.89 5.71
Minneapolis/St. Paul, MN 6.47 6.19 7.26
Omaha, NE 4.62 3.46 5.84 4.16
St. Louis, MO 3.81 3.80 7.34
Midwest Total* 3.95 3.47 6.73 5.67
WEST

Bakersfield, CA 4.00 3.42 8.00
Boise, ID 5.04 4.80 6.96 6.00
Denver, CO 4.62 3.95 8.20 9.50
Fairfield, CA 5.50 5.52 7.78 8.84
Fresno, CA 3.36 3.12 4.80 5.50
Honolulu, HI 11.52
Las Vegas, NV 4.68 4.16 5.76 8.76
Los Angeles – Inland Empire, CA 4.20 3.96 6.99 8.05
Los Angeles, CA 6.21 5.94 9.80 12.75
Oakland, CA 4.56 4.44 6.00 9.00
Orange County, CA 6.96 6.12 12.60 13.50
Phoenix, AZ 5.16 4.21 10.29 10.74
Pleasanton/Walnut Creek, CA 4.99 4.26 10.23 11.12
Portland, OR 5.48 5.06 9.17 9.40
Reno, NV 3.66 3.12 8.60
Sacramento, CA 4.32 3.84 8.52 8.40
San Diego, CA 8.16 7.56 11.04 13.92
San Francisco Peninsula, CA 9.48 9.48 23.96 21.96
San Jose/Silicon Valley 6.24 5.90 9.36 15.60
Seattle/Puget Sound, WA 6.11 5.88 13.60
Stockton/San Joaquin County, CA 3.96 8.40
West Total* 5.63 4.99 9.56 10.67
U.S. TOTAL* 4.83 4.45 8.56 9.54




CANADA | INDUSTRIAL SURVEY
EXISTING NEW
CURRENTLY UNDER
MARKET INVENTORY CONSTRUCTION
CONSTRUCTION (SF)
DEC. 31, 2012 (SF) Q4 2012 (SF)

Calgary, AB 125,068,494 338,126 2,706,068
Edmonton, AB 79,221,653 192,632 1,449,743
Halifax, NS 7,604,256 7,625 135,000
Montréal, QC 347,995,640 225,053 312,060
Ottawa, ON 28,070,055 - 111,500
Regina, SK 16,897,836 144,000 150,000
Saskatoon, SK 20,840,000 120,000 550,000
Toronto, ON 762,813,784 1,300,000 5,621,750
Vancouver, BC 182,663,027 1,147,498 213,791
Victoria, BC 8,883,924 161,402 561,030
Waterloo Region, ON 60,658,893 - 98,454
Winnipeg, MB 79,692,082 35,000 245,435
CANADA TOTAL 1,720,409,644 3,671,336 12,154,831

CANADA | INDUSTRIAL SURVEY

MARKET
Q4 2012 (SF) SEPT. 30, 2012 (%) DEC. 31, 2012 (%)

Calgary, AB (106,694) 4.71 5.05
Edmonton, AB 507,583 3.75 3.35
Halifax, NS (115,054) 8.05 9.65
Montréal, QC (1,484) 4.28 4.34
Ottawa, ON 67,703 6.00 5.76
Regina, SK 190,000 2.91 3.51
Saskatoon, SK 90,000 4.83 4.94
Toronto, ON 4,958,865 4.71 4.13
Vancouver, BC 1,399,479 3.80 3.67
Victoria, BC - 4.15 4.15
Waterloo Region, ON 36,198 6.92 6.80
Winnipeg, MB (130,105) 2.77 2.97
CANADA TOTAL* 6,896,491 4.49% 4.25%




CANADA | INDUSTRIAL SURVEY | SALES PRICE AND CAP RATE AS OF DECEMBER 2012

MARKET
(CAD PSF) (%) (3 MONTHS) (3 MONTHS) (3 MONTHS)

Calgary, AB 155.00 7.00 
Edmonton, AB 133.35 6.66 
Halifax, NS 120.00 7.25 
Montréal, QC 68.00 7.25 
Ottawa, ON 110.00 7.50 
Regina, SK 130.00 7.40 
Saskatoon, SK 150.00 7.15 
Toronto, ON 82.00 6.50 
Vancouver, BC 180.00 5.70
Victoria, BC 170.00 7.00 Close to zero
Waterloo Region, ON 61.00 7.90 
Winnipeg, MB 71.25 8.25 Close to zero
CANADA TOTAL* 119.22 7.13

* Straight averages used

CANADA | INDUSTRIAL SURVEY | RENTS AS OF DECEMBER 2012

WAREHOUSE/DISTRIBUTION BULK SPACE FLEX/SERVICE SPACE TECH/R&D SPACE
MARKET
SPACE (CAD PSF) (CAD PSF) (CAD PSF) (CAD PSF)

Calgary, AB 8.50 7.25 12.00 12.00
Edmonton, AB 8.00 7.50 10.00 12.00
Halifax, NS 7.75 6.75 10.50 15.00
Montréal, QC 4.75 4.25 6.00 8.00
Ottawa, ON 8.25 7.50 8.50 11.00
Regina, SK 9.00 9.00 11.00 13.00
Saskatoon, SK 10.00 9.00 12.00 14.00
Toronto, ON 4.83
Vancouver, BC 7.60 6.80 9.65 14.00
Victoria, BC 12.00 10.00 13.50 13.50
Waterloo Region, ON 3.97 3.12 8.29 8.29
Winnipeg, MB 6.00 5.25 9.95 12.75
CANADA TOTAL* 7.55 6.95 10.13 12.14

* Straight averages used


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