CBRE : MACRO INDUSTRIAL FORECAST

CBRE: MACRO INDUSTR IAL FORECAST

June 2, 2020

2CBRE MACRO INDUSTRIAL FORECAST

SPEAKERS | JUNE 2, 2020

Jamie LaneSr. Research Director, Economics & Forecasting Intro

Matt MowellSr. Macro Economist Macro

Ibrahiim BayaanEconomist, CBRE Econometric Advisors Industrial

James BreezeGlobal Head of Industrial & Logistics Research Industrial

MACRO INDUSTR IAL FORECAST

M A T T M O W E L L

S R . E C O N O M I S T

June 2, 2020


CBRE’S CURRENT FORECAST SCENARIOS ON U.S. GDPUPSIDEA swift reopening of the economy and robust stimulus unleashes a wave of pent-up demand.

BASELINE• Gov’t stimulus will keep many firms

afloat. • Improved consumer sentiment will

support the recovery.

DOWNSIDE• The reopening of the economy is slow. • Pre-virus employment levels are not

regained before 2024.

SEVERE DOWNSIDEA prolonged recession causes a wave of bankruptcies that severely stress the financial system.

120

125

130

135

140

145

150

155

160

2019 2020 2021 2022 2023


KEY WAREHOUSE DEMAND DRIVERS

75

80

85

90

95

100

105

110

2017 2018 2019 2020 2021 2022 2023

Distribution employment (000s)

75

80

85

90

95

100

105

110

2017 2018 2019 2020 2021 2022 2023

Manufacturing employment (000s)

INDUSTR IAL FORECAST

I B R A H I I M B A Y A A N

E C O N O M I S T

June 2, 2020


INDUSTRIAL TRENDS PRE-COVID-19

DECADE OF SOLID PERFORMANCE

• Ten consecutive years of positive net absorption• Lowest availability in nearly two decades in Q4 2018• Rent growth Y/Y hit two-year high in Q1 2020

MODERATING OUTLOOK

• More completions than absorption over last five quarters• Availability rate gradually increasing• Moderating economic outlook, solid supply pipeline• Easing rent growth beyond 2020


CURRENT INDUSTRIAL OUTLOOK

SHORT TERM LONG TERM

Disrupted construction, absorption

Rising availability through 2020

Declining rents in Q2, Q3

Strong, rapid rebound in 2021

Boost from e-commerce, inventories

Stronger absorption, construction

Return to tight availability

Improved rent outlook


CURRENT FORECASTS INCORPORATE E-COMMERCE TRENDS

0%

4%

8%

12%

16%

20%

2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1 2017.1 2018.1 2019.1 2020.1 2021.1 2022.1 2023.1 2024.1 2025.1

E-Commerce Retail Sales | % of Total Retail & Food Services


INDUSTRIAL FORECAST – ABSORPTION

ABSORPTION (SF, THOUSANDS) 2020 2021 2022-2025 (AVERAGE)

Previous 128,233 169,384 131,764

Current -109,586 317,450 266,543

Change -237,819 148,066 134,779

-150000

-100000

-50000

0

50000

100000

150000

2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1 2017.1 2018.1 2019.1 2020.1 2021.1 2022.1 2023.1 2024.1 2025.1

Net Absorption | SF, thousands

Current forecast

4Q19 forecast


INDUSTRIAL FORECAST – AVAILABILITY

AVAILABILITY (% 4Q) 2020 2021 2022-2025 (AVERAGE)

Previous 8.0 8.7 9.9

Current 9.4 9.1 8.5

Change 1.4 0.4 -1.4

0

2

4

6

8

10

12

14

16

2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1 2017.1 2018.1 2019.1 2020.1 2021.1 2022.1 2023.1 2024.1 2025.1

4Q19 forecast

Current forecast

Availability %


INDUSTRIAL FORECAST – RENT

RENT (% 4Q/4Q) 2020 2021 2022-2025 (AVERAGE)

Previous 4.1 2.6 1.2

Current -1.5 4.2 4.4

Change -5.6 1.6 3.2

3.00

4.00

5.00

6.00

7.00

8.00

9.00

2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1 2017.1 2018.1 2019.1 2020.1 2021.1 2022.1 2023.1 2024.1 2025.1

4Q19 forecast

Current forecast

Rent S/SF


HISTORICAL COMPARISON

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

Quarters Since Rent Peak

Current forecast2000-2001 Recession

Great Financial Crisis

Rent recovery | index value (1 previous peak)


ALTERNATIVE SCENARIOS

BASELINE OUTLOOK HINGES ON RAPID RECOVERY

• Perceived quick rebound in business activity prevents a more severe reaction by industrial market• Alternative scenarios involve sluggish recovery after reopening economy, second wave of virus• Significant implications for industrial performance in upcoming years

LONG-TERM POSITIVES EXIST EVEN IN DOWNSIDE SCENARIOS

• Fundamentals of increased adoption of e-commerce, higher inventories will likely emerge even in more severe recessions

• This will eventually translate into strength in industrial• Scenarios affect severity of deterioration, timing of recovery


ALTERNATIVE SCENARIOS

3.00

4.00

5.00

6.00

7.00

8.00

9.00

2010.1 2011.1 2012.1 2013.1 2014.1 2015.1 2016.1 2017.1 2018.1 2019.1 2020.1 2021.1 2022.1 2023.1 2024.1 2025.1

Baseline Severe Downside Upside Downside

TIMELINE TO REGAIN 1Q 2020 RENT 2020

Baseline Q3 2021

Upside Q3 2021

Downside Q3 2022

Severe Downside Q2 2024

Rent


CONCLUDING THOUGHTS

SUMMARY

• Slumping economic environment and uncertainty over COVID-19 will curb near term industrial demand, leading to higher vacancy

• Longer term, the rebounding economy, shift toward e-commerce, and increased inventories will improve industrial real estate markets

TRENDS TO MONITOR

• Short term: construction delays, fiscal policy, post-reopening economic trend• Long term: inventory trends, stickiness of e-commerce adoption

SHORT AND LONG TERM INDUSTR IAL OUTLOOK

J A M E S B R E E Z E

G L O B A L H E A D O F I N D U S T R I A L & L O G I S T I C S R E S E A R C H

June 2, 2020


SHORT TERM EXPOSURE RANKINGSEXPOSURE INDUSTRY

Low National 3PLs

E-Commerce

Food & Beverage (Consumer)

Data Centers

Medical

Moderate General Manufacturing

Automotive

Regional 3PLs

Essential (Non-Food) Consumer Goods

Home Improvement and Construction

High Non-Essential Consumer Goods

Food & Beverage (Restaurant)

Hospitality / Travel / Entertainment

EXPOSURE LOCATION

Low Core and Urban Industrial

Moderate Emerging Logistics Hubs

High Secondary / Tertiary Suburban

EXPOSURE SIZE RANGE

Low 1 MSF +

500,000 SF – 999,999 SF

250,000 SF to 499,999 SF

Moderate 100,000 SF to 249,999 SF

50,000 SF to 99,999 SF

25,000 SF to 49,999 SF

High 10,000 SF to 24,999 SF

Under 10,000 SF


Initial Post COVID-19 Real Estate Data

Sublease Availabilities+ 12.7% in April

Number of Transactions Under 50,000 SF Down 37% (3/15 to 4/14 compared with 2/15 to 3/14)

Number of Transactions Over 100,000 SF Down 5% (3/15 to 4/14 compared with 2/15 to 3/14)

• Sublease availabilities were up 12.7% in April compared with the previous month.

• A majority of these availabilities are not vacant.

• Seaport markets including Los Angeles, Oakland, Seattle, Houston, Baltimore and Miami posted the largest increase in sublease avails.

• Inland port markets including Memphis, Kansas City, Salt Lake, and the I-4 Corridor posted the same or fewer sublease availabilities in April.

• Overall the number of transactions 30 days post-COVID-19 were down 28% compared with the previous 30 days.

• Transaction volume took the steepest drop in deals under 50,000 SF, down 37%.

• Original outlook stated that smaller buildings would be the most susceptible to a downturn because of the tenant makeup and initial data back that up.

• Transactions 100,000 SF and above were only 5% lower compared with the previous month despite shelter in place.

• Original outlook stated that larger buildings would weather the downturn and these initial transaction numbers back that up.


E-Commerce – $1 Bil of e-commerce sales = 1.25 MSF of industrial demand. 700 MSF of new product projected to be needed over next 5 years.

Safety Stock – 5% increase in business inventories requires 400 to 500 MSF of warehouse space.

Supply Chain Diversification – Will continue given the disruption. Companies exploring options for reshoring, but actual volume will play out in next 3-5 years.

LONG TERM OUTLOOK

Q&A

J A M I E L A N E

S R . D I R E C T O R | E C O N O M I C S A N D F O R E C A S T I N G

June 2, 2020

Documents

CBRE : MACRO INDUSTRIAL FORECAST