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7/30/2019 Whats Hot in Commercial Real Estate in 2013
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IN COMMERCIAL REAL ESTATEWHATS HOTSUMMER 2013
7/30/2019 Whats Hot in Commercial Real Estate in 2013
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WHATS HOT...in Commercial Real Estate
National Overview
GDP Growth and the Rise o the Millennials 3
High-quality, New Ofce Space, Creative Space 4
Healthcare Bonanza 5
Changing Spaces: Law Firms 5
E-Commerce: Bigger Box Warehouses/Smaller Box Retail 6
Multiamily 7Hot Stats 8
Table of Contents
What's Hot in...
Atlanta, GA 9
Baltimore, MD 10
Greater Boston, MA 11
Charlotte, NC 12
Cincinnati, OH 13
Columbus, OH 14
Dallas, TX 15Dayton, OH 16
Denver, CO 17
Houston, TX 18
Indianapolis, IN 19
Kansas City, MO 20
Los Angeles. CA 21
Louisville, KY 22
Milwaukee, WI 23
Minneapolis, MN 24
Nashville, TN 25New Jersey 26
New York, NY 27
Phoenix, AZ 28
Raleigh, NC 29
Sacramento, CA 30
San Diego, CA 31
San Francisco, CA 32
San Jose-Silicon Valley, CA 33
St. Louis, MO 34
Tampa, FL 35
Washington, DC Metro 36
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WHATS HOT...
The U.S. economy is now midway through the ourth year o its recovery. While it has shown recent ashes o a more robusttrajectory potentially orming galvanized by housing and equities it has yet to prove that these stronger trends are sustainable.
Indeed, as o this writing, the Federal Reserve was still artifcially stimulating the economy by making $85 billion in asset purchases
each month (though now hinting they may begin tapering the program at the end o 2013). Until the bond-buying program comes
to an end, and the economy demonstrates that it is capable o standing on its own two eet, we will remain cautious in making our
commercial real estate predictions.
What we can say with greater certainty is that the U.S. economy remains on a consistent path o slow improvement. Real GDP is on track
to grow at a rate o 2% in 2013 roughly the same rate o growth observed in the prior three years o this recovery.
But even in this slow 2% GDP recovery there are certain commercial
real estate (CRE) sectors that are not only perorming well, but thriving.
The most notable winners include multiamily, big box distribution
center space, high-end oce space, creative oce space, medical
oce buildings and virtually any property type that is newly built or
newly renovated. There are a number o orces at work that explain
why these CRE sectors are winning in this recovery. For instance,
the rise o e-commerce and mobile technology is contributing to the massive surge in demand or distribution center space in multiple
markets across the country. Some orces refect a more risk-averse, practical consumer, which explains some o the shit in demand rom
owning to renting, rom large space to smaller space. Other orces are driven by pure demographics: Millennials those aged 20-35 are
entering their prime rental years, ueling the engine or the multiamily market; at the same time an increasing number o baby-boomers
are reaching the age where they require increased medical attention; hence, the medical oce bonanza. Demographics also explain shits
in the oce sector. With the rise o the millennial generation, the new workplace is increasingly ocused on mobility, wireless oce space,
communal work areas, new creative space and energy eciency. Properties that can tick those boxes rather than older, traditional
in Commercial Real Estate
Even in a slow 2% GDP recovery there are
certain CRE sectors that are not only
perorming well, but thriving.
product are dominating in this recovery.
The younger generation is also drawn to
edgy, urban liestyles; that explains why
most downtown areas are hot, while most
suburbs are not.
This paper ocuses on the bright spots
in CRE. In this national overview section,
we will touch on a ew common themes
observed throughout the country, ollowed
by a discussion o hot trends we are
observing at the metro level.
Millennials
Millennials
Gen X
Gen X
Boomers
Boomers
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High-quality, New Ofce Space, Creative Space Crushing ItThe high-end o the oce sector is clearly bouncing back, and most o it is newly built or newly upgraded. When we say new space we
generally mean oce space that was built or rehabbed ater 2007. This segment o the market has accounted or all, 134 million square
eet (ms), o the net absorption that has occurred since 2010. What makes that statistic even more astounding is that new space represents
only 8% o the countrys total oce inventory. Thus, there is a huge wave o tenant demand chasing a very small sliver o the market, and
consequently rents are soaring. In New York City, or instance, there were 29 leases signed recently or over $100 ps in rent; a ew deals
were reported to reach north o that to $200 ps. In Washington, DC, higher quality buildings with views o the Capitol Building are etching
rents that are, on average, $30 ps above the rest o the market. Every metric or new, high quality space is exceedingly more robust vis--vis
traditional space: vacancy or new space has been cut in hal during the recovery, while vacancy or traditional space remains at recessionary
highs; rents or new space is $12 higher than rents or traditional space.
New vs. Older Space
-10
0
10
20
30
2010 2011 2012 Q1 13
msf
Yr Blt After 08'
Yr Blt Before 08'
U.S. Office Net AbsorptionCreative space is another subplot in this evolving story o out withthe old, in with the new. Some o the common characteristics
include edgy architectures, wireless environments, walkable
locations, benching and open foor plans, and unique exteriors.
This creative space trend is most evident in tech-ueled markets
on the West Coast (e.g., Seattle, San Jose, and Los Angeles) but it
is gradually catching on in other major metros such as New York
City, Austin, TX and Washington, DC. In Los Angeles, buildings with
a creative space strategy are leading the charge in the recovery,
registering some o the strongest lease-up rates and etching some
o the highest rents and values in the city.
Still, it's not yet time to ring down the curtain on the traditional oce building model a game o musical chairs within the tenant world
will keep many assets afoat or years to come. But to appeal to the high-end and command those eye-popping rents associated with new
higher quality space, these buildings need a lot o TLC. There are currently 80,000 buildings in the U.S. that are 20 years in age or older,
accounting or 61% o the total national inventory. This presents potentially 80,000 opportunities to retrot these buildings to match todays
tastes and preerences, and the possibility o generating higher returns.
Out with the old, in with the new:
Millennials taking over. This generation (those aged 20 - 35) avors new, edgy, creative, yet smaller space requirements.
Millennials will replace baby-boomers as the primary decision makers by 2020, 51% to 21%.
Right-sizing Many businesses shrunk sta during the recession. As their leases expire, they are looking or space that
better ts a smaller headcount new space is generally more fexible and congurable.
Change in tastes and preerences: The new workplace is about mobility; wireless oce spaces where cubicle and private
oces are being replaced by communal work areas with a smattering o private meeting rooms. These changes in oce
space usage began with tech rms but are spreading to other tenant types as mobility, benching, shared space and collaborative
environments in energy ecient space rise in popularitythe net result being smaller oce ootprints or many tenant types.
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Every day or the next 19
years, more than 10,000
baby-boomers will reach the
age o 65 driving record
levels o demand or medical
ofce space.
Healthcare BonanzaThere are 75 million baby-boomers in the U.S. the largest o the demographic cohorts. The
simple act is that as a group they are getting older, sicker and atter, and that is creating a
healthcare bonanza in the country. Since 1990, employment in healthcare services has grown
nearly our times aster than U.S. employment overall. It is not only strong growth, its reliable
growth. Healthcare employment has added jobs throughout each o the last three recessions
(1991, 2001 and 2007), and that includes a greater number o doctors, nurses and medical
assistants. A number o cities are cashing in. In the well-established medical hubs, such as
Nashville and Raleigh, medical oce construction increased over 50% since 2007 surging
in the ace o a weak recovery. In Boston (biotech hub), Minneapolis (medical device rms),
suburban Maryland (NIH & medical research), New Jersey (pharmaceutical hub) - health
services have already grown to account or about 15% o total employment in those cities.
Pittsburgh a traditional rust-belt metro has largely reinvented itsel based on healthcare
growth and research. More than 246,000 people in Pittsburgh work or health companies.
Louisville, Cleveland, Houston and St. Louis, all report surging demand or medical space.
In nearly every major metro across the country, the heath-service employment chart reveals
nearly the exact same trend, robust growth year ater year.
The growth in demand or medical oce space is only going to accelerate. Every day since
January 1, 2011, and or the next 19 years, more than 10,000 baby-boomers reached
or will reach the age o 65, according to Pew Research. People over the age o 60 visit a
doctors oce twice as oten as does the general population and are prescribed our times
the number o prescription medications. Investors are clearly savvy to these trends. While
sales volume or nearly all CRE product types are still hovering at 2004 levels, sales o
medical oce buildings posted a record high in 2012.
Changing Spaces: Law Firms
Historically, law rms have been
tagged as having overly large
executive oces and a substantial
amount o space dedicated to
legal documentation and legal
libraries. Times have changed.
Technological developments
such as cloud storage capabilities
have eliminated the need orstoring bulky legal books onsite.
Moreover, law rms are beginning
to embrace the ecient space
movement which is materializing
or commercial space. There are
examples in the marketplace o
law rms that have downsized
and moved to modernized layouts
with single-size oces that allow
or more ecient foor plans. In
Washington, DC or example, o
the 29 leases executed or greater
than 30,000 s since the beginning
o 2011, 35% (10 leases) were or
less space than tenants originally
occupied. And o those 10 deals,
7 opted to move rom traditional
oce space into brand new space.
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While all that is compelling enough, lets layer in policy. The impact rom the Aordable Care Act (nicknamed Obamacare) will be anotherboom to the healthcare sector. The program will expand insurance coverage to an additional 22 million people, spurring even more
demand or care. Every one additional patient typically creates two square eet (s) o new demand or medical ofce space. Assuming no
change in policy, Obamacare alone will generate an additional 46 ms o new demand or medical space by 2017.
E-Commerce: Bigger Box Warehouses/Smaller Box Retail
Throughout the recovery, e-commerce has been the elephant in the room or retailers. While retail sales in the U.S. have averaged a 5%
growth rate or each o the past three years, the growth rate or e-commerce is triple that. Meanwhile, it is no coincidence that the retail
categories where online sales have been strongest are the same ones in which bricks-and-mortar chains have struggled the most. As
Amazon and other purely online players continue to grow, retailers are rushing to bee up their e-commerce platorms in order to compete.
Retail activity used to be about the big box store; it is now about the big box warehouse in particular, the mega big box distributionwarehousethe new industrial product type that sits at the nexus o retail and industrial.
While the old bulk warehouse paradigm used to average 100,000 s and was utilized primarily or regional distribution chains, the new
model is much larger and much more complex. In the new world, 300,000 s is small and million-square-oot warehouses are not
uncommon. That is because the new mega warehouses oten serve dual roles as distribution centers or stores as well as e-commerce
ulfllment centers. Instead o just supplying 50 stores in a region daily, warehouses may also be responsible or ulflling 50,000 individual
e-commerce orders per day as well.
Demand or mega bulk warehouse space
is being driven by retailers as diverse
as Walmart and Nordstrom. Still thelargest single player remains Amazon.
com, which currently has 50 ms o
distribution space with ambitious plans
to increase its ootprint to nearly 90 ms
by 2016. In all, we estimate the market
will witness over 80 ms o demand over
the next ew years in a marketplace that
has very little inventory that can currently
accommodate these needs as users
increasingly require more that just space
they need greater stacking capabilities,more dock doors, greater mezzanine
space and more parking, power, HVAC
and ESFR capabilities.
Likely to reach 30% of all retail sales by 2025
PROJECTED
The Rise of E-Commerce
U.S. Retail E-Commerce Sales as a Portion of Total U.S. Retail Sales
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Multifamily Yes, a lot of new supply, but also, a lot of new demandThe multiamily sector is booming. Just take a stroll around almost any city in the U.S.
and count the cranes. The demand numbers remain compelling. For the last three years
through April o 2013, the apartment sector has absorbed 45,000 units per quarter the
strongest demand since the technology boom o the late 1990s. U.S. apartment vacancy
ended the frst quarter o 2013 at 4.3% the lowest national vacancy rate in over a
decade. Allo the 82 markets tracked by Reis posted year-over-year increases in asking
and eective rents in the frst quarter o 2013. In some markets, supply is shockingly
scarce. In New York City, or example, the vacancy rate is 1.9%. Similar tight markets are
San Diego, San Jose and Minneapolis which have vacancy rates o 2.5% or lower. Developers are gearing up. Reis estimates that 634,000
new apartment units will deliver across major markets over the next fve years. This will be the largest development wave in over a decade.
Some ear that with housing coming back, the multiamily industry may again be overbuilding.
Certain markets will clearly overdo it, but in general the demand metrics support the new construction. Household ormation is the
apartment sectors trump card. The prime renter cohorts are ages 20-35 (echo-boomers) and those over 65 years old (the leading edge
o the baby-boomers). According to the Census Bureau, those two groups will grow by 2.2 million annually over the next three years the
astest rate o growth since the early 1980s. That means demand or rental units is potentially 50% above the norm and doesnt even
include the pent-up demand now being unleashed in the recovery. Moreover, the notion that a healthy housing sector and a healthy rental
market cannot co-exist goes against 50 years o business cycles. Every newly completed single-amily home creates 3.05 jobs. Higher
employment leads to aster household growth, which will only add to multiamily demand.
in Commercial Real Estate
The notion that a healthy housing
sector and a healthy rental sector
cannot coexist goes against 50
years of business cycles.
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Hot Stats
The number o metro areas that have now
exceeded pre-recession levels o employment329
Economy...
8 YEARSThe average length o a U.S. expansionarybusiness cycle since 1981 currently in year 4
2.3 MILLIONThe current rate o job growthin the U.S. or 2013
Industrial
72.3 MSF Industrial spaceabsorption in last 6 months strongest
gains in 15 years
21 OUT 68 Metros tracked postedrecord levels o industrial absorption Q1 13
2.5% Year-over-year decline in vacancyor newly built bulk distribution space vs.
0.8% decline or older distribution space
Ofce
100% O the net growth in the ofce sector has been inconcentrated in buildings developed or rehabbed since 2008
$12 The premium or Class A rents overClass B a record high
Retail
16.3% The growth o online retail sales vs. 5.1% overallgrowth in retail sales in 2012
30% The marketshare o e-commerceby 2025, up rom 8% today
Multiamily
4.3% U.S. apartment vacancy atthe end o Q1 13 the lowest national
vacancy rate in over a decade
161,000 Units o annual new demand or apartmentsrom household ormation 50% above the average
Medical
85% The growth rate in healthcare employmentsince 1990 4x aster than total nonarm
46 MSF Future demand or medicalofce will materialize over
the next 4 years
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Metro Atlanta is nally emerging rom many o the struggles caused by the Great Recession.While oce vacancy remains elevated and unemployment has just dipped below 8%,
encouraging signs have begun to appear that point to Atlantas next wave o growth. Many
businesses are expanding, particularly proessional services, technology, healthcare and
related companies (especially healthcare IT and biotech). As an example, digital marketing
rm ExactTarget recently announced an expansion in Atlanta, creating 225 additional jobs,
with its CEO oering a simple explanation: Atlanta is a great place to grow a business. Firms
o all sizes are working to gain eciencies in their space usage and many are considering
relocation o their headquarters or back-oce space. Some large rms are considering
launching new developments.
As they weigh their relocation options, many
companies are attempting to exploit one o Atlantas
hottest trends: the rise o young proessionals
generally aged 20 to 35, oten called Millennials.
The Atlanta Regional Commission recently
reported that Millennials accounted or 36% o
metro Atlantas workorce. (By comparison, baby-
boomers accounted or 26%.) By 2030, Millennials
will comprise ully 75% o Atlantas workers. The workorce is also attractive to employers.
Almost hal (46%) o Atlanta residents hold a bachelors degree or higher (compared to 28%
nationally) and companies oten must compete aggressively or that kind o talent, such as
oering amenities and incentives desired by these workers.
Unlike baby-boomers, many Millennials place a higher premium on quality o lie than
retirement packages or opportunities or advancement. Companies are learning that young
proessionals are less concerned with buying a house in the suburbs and more interested
in access to public transit, pedestrian and bike-riendly areas and vibrant mixed-use
environments in which to live, work and play. The Atlanta markets enjoying the greatest levels
o activity in 2013 Midtown, Buckhead and Central Perimeter all oer some variation
o these components and most active developments are designed
to provide these characteristics to businesses and their employees.
Atlantas largest current projects include Ponce City Market a 1.1
million square-oot redevelopment o the 87-year-old Sears building
in Midtown and Buckhead Atlanta a 900,000 square-ootmulti-block development in the heart o one o Atlantas wealthiest
neighborhoods. Both projects are due to open in 2014 and include a
mix o high-end retail, restaurants, oce space and residential units.
This trend is also evident in Atlantas northern suburbs, like Avalon, a
$600 million mixed-use development in North Fulton County. Like the other projects, Avalon
will eature retail, dining, residential and oce components, as well as two hotels. This type o
development would have been unthinkable in Atlanta just a ew years ago. It is clear rom the
latest trends that Millennials are having a large infuence in shaping what type o commercial
real estate emerges as hot in Hotlanta.
in ATLANTA?
By 2030, Millennials will
comprise ully 75% o
Atlantas workers.
Metro Atlanta expects to
gain 46,300 jobs in 2013,
53,800 in 2014, and 61,700
in 2015. An average o 25% o
these new jobs are expected to be
premium or high-paying jobs.
Nearly 4 ms o
mixed-use space is underconstruction in just three projects.
Job growth is projected to
be strongest in the
proessional services, inormation
technology, education and
healthcare sectors.
Millennials are having a
large infuence in shaping
what type o commercial
real estate emerges as
hot in Hotlanta.
Elizabeth Green
36%MILLENNIALS
WORKFORCE
$
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With the increase in size o Fort Meade due to the Base Realignment and Closure Act o 2005(BRAC), the Baltimore Metropolitan region has become a hotbed o cyber security activity.
Fort Meade is currently the largest employer in Maryland with more than 56,000 employees,
and is home to the U.S. Cyber Command, the Deense Inormation Systems Agency and
the National Security Agency. These agencies, and the emphasis on ever-growing threats o
cyber-attacks on both public and private systems, have been strong engines driving the local
ofce sector. Baltimore has absorbed 3.5 ms o ofce space since 2010 in large part due to
cyber security-related employment growth.
The Baltimore Metropolitan region ranks third in
total cyber security job postings (13,393), trailing
only traditional tech powerhouses Palo Alto (17,570)
and San Francisco (13,710)1. Indeed, the impact o
cyber security on Baltimore is easily seen in the job
numbers. Employment in the highly skilled category
o proessional, scientifc and technical jobs has
grown by more than 24% in Baltimore since the
beginning o 2004. Thats the sixth largest growth
rate in the country. In addition to the increased size
o Fort Meade due to BRAC, the Baltimore region has also benefted rom the high volume o
ederal spending made available to private contractors and cyber security companies in the
area. At the end o 2011, ederal spending accounted or more than 29% o Baltimores Gross
Metro Product. Unlike other areas in the ederal budget which are now being squeezed, cyber
security remains in growth mode. The United States Government or FY 2014 report states,
the budget supports the expansion o Government-side eorts to counter the ull scope o
cyber threats. The proo is in the pudding. While most metros are registering job losses in
the ederal sector, Baltimore has actually added 1,100 government-related jobs since 2011.
The growth in cyber security has clearly been a boom or the local ofce sector. Over the past
10 years, the Northern Baltimore-Washington (NBW) Corridor submarket has experienced an
average annual positive absorption rate o 817,000 square eet o ofce space per year. While
demand or ofce space suered during the Great Recession, the
submarket still managed to eke out positive absorption in both 2008
and 2009 compared to the nationwide absorption level o a mere
87 ms during that same period. With the worst behind us, the NBWsubmarket is re-accelerating once again; the area has averaged
700,000 s o positive absorption annually since 2009 and the
submarket posted another 290,000 s o positive absorption in the
frst quarter o 2013. Developers have taken notice o these stronger
trends. There are nearly 1.3 ms o ofce space under construction in the NBW Corridor with
several million additional s waiting in the pipeline. In general, whatever real estate the cyber
security industry touches in Baltimore, it turns hot very quickly.
1 Source: Cyber Security Jobs Report The Abell Foundation & CyberPoint International, LLC 1/2013
Matthew Myers
in BALTIMORE?
The Department o Homeland
Security has increased its
cyber security workorce by 500%
over the past 2 years.
Baltimore Proessional/
Scientifc/Technical jobs have
increased by 6.7% in the past year,
2nd nationally.
The annual global cost o
cyber crimes is estimated
at $100 billion a year.
The NBW Corridor submarket
experienced 896,125 s
o positive ofce space absorption
in 2012.
President Obama recently
proposed more than $13
billion in cyber-related programs in
his fscal-year 2014 budget.
Employment in the
highly skilled category oproessional, scientifc
and technical jobs has
grown by more than 24%
in Baltimore since 2004.
$
6.7%
2012 TECH
JOB GROWTH
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Financial and proessional service frms will always account or a signifcant portion o greaterBostons tenant demand. But startups and biotech frms, despite their traditionally smaller
ootprints, have rapidly become the key players in Bostons race or commercial space.
Between MIT and Harvard is East Cambridges Kendall Square neighborhood where, or
the past eight quarters, rents have surged. Indeed, asking rents or Class A ofce space
have jumped 12.7% just in the past year, driven by demand rom the entrepreneurial
establishments rising rom this nexus o intellect (deals are currently being executed in the
low $60s PSF). As a result, many o the enterprising frms born in Cambridge are seeking
space outside o the neighborhood but still along the MBTA red line due to tight conditions
and soaring rents.
As a general rule, entrepreneurs are cool people.
And where they choose to cluster will inevitably
become hotspots. Take the 2012 migration to
Bostons Seaport District. At the beginning o that
year, many Kendall Square tenants could fnd Class
A space in the Seaport District in the mid-to-upper
$30s it was scarce, but available. By the end
o the year, it had become a myth with deals
averaging in the low $40s to mid-$50s.
A victim o its own success, the spiking Seaport
rents are orcing entrepreneurial companies tocontinue their hunt or economical, centrally located
space, and Bostons Financial District appears to be the next it spot. At the end o the frst
quarter o 2013, low-rise space in the Financial District was still a value play. Asking rents
were in the low-to-mid $30s PSF, a more than 70% discount o the Class A space in the
Seaport District.
While there was a time ollowing the Great Recession when it
seemed this low-rise space might never be flled, last year PayPal
and Technip took the plunge and relocated into the Financial
District. Cassidy Turley is currently tracking a handul o tech
requirements we expect to land here in the second hal o 2013
and were excited to see what happens as one o Bostons most
traditional neighborhoods makes a move to become one o the
citys hippest.
Ashley Lane
in GREATER BOSTON?
Asking rents or Class A
ofce space in East
Cambridges Kendall Square
neighborhood have jumped
nearly 13% in the past year.
Asking rents or Class A
space in Bostons Seaport
District have climbed into the
low-$40s to mid-$50s.
Low-rise space in Bostons
Financial District oers a
70% discount rom Class A space
in the Seaport.
Spiking Seaport rents are
forcing entrepreneurial
companies to continue
their hunt for economical,
centrally located space
Bostons Financial District
appears to be the next
it spot.
12.7%
KENDALL ASKINGRENTS, CLASS A
$
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Master-planned and mostly speculative Ballantyne Corporate Park known locally as Ballantyne has been one o Charlottes hottest submarkets throughout the recession and into the recovery
with its mix o live-work-play options. To be clear, there are other submarkets in Charlotte that
are also perorming much stronger as o late, but Ballantyne has been one o the bright spots.
Owner-operator Bissell Companies has made no secret o its recent success, divulging that it has
signed nearly 3 million square eet (ms) o total leasing (new deals, renewals and expansions)
between 2009 and 2012, while also constructing six additional buildings summing to slightly
more than 1 ms during that period. Ballantyne is comprised o 29 ofce buildings with just
over 4 ms o space, and the past several successul years o activity has caught the attention
o several high-profle national companies. A number o big-name tenants have located to
Ballantyne Premier, BAE Systems, XPO Logistics,
and Extended Stay Hotels, to name a ew drawn
by the areas business atmosphere, wide-ranging
amenities and ree parking.
However, Ballantyne got another jolt recently when
insurance behemoth MetLie announced in March
that it was leasing 340,000 s at the newly completed
(and speculative) Gragg and Woodward buildings.
With that, Ballantyne gained the largest tenant in
its 17-year history and simultaneously saw vacancy decline by 8.5 percentage points to a
healthy 13.9%. With Ballantynes recent building spree, the areas vacancy rate has requently
vacillated with each new delivery and new major lease, though the fve-year average is 20.7%.
Not only is MetLie now Ballantynes largest tenant, but the relocation announcement
highlights many o the winning business strategies already implemented by Ballantyne and
the thriving community that has grown up around this rapidly growing ofce park. It reafrms
Charlottes strengths: home to a young, educated workorce that is big-bank trained, a high
quality o lie, and relatively low costs o living and o doing business.
Other major characteristics that have contributed to Ballantynes
success are:
Very high-quality ofce product that was all built ater 1996.
Though this is changing as Ballantyne matures, the prevalence
o new construction means there is a relative dearth o second
generation space. Shell space allows companies to ully customize
their spaces.
New buildings are being constructed with parking decks, which enable companies to
accommodate more dense ofce environments. Most other suburban Class A buildings in
Charlotte do not have deck parking which de acto limits density.
Immediate interstate access via Charlottes beltline Interstate 485. The other premier ofce
market, SouthPark, is not directly accessible by any o the regions three interstates.
Sarah Godwin
704.887.3021
in CHARLOTTE?
Ballantyne has 29 ofce
buildings totaling more
than 4 ms. Only three o
those buildings were not
speculatively built.
Ballantynes latest
550,000 square-oot
speculative project was hailed by
CoStar as the largest speculative
project in the nation in mid-2011.
Ballantyne enjoyed nearly
3 ms o total leasing
(new, renewal, and expansion)
in 2009-2012.
Ballantyne is zoned or
almost 2 ms o additional
ofce space.
Ballantyne has been oneof Charlottes hottest
submarkets throughout
the recession and into the
recovery with its mix of
live-work-play options.
8.5%
METLIFE
VACANCY IMPACT
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The economic recovery in Cincinnati is making consistent progress. So ar in 2013,Cincinnati is on pace to add 10,100 net new jobs, a pace on par with the growth
observed in the prior two years o this recovery. The local economys rebound has
aided in the perormance o oce, industrial and retail markets which are refecting
decreasing vacancies and positive absorption. Still, vacancy remains elevated across
most product types, so the improvement in demand has yet to translate into signicant
rent growth. Also, speculative construction remains dormant.
However, one hot trend that may be fying
under the radar in Cincinnati is the surprisingly
strong increase in tourism. In 2012, the city was
named the #3 U.S. travel destination by Lonely
Planet and it played host to the World Choir
Games which poured $73.5 million into the local
economy and attracted over 20,000 visitors.
Cincinnatis surprising rise as a tourist hot spot is
also expected to continue as the Great American Ballpark (home o the Cincinnati Reds)
was recently chosen as the venue or the 2015 Major League Baseball All-Star Game.
The rise in tourism has prompted a wave o new hotel development concentrated in
Cincinnatis CBD. For 27 years, virtually no new hotels were built in downtown Cincinnati.
Since the recession, there has been a surge o activity, leading to the development o six
new hotels. A ew notables include the 134-room Residence Inn Cincinnati-Downtown
and the 156-room 21c Hotel and Museum. There are interesting examples o ocebuildings getting converted to hotels. For instance, a vacant 232,000 s oce building in
the heart o the CBD was recently sold to Columbus, OH-based EV Bisho Co., which is
planning to covert the property into a 312-room luxury hotel. The Old Enquirer Building
at 617 Vine Street is currently being retrotted rom an oce property into two hotels,
a 105-room Homewood Suites and 144-room Hampton Inn &
Suites. Finally, plans are being pursued that would transorm
the ormer Cincinnati School or Contemporary and Perorming
Arts into a 140-room boutique hotel. In addition to the six hotels
currently under development, there is a pad-ready site at the
Banks project, a mixed-used development located between
Great American Ballpark and Paul Brown Stadium (home o theCincinnati Bengals) along the banks o the Ohio River, that could
acilitate the construction o another 200-room hotel.
Cincinnati, like many other cities, has also seen demand or urban living skyrocket. 88
apartment units opened in November 2012 at the Reserve at 4th and Race and another
1,427 units are in the works.
James Flick
in CINCINNATI?
Cincinnati has added
31,400 jobs since 2010.
In 2012 Cincinnati was
ranked as the #3 U.S. Travel
destinations by Lonely Planet and
hosted the World Choir Games,
which pumped $73.5 million into the
local economy and attracted 20,000
visitors to the City.
Ater 27 years o no activity,
6 new hotels have either
opened or are being developed in
downtown Cincinnati since 2011.
Demand or urban living
has led to 1,427 new
planned multiamily units in
Cincinnatis urban core.
The rise in tourism has
prompted a wave of
new hotel developmentconcentrated in
Cincinnatis CBD.
20,000VISITORS IN2012
TOURISM IS UP
#3
H
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In an age dominated by technology, the Columbus market may be fying under the radaras one the markets cashing in rom the tech-ueled growth. The Columbus region boasts
upwards o 2,000 technology establishments employing 35,000 people and the market
is evolving into one o the astest growing tech cities in the country (ranked #2 according
to a March 2013 Gallup Poll). For many tech rms looking or a new location to grow their
operations, Columbus makes a lot o business sense.
With Ohio State University (OSU) embedded into
the local economy, along with 54 other colleges and
universities, Columbus is a city teeming with young,
hungry tech minds. Moreover, the cost o living is one
o the lowest in the country; or tech rms, that puts
Columbus into the low-risk/high-reward category.
The new tech growth cycle does not appear to be waning anytime soon. In the early months
o 2013, tech companies such as IBM, Verizon and SpeedFC were expanding their current
acilities in addition to creating 500, 500 and 250 new jobs, respectively. An oshoot rom
the tech-growth cycle is the rise o online high schools that have seen signicant increases in
enrollment. Since its ounding in 2001, the online high school, ECOT, has seen its graduating
class grow rom 21 students to more than 2,000 in 2012.
The booming tech trend is also helping to uel robust demand or apartment units. Over the
last two years, Columbus has absorbed 6,200 rental units. Except or those during the tech
boom o the late 1990s, these are the strongest demand levels on record. Multiamily space
in Columbus is currently 95% occupied. As thousands o young people remain in the areaater they graduate rom college, and with good prospects o landing a high-paying tech job,
the Mayor o Columbus has approved the construction o thousands o multiamily units
throughout the city, particularly in ormerly distressed areas just outside o the metro area.
Between the large university population, diversity o industries and
a geographical location that is within a 10-hour drive o nearly 50%
o the U.S. population, Columbus should continue to evolve into a
signicant tech hub in the Midwest, and the technology sector will
be a key engine driving the local property markets going orward.
Jeff Tyndall
614.827.1894
in COLUMBUS?
Tech-employment in
Columbus has grown by
33% since 2003.
Columbus is No. 8 on Forbes
Top 10: Best U.S. Cities or
Tech Jobs.
Columbus unemployment
rate is 1.4% below the
national average.
The market is evolving
into one of the fastest
growing tech cities in
the country.
95%
MULTIFAMILY
OCCUPANCY
#8
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By most economic measures, the Dallas market has clearly been one o the strongestin this recovery, and the robust trends continue in 2013. Dallas has absorbed 3.1 ms
o oce space over the last six months twice that o the next closest metro, Seattle,
at 1.4 ms. But the macro trends gloss over what is perhaps the hottest commercial real
estate sector in Dallas right now: mixed-use.
Physical aspects o the workplace environment
are having an increasingly direct impact on
the productivity, comort, job satisaction
and morale o the people working within it.
Included in this physical environment are such
amenities such as restaurants, shopping, dry-
cleaners, tness centers, conerence rooms,
landscaped green areas, and most importantly,
close proximity to housing. As the importance
o talent recruitment and employee retention
continues to rise, employers are recognizing
that workplace amenities are huge actors that
directly infuence where they should oce.
In act, employee-riendly oce space is one o the primary reasons why Dallas various
mixed-used projects have been consistently hot across the metroplex in recent
years. The Far North Dallas submarket has the amenities many companies are looking.
Legacy Town Center I, II, and III (523,043 s) has shops and restaurantstotaling morethan 600,00 s and more than 3,600 apartments in the Town Center alone. Since
Legacy Town Center Portolio was built in 2002-2006, average quoted rental rates
have dramatically increased to $33.00 ps plus electric rom the original listing price o
$25.50 ps plus electric and is currently 95% leased. In the North Central Expressway
submarket, the Oces at Park Lane (231,227 s) has over 800,000 s o retail property
and over 300 apartments. Similarly, Park Lane is 98% leased with rates at an all-time
high o $22.00 ps plus electric. In the past 12 months both o these developments
have expanded and/or plan to expand their oce space to meet
growing demand.
With such high demand or mix-used, high-amenity product,
developers have shited into a higher gear. There is currently
2.1 ms o mixed-use development in the pipeline. And the
numbers conrm that these new projects are leasing up quickly.
For example, o the 2.1 ms in the development pipeline, 26% is
already pre-leased.
In other words, combine a robust economy with a product that most businesses want,
and the end result is a mixed-use segment o the market that has become white hot.
2.1MSF
MIXED-USE
DEVELOPMENT
Alexandra Jennings
in DALLAS?
Since Legacy Town
Center Portolio was built
in 2002-2006, the average
quoted rental rates have
dramatically increased to $33.00
ps plus electric.
In the Legacy area alone,
there are our oce
buildings currently under
construction.
Craig Halls new tower in
the Art District was the
rst multi-tenant oce building
permit led downtown in almost
seven years.
Employee-riendly ofce
space is one o the primary
reasons why Dallas various
mixed-used projects have
been consistently hot
across the metroplex in
recent years.
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The Greater Dayton economy is acing signicant challenges due to the sharp cuts ingovernment spending. Over 25% o Daytons workorce is employed by the manuacturing and
aerospace sectors, which includes more than 27,000 civilian and military personnel that work
at the Wright Patterson Air Force Base. Federal sequestration has resulted in sizeable military
budget cuts and unpaid urloughs or thousands o deense employees. Despite the dark
cloud o sequester looming over the local economy, there is clear optimism and momentum
in certain segments o Daytons commercial real estate market. The three clearest bright spots
involve construction in the areas o industrial, healthcare and multiamily. Demand or real
estate space in these three sectors has been ramping
up or several months, so much so, that Site Selection
Magazine recognized Dayton as the #1 mid-sized
metro region or business acility projects in 2012.
In metro Dayton, much o the available industrial
inventory is antiquated, and thereore, it ails to meet
the needs o todays advanced manuacturers and
logistics companies. Sensing opportunity, developers
currently have over 1.17 million s o industrial-specic construction projects underway in
Greater Dayton. Major projects include a 250,000 s nutritional drink plant or Abbott Labs in
Tipp City, a 124,000 s addition or Piqua-based automotive supplier Industrial Products Co.,
and an 83,000 s ood processing plant or White Castle in Vandalia. There are also rumors o
a major company planning to build a 2 ms distribution center in Daytons north submarket.
The healthcare industry, which employs 31,000 people in Dayton, has also been a airly reliableeconomic engine driving growth. Since 2010, 1.5 ms o new healthcare space has been
developed. Two new hospitals were built rom scratch: the 474,000 s Springeld Regional
Medical Center in Clark County and the 278,000 s Soin Medical Center in Beavercreek. In
addition, Kettering Health Network added a 5-foor, 70,000 s wing to Grandview Medical
Center this year. Its rival, Premier Health Partners, added a 484,000 s patient tower to
Miami Valley Hospital in late 2010 and a 200,000 s tower to Miami Valley Hospital South
in Centerville last year. Premier also just opened a 32,000 s satellite
Emergency Center in the eastern Greene County city o Jamestown.
The multiamily sector is also posting hot numbers in Dayton.
According to the Downtown Dayton Partnership, the apartment
vacancy rate in downtown Dayton currently ranges between 2% and
3%. As o mid-June 2013, there were ewer than 1,000 apartment/
condo units vacant in the entire downtown area. The combination o
high oce vacancy (currently 35.7% in downtown Dayton) and increasing demand or urban
living space has resulted in a push to convert downtown oce buildings into apartments and
condominiums. Since 2011, 25 downtown condominiums have been built, with another 55
units projected to open within the next 12-18 months. In addition, plans were announced
or construction o a 200-unit downtown student housing complex near Sinclair Community
College, and the 110-unit Lux Lots apartments in the ormer David Building on E. Third Street.
Jarrett Hicks
in DAYTON?
29% o Daytons economy is
linked to ederal spending.
The Dayton area
unemployment rate is
7.6%, down rom 8.1% just one
year ago.
With over 27,000
employees, Wright
Patterson Air Force Base is the
largest single site employer in the
state o Ohio.
In 2013, Abbott Labs will
complete a 250,000 s
nutritional drink plant in Tipp City
at a cost o $270 million.
Two new major hospitals
have been built in Greater
Dayton since 2011.
Site Selection Magazine
recognized Dayton as
the #1 mid-sized metro
region for business
facility projects in 2012.
$
INDUSTRIALCONSTRUCTION
1.17MSF
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The Denver Metro market continues to ride a wave o positive momentum, with strongeconomic indicators aiding the growth and expansion o the local real estate market.
Through April o 2013, the market was on pace to add over 34,000 jobs in 2013, helping
to bring the metros unemployment rate down to 6.9%. Colorado has done an excellent
job o attracting new businesses to the region, and ranks as one o the top three states
or supporting business innovation according to the
U.S. Chamber o Commerce. In the past 12 months
alone, 11 major corporations have relocated their
headquarters to the Denver Metro market, including
Arrow Electronics and DaVita HealthCare Partners.
Multiple industries are leading the market expansion,
most notably, inormation technology and sotware.
Inormation technology has always accounted or a
signifcant portion o Colorados workorce, with the state having the third largest concentration
o high-tech workers in the country. However, sotware companies have had particular
success in recent years. According to Inc. 5000s list o companies with the highest three-
year percentage growth in the Denver Metro market, seven o the top ten companies were
sotware companies. Boulder startup Rally Sotware exemplifes the success o this industry,
having raised $84 million in April o 2013 in the frst signifcant IPO or a Denver-based
sotware company in the past decade. Since the IPO, shares o the company have increased
over 40%. Given Rallys IPO success, it is likely that a number o other growing local tech
companies will go public beore the end o the year. The growth o the sotware industry is
already evident in the real estate market, increasing demand or data center industrial space
and high density ofce space or call center and customer service use. Currently, 30% o new
ofce tenant demand is comprised o sotware and technology frms.
Another industry poised or uture growth and certainly one unique to Denver is the
marijuana industry. In January o 2014, Colorado will begin licensing retail establishments
to sell marijuana products to anyone over the age o 21. Currently, only medical marijuana
dispensaries are permitted to distribute the substance, and then only to individuals with
medically prescribed cards. Even with these conditions in place, there are well over 500
dispensaries and 150 processors o cannabis-inused ood statewide.
These numbers are expected to increase signifcantly once recreational
sales begin. While controversial, the marijuana industry is likely to provea net positive or commercial real estate throughout the state, not only
or retail and warehouse space, but or ofce space as well. Because
marijuana is currently illegal under Federal law, many banks, insurance
companies and other auxiliary industries will not support the industry.
Thereore, the emergence o a potentially vast network o business support companies could
in theory grow ofce demand throughout the state. Colorado is headed into uncharted territory
come January and it is difcult to estimate the true impact this new industry will have on
commercial real estate demand. But with an estimated 1 ms o warehouse space leased to
meet the existing medical demand and nearly 1,000 license applications awaiting approval,
Colorados commercial real estate sector stands to see some green o its own.
Andrea Jones
in DENVER?
Through April 2013, the
Denver market has added
over 34,000 jobs, bringing
unemployment down to 6.9%.
Colorado has the 3rd largest
concentration o high-tech
workers in the country.
According to Inc. 5000s list
o companies with the highest
three-year percentage growth in the
Denver Metro, seven o the top ten
were sotware companies.
Starting in January o 2014,
Colorado will begin allowing
licensed retail establishments to sell
marijuana and marijuana-related
items to anyone over the age o 21.
An estimated 1 ms o
warehouse space is currently
leased to meet the existing medical
marijuana demand and nearly 1,000
license applications currently await
approval.
In the past 12 months,
11 major corporations
have relocated their
headquarters to the
Denver Metro market.
$
2.2%
JOB GROWTH
3
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Thanks to the healthcare industry, the Port o Houston, and the energy sector, Houston hasbeen one o the bright spots in this lackluster recovery. Although all three sectors explain
Houstons healthy economic trajectory, it is the energy sector that is keeping this Texas City
hot. Houston is home to every segment o the oil and gas industry including upstream
energy (exploration and production, equipment and manuacturing), downstream energy
(refning and petrochemicals), and distribution and energy trading. As the unrivaled epicenter
o the global oil and gas industry, Houston can accredit 50% o the local economy to the
petroleum, natural gas and chemical industries. The city has roughly 3,700 energy-related
establishments; more than 500 exploration and
production frms and more than 150 pipeline
transportation establishments. In addition, the city
is recognized as the center or emerging alternative
sources. The Institute or Energy Research (IER) and
the Advanced Energy Consortium are both located
in Houston and working to expand research and
development o alternative and renewable energy.
The massive energy sector has provided a source o economic stability, even in the
midst o the national recession. As o March 2013, the city recovered 230.5% o the
jobs lost in the recession. In other words, Houston has added more than two jobs or
every one that was lost ater the downturn. With an abundance o this important natural
resource, to go along with a geographical advantage in serving multiple markets and a still
aordable housing market, people continue to pour into Houston. And as everyone in the
CRE industry knows, the real estate game is a whole lot easier in cities that have strong
population growth. For the last decade, Houston has consistently ranked in the top 3 out
o all major metros in terms o net migration into its city.
Houstons CBD and western submarkets have been the clear benefciaries o the strong
economic trends. Since 2010, Houston has absorbed 7.7 ms, and 55% o that growth
has been concentrated in the CBD and the western submarkets. The ervent demand or
living and working in these submarkets has prompted developers
to propose ofce, residential and retail projects in and around
these areas. Once again, the energy sector is driving the growth.
An astonishing 52% o ofce space in the CBD is occupied by
energy-related industries. Energy giants such as EOG Resources,Plains All American Pipeline and Plains Exploration and Production
are headquartered in the downtown submarket. Due to energy
company relocations and expansions, the Energy Corridor
submarket, has been dubbed one o the citys astest-growing
submarkets over the last decade. More than 4 ms o ofce space (out o the 19 million in
the submarket) can be accredited to multi-national corporations such as ConocoPhillips,
ExxonMobil, Shell Oil and British Petroleum.
Lizzie Layne
713.572.0114
in HOUSTON?
Houston is home to 40 o
the nations 145 publicly
traded oil and gas exploration and
production frms, including 11 o
the top 25.
The nine refneries in the
Houston region produce
2.3 million barrels o crude oil per
calendar day approximately 50%
o the states total production and
13.8% o the U.S. capacity.
Among the nations 20 largest
metro areas, the Houston-
Sugar Land-Baytown Metro Statistical
Area had the astest rate o job growth
in the 12 months ending March 2013.
The Brookings Global
MetroMonitor ranked
Houstons economy #1 in the U.S.
and # 40 in the world.
Houston can accredit
50% of the local
economy to the
petroleum, natural gas
and chemical industries.
52%CBD SPACE
OCCUPIED
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History shows that cities ortunate enough to be at the nexus o trade routes almost alwaysfourished and those that not only transported hot commodities but also produced them oten
saw their property markets catch re. Such is the case or Indianapolis where a red-hot logistics
market, stoked by rekindled manuacturing demand, has set the Indianapolis industrial market
ablaze. Demand metrics conrm that Indianapolis is among the hottest industrial markets
in the nation. Over the last year, leasing activity has
heated up and translated into over 5 ms o net
absorption. That has caused industrial vacancy rates
to sizzle at a historically low 3.1%.
Hot warehouse demand is nothing new. Indianapolis
is called the Crossroads o America or a reason
its the most centrally-located major metro in the
United States. More interstate highways intersect in
Indianapolis than in any other metropolitan statistical area, and nearly 75% o all businesses
in the country are within a 1-day truck drive. Moving goods is big business.
But so is manuacturing them. Manuacturing is heating up. That is a relatively new
development and critical in a market like Indianapolis where manuacturing comprises nearly
30% o industrial inventory. In addition, the manuacturing pay premium is growing. The
average manuacturing job paid $55,398 last year, 38% above the average or all Indiana
jobs. And average actory pay this year is rising more quickly than ever, growing in the rst
quarter by an estimated $2,000 on an annual basis.
Manuacturing not only pays workers well in Indianapolis, it accounts or the largest portion
o Indianas economy in terms o output, or state gross domestic product, which last year
totaled more than $278 billion in current dollars. In act, manuacturing generated over a
quarter o Indianas GDP, a ar larger share than any other economic sector and high enough
to rank the Hoosier state second nationally. Central Indiana manuacturing also drives
statewide exports; that is big news or small business when considering that manuacturing
accounts or 98% o Indianas exports and small businesses comprise 86% o Indianas
exporters.
Such strength in manuacturing has had signicant impact on the
property markets. Manuacturing vacancy rates have allen or three
consecutive quarters and are now refecting pre-recession levels
o demand, tracking below 5%. Why? Quite simply, new workers
are being hired to meet growing demand and those workers need
space to produce goods. The result is more money in the pockets
o many, including landlords. Those new jobs are also putting a lot
more money into consumer pockets, which eventually winds up in
the cash registers o many other businesses and ultimately in their employees paychecks,
raising the states standard o living in the process. Thus, expect rekindled manuacturing
demand to drive the market in the sizzling summer months ahead.
Jason Tolliver
in INDIANAPOLIS?
Over the last year, leasing
velocity has heated up and
translated into over 5 ms o net
industrial absorption.
Manuacturing comprises
nearly 30% o industrial
inventory.
Manuacturing generated
over a quarter o Indianas
GDP, a ar larger share than any
other economic sector, and high
enough to rank the Hoosier state
second nationally.
Small businesses comprise
86% o Indianas exporters.
Manuacturing vacancy
rates have allen or three
consecutive quarters and are now
refecting pre-recession levels o
demand by tracking below 5%.
Demand metrics confrm
that Indianapolis is
among the hottest
industrial markets in
the nation.
INDUSTRIAL
VACANCY
3.1%
$
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Kansas City has long been known as a place o steady economic perormance. Theunemployment rate has been below the national average since March o 2009; in April the
metro-areas unemployment was 6.1% compared to the national average o 7.6%. According to
the Bureau o Labor Statistics (BLS), in the twelve months ending in April o 2013 employment
growth in Kansas City was strongest in Proessional and Business Services (3.4%), Leisure and
Hospitality (3.4%), Wholesale Trade (2.2%) and Healthcare and Social Services and Hospitals
(1.8%). Beneath the surace o these broad categories, Kansas City is experiencing growth
in biotechnology, medical services and distribution/
logistics three o the most active sectors in the
area. For example, the Stowers Institute or Medical
Research has an endowment o approximately $2
billion and more than 150 ongoing research projects.
The University o Kansas Cancer Center received
the National Cancer Institute designation in 2012.
Doctors rom around the globe send DNA samples
to Childrens Mercy Hospitals Center or Pediatric
Genomic Medicine or sequencing which processes and analyzes genomic testing more
quickly than any other acility in the world. Cerner Corporation, one o KCs astest-growing
companies, uses inormation technology to create tools to help healthcare providers eliminate
errors, variance and waste, simpliy payment systems, and engage people in their lietime
health goals. Kansas City is also where biotechnology meets agriculture, as it is at the mid-
point o an animal health corridor. The corridor is home to the largest concentration o animal
health interests in the world and accounts or almost 32% o the $19-billion global animal
healthcare market. Manhattan, Kansas was selected or a new $1.2 billion National Bio- and
Agro-Deense Facility to replace an aging one o the coast o Long Island, New York. Google
selected Kansas City or its frst Google fber installation in the metros neighborhoods Google
has designated fberhoods.
Its central location and abundance o transportation inrastructure make Kansas City well-suited
or bulk distribution and e-commerce ulfllment. Rail connects it to Los Angeles, Chicago,
Houston, Mexico and elsewhere. Multiple interstates I-70, I-35, I-29 and I-49 connect
the metro to population centers in every direction. These connections have contributed to
growth in bulk distribution activity. From 2003 to 2013, KCs bulk space grew by 47.5%. Early
in 2013, an 820,000-square-oot speculative building was completed and several others are
planned. BNSF Railroad recently opened a new intermodal acility.In the adjacent business park, a speculative 500,000-square-oot
distribution center is under way.
Auto production is a prominent part o the areas manuacturing
industry. Both Ford and General Motors have assembly plants there.
From 2011 through 2015 automotive and related companies will
expand by 2.3 ms.
Biotechnology, healthcare services, distribution and automotive sectors will continue to keep
Kansas Citys economy perorming steadily, and support its commercial real estate markets.
Carolyn Bagnall
in KANSAS CITY?
Manhattan, Kansas was
selected or a new $1.2
billion National Bio- and Agro-
Deense Facility.
Google selected Kansas
City or its frst Google
fber installations.
From Kansas Citys
central location, one can
ship to most o the country in
two days or less.
From 2011 through 2015,
automotive and related
companies will expand by 2.3 ms.
Biotechnology, medical
services and distribution
centers are three of themost active sectors in
Kansas City.
47.5%
BULK DISTRIBUTION
SPACE
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National tech oce submarkets can seemingly do nothing wrong during this post-recessionaryperiod. Whether its Silicon Valley in the Bay Area, Silicon Alley in New York City, or biotech in
Boston, these tech markets are requently cited in most every real estate panel discussion as the
hottest markets in CRE. Oddly, Los Angeles (LA)
is routinely let out o the national tech markets
discussion and not really acknowledged as
a bona de hot-bed o tech incubation; this
couldnt be urther rom the truth.
Silicon Valley may have its search engines,
apps, and social media, Cambridge its biotech
and Seattle its e-commerce, but LA is quickly
pioneering its own tech industry genre. Not surprisingly, it is the interplay between technology,
media, and entertainment with the end goal o curating original content or the internet that
is LAs niche. Southern Caliornia as a region is also one o the markets spearheading the
movement away rom traditional oce space towards more creative and adaptable space
designs. The denition o creative space is evolving; people use to consider creative space as
exposed ceiling and concrete polished foors but today it can be simply more ecient space
use. Bench style seating and perimeter-less oce layouts with more o a ocus on lounge,
breakout, and ca kitchen areas today are common themes o creative space in Los Angeles.
O course, the denition o creative is a market-by-market denition. What is creative in
Orlando is not necessarily creative in LA. For a growing number o businesses in LA, creative
space has become a part o their strategy to woo new clients as well as to retain and recruitnew talent. Oce submarkets heavily built out with creative oces are experiencing the
greatest rent growth in Los Angeles. Santa Monica has seen a 15.5% rent growth rom June
2012 to June 2013, while the Arts District in downtown LA has seen a 14.8% growth over the
same timerame.
An increasing number o architectural, engineering, and even nancial,
legal, and proessional business service tenants are adopting more and
more aspects o this creative oce environment. One prime example o
this is the nancial district in downtown LA. Once known or its button-
up suit and tie decorum, over the last ew years the nancial district has
become ever more varied in its tenant base. Migration by edgy tech
rms to downtown LA has increased 19% rom ve years ago.
O course, LAs oce sector is unlikely to ully recover without a strong rebound in nancial
services and rom the legal sector which combined account or nearly one-third o LAs tenant
base. As o June 2013, both o these job sectors had stabilized but tenants rom both sectors
were also generally signing leases or less oce space than in the past and continue to adjust
to smaller headcounts.
But make no mistake, technology, media, and entertainment (TME), when combined, are big
enough to move the needle in LA. LAs oce vacancy rates and rents have stabilized, largely
due to the growth in tech-related industries and its ancillary services.
Arty Maharajh
213-330-0959
More than 700 tech start-
ups exist in LA.
LA is ground-zero or
original programming or
the web; Facebook, Amazon,
Youtube, Google, and Microsot
all are positioned there to curate
original content or the internet.
A growing number o LA's
submarkets are recording
double-digit rent growth.
Technology, media, and
entertainment people
employ 250,000 (more than LAs
nancial sector) and they are
growing, adding over 8,000 jobs
since 2011.
Southern Caliornia is
spearheading the movement
away rom traditional ofce
space towards more creative
and adaptable space designs.
15.5%
OFFICE RENTSANTA MONICA
in LOS ANGELES?
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Manuacturing plays a huge part in Louisvilles economy and manuacturing is hot. Sincethe end o the recession, manuacturing employment in Louisville has increased by 17.5%
generating ar more employment growth than any other sector in the metro area. Part o the
growth is rom new corporate investment. Ford, which has been an integral part o Louisvilles
economy since 1913, invested $600 million into revamp its Louisville Assembly Plant (LAP)
which will now be considered the companys most fexible high-volume plant in the world.
The LAP reopened June 2013 or production o the all new Ford Escape. The company also
plans to invest $600 million in its Kentucky Truck Plant in Louisville, urther solidiying its
commitment to the area. In addition, General Electric (GE) has begun to relocate production o
most appliances rom China back to GE Appliance Park GEs mega-manuacturing acility in
Louisville, which had been considered extinct.
GE has invested nearly $800 million to bring
GE Appliance Park back to lie.
The Bourbon industry is also a hot spot in
Louisvilles economy. The state o Kentucky
produces 95% o the worlds supply o
Bourbon, and the popularity o this whiskey is surging both in the U.S. and around the
globe. According to the Kentucky Distillers Association (KDA), in 2012, demand or Bourbon
production surpassed the 1 million mark or the rst time since 1973. The inventory o
Bourbon totaled 4.9 million barrels in 2012 more barrels than people (4.4 million) who
reside in the state. Granted, a good amount o the whiskey is or U.S. consumption. But there
is also strong demand abroad. Exports to the Asia-Pacic region rose 20% and exports to
Mexico were up 200% in 2012. The rise in Bourbons popularity is also boosting tourism.
The number o visitors to the Bourbon Trail, which runs through downtown Louisville, is at an
all-time high, according to Moodys. The rise o tourism is clearly bolstering the hotel sector,
as well as the retail sector, where rents are the highest in 14 years.
The most obvious beneciary o this manuacturing-led recovery is the industrial sector o
Louisvilles commercial real estate market. A total o 5.3 ms has been absorbed since 2010,
the strongest demand in 13 years. Moreover, at the end o the rst quarter o 2013, the
vacancy rate was 6.7% its lowest point since 2000 and developers
are chomping at the bit. There is currently 1.5 ms in speculative
warehouse space under construction and another 4 ms is scheduled
to break ground between 2014 and 2015. In addition, there are twobuild-to-suit warehouses totaling 819,000 s under construction.
What is driving demand? In addition to Ford and GE, demand or
industrial space is being driven by the UPS Worldport acility located
at Louisville International Airport. The acility continues to be a draw or companies that ship
products around the globe as it is the largest ully-automated package handling acility in the
world. The Louisville Regional Airport Authority reports that in the rst our months o 2013,
50% o the 20,262 fights that landed at the airport were UPS cargo fights. That statistic
alone demonstrates the sheer volume o packages that move through distribution centers
within Louisvilles boundaries.
in LOUISVILLE?
Louisville Slugger was rst
known as the Falls City
Slugger as a reerence to
Louisvilles location at the alls o
the Ohio River.
The inventory o Bourbon
reached 4.9 million barrels
in 2012 which is more aging
barrels than people (4.4 million)
in the state.
Kentucky ranks #3 in
auto industry-related
employment among auto vehicle
producing states.
In April 2013, employment
growth in the manuacturing
sector registered at 8.7% when
compared to a year ago, landing
it 4th in the nation when ranking
employment growth in the sector.
A total of 5.3 msf of industrialspace has been absorbed
since 2010 the strongest
demand in 13 years.
Steve Lannert
MANUFACTURING
EMPLOYMENT
17.5%
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The Milwaukee regions economy is still climbing back rom the recession. Although thelocal economy has been creating jobs since 2010, Milwaukee is still 36,000 jobs short o
pre-recession levels o employment. While the ofce sector is slowly on the mend, it is
Milwaukees industrial sector that is easily the strongest perorming segment in the market.
In act, demand or industrial space in Milwaukee
has been consistently robust since late 2010. The
industrial market is on track to hit 12 successive
quarters o positive space absorption when the
numbers are tallied or 2Q 2013. Over this period,
Milwaukee has averaged over 860,000 square eet o
net absorption per quarter the pace is right up there
with some o the strongest levels on record dating back to 1990. The overall vacancy
rate is approaching 6%, down rom a high o over 9% in mid-2010 making Milwaukee
the 13th tightest industrial market in the country out o 53 metros tracked. Investors
have taken notice o the hot leasing trends and are competing or deals, and bidding
up prices. The average sale price or an industrial building in Milwaukee climbed rom
$17.30 ps in the frst quarter o 2012 to $21.17 in the frst quarter o 2013, representing
a 22% increase.
With supply suddenly lean, build-to-suit projects and speculative construction are on
the rise. It is also worth noting that unlike the bulk o the U.S., Milwaukee did not
signifcantly overbuild prior to the recession which has helped to accelerate the rent-
recovery and the need or new product. 2012 saw several build-to-suit projects added tothe inventory, with several others soon to be announced in 2013. Although speculative
development is still rare, there are signs that that too is picking up. Developers such as
Zilber Co. are moving orward with several spec projects. With 120,000 square eet built
in 2012 that is now approximately 60% leased, Zilber Co. announced two additional
projects totaling up to 265,000 square eet or completion in 2013.
Finally, the velocity o industrial sale and lease transactions has
steadily grown since the depths o the recession, with velocity
increasing by more than 100% in both areas since 2009. The
market is seeing renewed confdence amongst manuacturers
and other users o industrial space. Milwaukees industrial sector
has strong links to the U.S. macro economy and to Canada its
largest oreign trading partner. So assuming economic conditions
dont take a turn or the worse, Milwaukees industrial sector
should remain on a strong trajectory going orward.
in MILWAUKEE?
The industrial market is on
track to hit 12 successive
quarters o positive space
absorption.
With a 1Q 2013 vacancy
rate o 6.5%, Milwaukee
has one o the lowest industrial
vacancy rates in the country.
Milwaukee has averaged
860,000 s o positive
absorption per quarter since
3Q 2010.
Industrial sales volume
has increased by more
than 100% since 2009.
Demand for industrial
space in Milwaukee
has been consistently
robust since late 2010.
12
3Q
Nicole Cadkin
22%
INDUSTRIAL
SALES
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Hot spots are orming in multiple commercial real estate sectors o the Twin Cities, and mosto the improvement links back to the rebounding labor market. Unlike the U.S. economy,
which is still down over one million jobs rom the recession, as o April 2013 Minneapolis/St.
Paul surpassed its pre-recession level o employment by 4,100 jobs. More good news or the
metro: the unemployment rate has continued to all
since the beginning o 2013 landing at 5.0% in April
its lowest reading since June o 2008. Currently,
the Twin Cities have the lowest unemployment rate
across major U.S. metros surpassing the rates o
Seattle, Washington, DC and San Francisco.
What is driving such job growth? The main driver is the Education and Health Services sector
which should be no surprise given that eight o the top 20 employers in Minneapolis are in
the healthcare industry. In April, Education and Health Service jobs increased by 11,900 the
most signifcant rise during a 12 month period since October o 2007. Moreover, the sector
has perormed consistently by creating an average o 717 jobs per month since the recession
ended. That bodes well or demand in the ofce market. The vacancy rate or ofce space,
which peaked at 19.5% in 2010, reached pre-recession levels (16.6%) at the end o the frst
quarter o 2013. Rents have yet to turn the corner, but with space options eroding, they are
inching closer to an upturn.
Accelerating trends are also orming in the industrial sector. Unlike other markets in the U.S.,
the industrial market in the Twin Cities wasnt overwhelmed by a surplus o empty inventory
rom over-building prior to the economic downturn. Thereore, the market rebounded quicklyand in 2012 demand or industrial space went rom modest to robust. Net absorption totaled
2.4 ms, reaching its highest point since 2007. The uptrend has continued into 2013. In the
frst quarter, net absorption totaled 1.1 ms, causing vacancy to drop to 11.0% 230 basis
points lower than the frst quarter o 2012. Moreover, both declining vacancy and rent growth
have given developers the confdence to start new projects. Build-to-suit projects are the most
common, although speculative development is also popping up more and more, particularly
as it relates to bulk distribution center space.
Lastly, the multiamily market is generating some heat. In the frst
quarter o 2013 there were 828 units absorbed in Minneapolis more
than double the amount rented the same period a year ago, according
to Reis. Multiamily vacancy ended the quarter at 2.3%, giving the
Minneapolis apartment market the lowest vacancy rate among all U.S.
metros. Razor-thin vacancy has stimulated multiamily development
activity across the Twin Cities. Multiamily building permits totaled
5,517 by the end o April 2013 up 21% rom March, according to the Census Bureau.
Development is most prevalent in areas that are likely to beneft rom the light rail projects
(Central Corridor and Southwest) slated to connect areas such as downtown Minneapolis and
downtown St. Paul upon completion. Development is most prevalent in urban areas such
Downtown Minneapolis, the North Loop and Uptown. These areas support the rent levels
needed or new construction.
Dennis Panzer
612.347.9309
in MINNEAPOLIS?
Even during the recession,
the Education and
Healthcare sectors in Minn/St.
Paul perormed well, generating an
average o 549 jobs per month.
Ofce rents have increased
an average o 8.1% since
Q1 2007.
From April 2012 to
April 2013, ofce-using
employment increased by
7,800 jobs.
Industrial demand has
driven land prices back to
pre-recession levels.
Multiamily vacancy ended the
frst quarter o 2013 at 2.3%,
giving Minneapolis one o the lowest
multiamily vacancy in the U.S.
among metros.
Industrial absorption
totaled 2.4 msf in 2012,
reaching its highest point
since 2007.
5.0%
UNEMPLOYMENT
RATE
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Whats hot in Nashville, TN? Nashville is hot. The city is booming. The metros economycreated 30,000 net new jobs in 2012 its strongest perormance on record. It currently
ranks in the top 5 in job creation in 2013 as measured by year-over-year percent
change. Businesses and people are continually relocating to Nashville. Over 11.5 million
visitors come to Nashville each year resulting in almost