OFFICE MARKET ANALYSIS OVERVIEW

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					        UST/PDD 610
URBAN DEVELOPMENT PROCESS
     MARKET ANALYSIS



OFFICE AND INDUSTRIAL MARKET
          ANALYSIS

     Robert Simons Fall 2011
        PART I:

OFFICE MARKET ANALYSIS
    OFFICE MARKET ANALYSIS:
           OVERVIEW

 BACKGROUND: SOME NATIONAL AND
  REGIONAL OFFICE SPACE TRENDS
 LINKAGE: GENERAL OCCUPANCY VS. LOCAL
  SERVICE OFFICE SPACE
 SPECULATIVE VS. BUILD-TO-SUIT SPACE
  (OWNER-OCCUPIED)
 CLASSIFICATION OF GENERAL OCCUPANCY
  OFFICE SPACE: QUALITY AND GEOGRAPHIC
  SUBMARKETS
 AGGREGATE DEMAND FOR OFFICE SPACE
 FORECASTING DEMAND BY INDUSTRY TYPE
    OFFICE MARKET ANALYSIS:
    OVERVIEW (Cont.)

   SUPPLY OF OFFICE SPACE
   COLLECTION OF OFFICE SPACE DATA
   NET SUPPORTABLE SQUARE
    FOOTAGE/ABSORPTION FOR OFFICE SPACE
   MARKETABILITY AND NICHE ANALYSIS FOR
    OFFICE SPACE
   LEASE RATES FOR OFFICE SPACE
   OVERBUILDING AND OTHER EXTERNALITIES IN
    THE OFFICE SPACE MARKET
  THE CONTEXT: SOME NATIONAL
  AND REGIONAL OFFICE SPACE
  TRENDS
 NATIONAL TRENDS
 – OFFICE SPACE DEMAND GENERALLY FOLLOWS
   JOB GROWTH

 – CONSTRUCTION PATTERNS ARE CYCLICAL
   ALONG WITH NATIONAL EXPANSION AND
   RECESSIONARY CYCLES

 – CONSTRUCTION AND VACANCY WERE BOTH
   HIGH IN THE LATE „80s; DIP IN MID-90S; NOW
   RECOVERING
A MODEL OF GROWTH FLOWS AND THE DEMAND FOR
    REAL ESTATE: ECONOMIC/DEMOGRAPHIC
             DEMAND GENERATOR



BASIC EMPLOYMENT          NONBASIC             HOUSEHOLD
                         EMPLOYMENT


    $                                          POPULATION
                            $

                                                   $
INDUSTRIAL    GENERAL       LOCAL
   R&D       OCCUPANCY     SERVICE
  HOTEL        OFFICE       OFFICE    RETAIL      HOUSING




REAL ESTATE SPACE NEED
LINKAGE: GENERAL OCCUPANCY
VS. LOCAL SERVICE OFFICE
SPACE
   GENERAL OCCUPANCY OFFICE SPACE

    – DEMAND FOR THIS TYPE OF SPACE IS
      LINKED TO GROWTH IN SERVICE AND OTHER
      INDUSTRIES, BOTH BASIC AND NON-BASIC
      EMPLOYMENT

    – TRADITIONALLY LOCATED IN CENTRAL
      BUSINESS DISTRICT OR OUTLYING
      SUBURBAN OFFICE PARKS
LOCAL SERVICE OFFICE SPACE

   NON-BASIC EMPLOYMENT
   FOUND IN CONJUNCTION WITH
    NEIGHBORHOOD AND COMMUNITY RETAIL
   CONVENIENCE-ORIENTED
   DOMINATED BY MEDICAL AND PERSONAL
    SERVICES
   TODAY'S DISCUSSION WILL FOCUS ON
    GENERAL OCCUPANCY SPACE
                    Office Market Cycle FORECAST
                        1st Quarter, 2003 Estimate

             Boston-1
             Charlotte-1
             Dallas
             East Bay            Baltimore+1
             Kansas City         Cincinnati+1
             Nashville           Cleveland+1
             Norfolk-1           Columbus+1
             N.New Jersey        Honolulu
             Orange County-1     Houston
             Phoenix             Indianapolis+1
                                                  Washington, D.C.+1
                                                                                10   11
             Portland            Long Island                                              12
             Raleigh Durham      Richmond-1                                9
             Riverside
             Salt Lake
                                 San Diego-1                           8                       13
                                 Stamford
             San Francisco+1     St. Louis                7
             San Jose+1                           6                                                    14
             Seattle
             Wilmington
                                                                       LT Average Occupancy                 15
                             4        5                                                                          16
1        2          3                   Los Angeles+1
                                                                                                                       1
     Albuquerque-1      Miami+1
           Atlanta+1    New Orleans-1
           Austin+1     New York-1
          Chicago-1     Oakland
           Denver+1     Oklahoma City+2                                                             Source: Mueller, 2002
            Detroit-2   Orlando
    Ft.Lauderdale+2     Philadelphia-2
          Hartford-1    Pittsburgh-1
     Jacksonville+1     Sacramento
        Las Vegas+1     San Antonio+1
         Memphis-1
                        Tampa
       Milwaukee-2
                        W. Palm Beach+1
      Minneapolis-1
                        NATION
More Office space info
    GREATER CLEVELAND CBD VACANCY IS 14%
     FOR THE CBD; 10% SUBURBAN (GRUBB & ELLIS)
    JOB GROWTH AND CONSTRUCTION OF OFFICE
     SPACE HAS REMAINED MODERATE AND
     HEALTHY SINCE ABOUT 2000
    LITTLE NEW CONSTRUCTION ACTIVITY NOW
    INCREASED VACANCY RESULTS IN LOWER
     EFFECTIVE RENTS
    DOWNTOWN $18/SF GROSS) AND SUBURBAN
     SUBMARKETS ($17) ARE BOTH AFFECTED
SUMMARY OF COSTAR, INC OFFICE MARKET REPORT
         CLEVELAND METRO AREA
SPECULATIVE VS. BUILD-TO-SUIT
SPACE (OWNER-OCCUPIED)

   GENERAL OCCUPANCY IS SPECULATIVE, I.E.,
    NOT BUILD-TO-SUIT


   BUILD-TO-SUIT CHARACTERIZED BY:
       • LARGE, SINGLE-OCCUPANCY TENANT OR OWNER
       • GOVERNMENT
       • R&D MIXED OFFICE AND MANUFACTURING (20/80)


   WHEN DEVELOPING GENERAL OCCUPANCY
    OFFICE SPACE, MOST LENDERS WILL REQUIRE
    AT LEAST HALF OF SPACE BE PRE-LEASED
CLASSIFICATION OF GENERAL
OCCUPANCY OFFICE SPACE: QUALITY AND
GEOGRAPHIC SUBMARKETS

QUALITY SUBMARKET CLASSIFICATION
  CLASSIFICATIONS ARE “A”, “B”, OR “C”
   SPACE
  CLASS A SPACE GETS THE HIGHEST RENTS,
   AND HAS HIGHEST EXPENSES
  SEVERAL DETERMINANTS OF CLASS:
     – AGE-NEW, CERTAINLY UNDER 20-30 YEARS OLD
       FOR CLASS A SPACE. CLASS C SPACE IS
       GENERALLY 40 YEARS OR OLDER. CLASS B
       SPACE IS IN BETWEEN A AND C
     – SIZE OF BUILDING--LARGEST, HEIGHT, PRESTIGE
       REFLECTED IN CLASS A SPACE
QUALITY SUBMARKET CLASSIFICATION (Cont.)


      – ON-SITE AMENITIES--VIEW, HEALTH CLUB, LOBBY


      – LOCATION AND PROXIMITY TO OFF-SITE AMENITIES-
        ACTIVITY, TRANSPORTATION LINKAGES. CLASS A
        STRONGEST. CLASS C SPACE MAY BE LOCATIONALLY
        OBSOLETE.

     NEW DOWNTOWN SPACE AND NEW LARGER
      SUBURBAN OFFICE PARKS MAY BE CLASS A.
     HIGHEST GRADE TENANTS GO TO CLASS A:
      FINANCE, ACCOUNTANTS, LAWYERS, ETC...
GEOGRAPHIC SUBMARKETS
   TRADITIONAL LOCATION: GENERAL
    OCCUPANCY OFFICE IS CONCENTRATED IN
    CENTRAL BUSINESS DISTRICT (CBD)--HIGH
    DENSITY HIGH RISE
   FINANCIAL SERVICES AND GOVERNMENT ALSO
    IN CBD
   GROWING TREND: SUBURBAN "CAMPUS
    STYLE" OFFICE PARKS WITH LOW DENSITY,
    MID-RISE BUILDINGS, GREEN SPACE.
    – DRIVEN BY LOCATION CLOSER TO DECISIONMAKERS‟
      HOMES
GEOGRAPHIC SUBMARKETS (Cont.)

    – LESS CONGESTION, STILL OFFERING EXCELLENT
      HIGHWAY ACCESS
    – COMPUTERIZATION, FEDERAL EXPRESS AND FAXING
      REDUCES IMPORTANCE OF IMMEDIATE PHYSICAL
      PROXIMITY
    – SUBURBAN OFFICE HAS CHEAPER RENTS THAN
      DOWNTOWN LOCATIONS
    – BACK OFFICE LOCATIONS, SPLIT OPERATIONS
      WITHIN ONE FIRM TO CUT OVERHEAD COSTS


   SUBURBAN TRENDS RESULTS IN FLATTENING
    OF THE RENT GRADIENT FOR OFFICE SPACE IN
    THE LONG RUN
AGGREGATE DEMAND FOR OFFICE SPACE
       DEMAND FOR OFFICE SPACE IS TIED TO GROWTH IN
        JOB/EMPLOYMENT IN THE METROPOLITAN AREA THAT
        REQUIRES OFFICE USE

       IT CAN BE CALCULATED USING EITHER TENANT/FIRMS
        OR EMPLOYEES

       FOR TENANTS: LOCAL FIRMS EXPANDING AND
        UPGRADING + NEW LOCAL FIRMS + FIRMS RELOCATING
        FROM ELSEWHERE - LOCAL FIRMS SHUTTING DOWN OR
        DOWNSIZING SPACE
    AGGREGATE DEMAND FOR
    OFFICE SPACE (Cont.)

   FOR EMPLOYEES: (TOTAL NET EMPLOYMENT
    GROWTH x PERCENT OF EMPLOYEES IN
    OFFICE SPACE) x SQUARE FEET PER
    EMPLOYEE - EXCESS VACANCY

   DETERMINE IN WHICH SUBMARKET YOUR
    PROJECT WOULD COMPETE

   ALLOCATE DEMAND ACROSS ALL QUALITY
    AND GEOGRAPHIC SUBMARKETS
     FORECASTING DEMAND

   OBTAIN OR GENERATE FORECASTS OF
    EMPLOYMENT FOR THE YEAR THE OFFICE
    BUILDING WILL BE ACTIVELY LEASING UP
    SPACE (3 - 5 YEARS INTO THE FUTURE)
   SUBTRACT FORECASTED EMPLOYMENT FROM
    EXISTING LEVELS. RESULT IS NEW
    EMPLOYMENT EXPECTED. THIS IS THE DEMAND
    GENERATOR UNDERLYING THE NEED FOR
    ADDITIONAL OFFICE SPACE
   MORE DETAILED APPROACH IS TO FORECAST
    DEMAND FOR THE METROPOLITAN AREA BY
    INDUSTRY TYPE
FORECASTING DEMAND              (Cont.)

   MULTIPLY NEW EMPLOYEES BY PERCENTAGE
    OF EMPLOYEES WHO USE OFFICE SPACE.
    SOURCE IS 2000 CENSUS OF POPULATION,
    DETAILED CHARACTERISTICS OF EMPLOYMENT
    BY CROSS CLASSIFICATION. OVERALL, ABOUT
    25% OF EMPLOYEES ARE LOCATED IN OFFICE
    SPACE. FIGURES RANGE WIDELY BY INDUSTRY
    (6% FOR AGRICULTURE, 67% FOR F.I.R.E).
    REMEMBER, THESE CHANGE OVER TIME
FORECASTING DEMAND
(Cont.)
 ESTIMATE PROPORTION OF DEMAND
  ALLOCATED TO SPECULATIVE OFFICE
  SPACE
 MULTIPLY BY SQUARE FEET PER
  EMPLOYEE (RULE OF THUMB IS 200).
  MARKET CONDITIONS MAY AFFECT THE
  RATIO.
 DETERMINE EXCESS VACANCY IN THE
  EXISTING MARKET
AGGREGATE SUPPLY OF OFFICE SPACE
     PAST AND PRESENT
       – CONSTRUCT A RECENT HISTORY OF THE
         METROPOLITAN OFFICE MARKET GOING
         BACK AT LEAST 5 YEARS ( LOCAL SOURCES)
       – CREATE INVENTORY OF EXISTING
         COMPETITIVE BUILDINGS, OCCUPANCY,
         CHARACTERISTICS AND LEASE TERMS
       – DETERMINE HOW MUCH OFFICE SPACE CAME
         ON LINE EACH YEAR OVER THE LAST 5 YEARS,
         BY SUBMARKET
       – EXAMINE SHIFTING TRENDS BY SUBMARKET:
         EXISTING SPACE, VACANT SPACE, EXCESS
         VACANT SPACE, NEW SPACE ABSORPTION,
         RENTS
     FUTURE SUPPLY

 INVESTIGATE PROPOSED SPACE IN THE
  PIPELINE. VERIFY PLANNING APPROVAL
  AND FINANCING STATUS. APPLY
  SUBJECTIVE PROBABILITY OF SPACE
  COMING ON LINE, AND TIMING.
 AGGREGATE INVENTORY TO
  DETERMINE PROJECTED OCCUPIED
  SPACE, VACANT SPACE, EXCESS
  VACANT SPACE, AND SPACE TO BE
  CONSTRUCTED AND RENTS BETWEEN
  THE PRESENT YEAR AND THE OPENING
  OF THE PROPOSED PROJECT
COLLECTION OF OFFICE SPACE DATA


   COLLECT DATA ON: GROSS LEASABLE AND
    NET LEASABLE SPACE, OCCUPIED AND
    VACANT SPACE, AGE, TENANT MIX, AMENITIES,
    LINKAGES, VISIBILITY, LEASE RATES, LEASE
    TERMS, CLASS IDENTIFICATION, MARKET
    NICHE, AND MARKETING ADVANTAGES

   CREATE A FORM OBTAIN AS MUCH DATA AS
    POSSIBLE FROM AVAILABLE SOURCES
COLLECTION OF OFFICE SPACE DATA
    (Cont.)


   CONDUCT SITE VISITS FOR IMPORTANT,
    COMPETITIVE OR NEARBY PROJECTS WHICH
    WOULD COMPETE DIRECTLY WITH THE
    PROPOSED PROJECT. INSPECT TENANT LIST IN
    BUILDING LOBBY


   CONDUCT TELEPHONE INTERVIEWS WITH
    LEASING AGENTS TO OBTAIN/CONFIRM SIZE,
    AMENITIES, AVAILABILITY, RENTS. ASSESS
    RELIABILITY OF RESPONSES.
COLLECTION OF OFFICE SPACE
DATA (Cont.)


   COLLECT SAME INFORMATION, IF
    AVAILABLE, FOR PROPOSED PROJECTS,
    ALONG WITH APPROVAL STATUS


   FOR FUTURE SUPPLY, ALSO CONSIDER
    PRIME RAW LAND WHICH COULD
    POTENTIALLY COMPETE AT SOME FUTURE
    DATE
NET SUPPORTABLE SQUARE
FOOTAGE/ ABSORPTION FOR OFFICE
SPACE
   CALCULATE ON A SUBMARKET LEVEL
   DETERMINE HOW MUCH NEW SPACE EACH
    SUBMARKET HAS ABSORBED ANNUALLY OVER
    THE PAST SEVERAL YEARS
   ALLOCATE A PORTION OF METROPOLITAN
    FUTURE DEMAND TO THE SUBMARKET IN
    WHICH YOUR PROJECT WOULD COMPETE
   ADD UP ALL THE SQUARE FOOTAGE OF OTHER
    FUTURE PROJECTS, EXISTING EXCESS VACANT
    SPACE, AND YOUR PROJECT. DETERMINE THE
    "PROPORTIONATE SHARE" OF SUPPLY
    REPRESENTED BY YOUR PROJECT.
ABSORPTION FOR OFFICE SPACE (Cont.)
     DETERMINE THE COMPETITIVE
      ADVANTAGES OR DISADVANTAGES OF
      YOUR PROJECT RELATIVE TO THE
      COMPETITION. USE COMPARABLE
      EXPERIENCE OF NEAR-TWIN BUILDINGS OR
      MULTIPLE REGRESSION ANALYSIS. USE
      THIS ANALYSIS TO MODIFY THE
      PROPORTIONATE SHARE, IF APPROPRIATE.
      THIS IS THE MARKET PENETRATION RATE
      FOR YOUR PROJECT
     APPLY THE PENETRATION RATE TO THE
      DEMAND FOR SPACE
     PHASE THE SPACE IN OVER A REASONABLE
      LEASE-UP PERIOD
MARKETABILITY AND NICHE
ANALYSIS FOR OFFICE SPACE

   COMPETITIVE ADVANTAGE OF CERTAIN
    BUILDINGS BASED ON:
    – LOCATION SUCH AS CBD, AIRPORT, A STRATEGIC
      HIGHWAY INTERCHANGE
    – LAW FIRMS - NEAR LAW LIBRARY, PROXIMITY TO
      COURTHOUSE
    – MEDICAL - PROXIMITY TO MEDICAL CENTER; HIGHER
      FINISHES, CRITICAL MINIMUM SIZE, REFERRALS
    – OTHER AMENITY, E.G. SHARED SERVICES
    – PRICE
          OFFICE SPACE PROJECTIONS FOR CLEVELAND METRO AREA 1991-1995




SIC            1985            1990     % CHANGE % OFFICE OFFICE % IN SPECEMPLOYEES         SQ.FT PRS.F. DEMAND
CODE         EMPLOY.         EMPLOY.    1990-1985    USERS EMPLOYEES      SPACE IN SPEC. EMPLOYEE FOR NEW
                                                                                  OFFICE SP.           SPACE
          ===========
===========                 =========== =========== ===========
                                                              ===========         ===========
                                                                         ===========                ===========
                                                                                            ===========
CONSTRUCT.         28,000        35,000      7,000       0.16     1,120       0.5      560      200      112,000
MANUF             211,000       207,000     (4,000)     0.243      (972)      0.5     (486)     200       (97,200)
TPU                41,000        43,000      2,000      0.383       766       0.5      383      200        76,600
WH. TR             63,000        65,000      2,000      0.384       768       0.5      384      200        76,800
RET.TR            146,000       163,000     17,000      0.201     3,417       0.5    1,709      200      341,700
F.I.R.E.           50,000        58,000      8,000      0.671     5,368       0.5    2,684      200      536,800
SERVICE           213,000       260,000     47,000      0.283    13,301       0.8   10,641      200    2,128,160
GOVERNMENT        116,000       120,000      4,000      0.283     1,132       0.3      340      180        61,128
           =======           =======     =======               =======                               ==========
TOTAL             868,000       951,000     83,000               24,900                                3,235,988

 FIVE YEAR ANALYSIS
===========================================
TOTAL METRO DEMAND        3,235,988

TIMES % TO SUBMARKET                 0.2

DEMAND TO SUBMKT.               647,198

EXCESS VACANCY                             400,000

PROPOSED COMPETITORS                       350,000

PROPOSED PROJECT                           100,000

PROPORTIONATE SHARE                           0.12

MARKET PENETRATION                 0.13

SQ.FT. TO PROJECT            84,136
===========================================
PROJECT WOULD EXPECT SUBSTANTIAL VACANCY
Forecasting Office Market in Cleveland Metro Area
Submarket Example

Submarket Criteria
   Location
    – Location method: Metro
    – CBSA: Cleveland-Elyria-Mentor (OH)
   Property criteria
    – Type: Office
    – Status: Existing, Under Construction, Under Renovation,
      Proposed, Demolished
    – Class: A, B, C, F
   Office specific criteria
    – Secondary Type: Medical company criteria
    – Owner Type: Bank, Corporation, Developer, Government,
      Individual, Insurance Company, Pension Fund, REIT
Map Source: Colliers OM
Submarket based on the criteria: CBD
LEASE RATES FOR OFFICE SPACE


   GROSS/FULL SERVICE LEASE RATES

   3 - 5 YEAR LEASES, LONGER FOR LARGE
    SPACE USERS

   EXPENSE STOPS

   TENANT FINISHES

   FREE RENT AND OTHER INDUCEMENTS
    (MOVING ALLOWANCE, BUILDING NAME)
LEASE RATES FOR OFFICE SPACE (Cont.)


    TYPICAL OFFICE RENTS IN GREATER CLEVELAND 2009:

        • CLASS A DOWNTOWN $18 - $25/SF/YEAR AND UP

        • CLASS A SUBURBAN $17 - $20/SF/YEAR

        • CLASS B $10 - $15/SF/YEAR

        • CLASS C $5 - $11/SF/YEAR, NEGOTIABLE
OVERBUILDING & EXTERNALITIES

   OVERBUILDING OCCURRED IN THE 1980S
    CAUSED IN PART BY INSURANCE COMPANY AND
    PENSION FUND OVERINVESTMENT IN PRIME
    REAL ESTATE IN THE EARLY-TO-MID 1980'S :
    – ERISA LEGISLATION-DIVERSIFICATION OF
      PORTFOLIO
    – 1981 TAX LAW-BENEFITS OF ACCELERATED
      DEPRECIATION
   CONSTRUCTION MAY ALSO BE ATTRIBUTABLE
    TO NON-ECONOMIC FACTORS, I.E., NEW
    CORPORATE CENTER/FLAGSHIP
OVERBUILDING & EXTERNALITIES
                                            (Cont.)

   CONSTRUCTION IN NEW CLASS A SPEC SPACE
    SHOULD AFFECT CLASS B SPACE IN TURN.
    SOME TENANTS TRADE UP.
   OVERBUILDING RESULTS IN :
    – SOFT RENTS, HIGH VACANCY. IT MAY ALSO RESULT
      IN HIGHER TENANT TURNOVER.
    – REDUCTION IN PROPERTY VALUES
    – LOAN DEFAULTS AND BANKRUPTCY OF REAL
      ESTATE FIRMS AND FINANCIAL INSTITUTIONS
         PART II:

INDUSTRIAL MARKET ANALYSIS
      OVERVIEW--INDUSTRIAL
        MARKET ANALYSIS

   INDUSTRIAL ANALYSIS IS FUNDAMEN-
    TALLY DIFFERENT THAN OTHER TYPES
    OF REAL ESTATE EXAMINED SO FAR
   COMPARISON OF OWNER-OCCUPIED
    INDUSTRIAL SPACE WITH GENERAL
    OCCUPANCY COMMERCIAL SPACE
   CLASSIFICATION OF DIFFERENT TYPES
    OF INDUSTRIAL SPACE BY FUNCTIONAL
    TYPE AND TENURE
     OVERVIEW--INDUSTRIAL
     MARKET ANALYSIS     (Cont.)

   LINKAGE: DEMAND FOR INDUSTRIAL
    SPACE AND BUSINESS CYCLES
   NATIONAL TRENDS AND OUTLOOK FOR
    INDUSTRIAL SPACE
   LOCAL TRENDS AND OUTLOOK FOR
    INDUSTRIAL SPACE
   NATURE OF THE TYPICAL INDUSTRIAL
    PROJECT: DEVELOPABLE SITES
    RATHER THAN SPECULATIVE BUILT
    SPACE
    OVERVIEW--INDUSTRIAL
    MARKET ANALYSIS     (Cont.)


 TYPICAL PRICES AND LEASE RATES FOR
  INDUSTRIAL SPACE
 CONDUCTING THE MARKET ANALYSIS:
  COMPETITIVE CHARACTERISTICS FOR
  INDUSTRIAL LOCATION FROM THE
  SUPPLY SIDE
 THE LITERATURE ON CHARACTERISTICS
  DEMANDED BY DECISIONMAKERS FROM
  THE INDUSTRIAL SITING LITERATURE
 THE PUBLIC ROLE IN INDUSTRIAL
  DEVELOPMENT
     CLASSIFICATION OF DIFFERENT TYPES
            OF INDUSTRIAL SPACE
        BY FUNCTIONAL TYPE /TENURE

   FUNCTIONAL TYPE
    – HEAVY MANUFACTURING--I.E., STEEL MILLS OR
      AUTOMOBILE PLANTS. HIGHLY SPECIALIZED,
      LARGE MACHINERY INVESTMENT, HIGHER
      POTENTIAL FOR POLLUTION PROBLEMS
    – RESEARCH AND DEVELOPMENT (R&D)--HIGH
      TECHNOLOGY, REQUIRES ACCESS TO HIGHLY
      SKILLED LABOR FORCE, MAY BE A
      DEPARTMENT OF A LARGE NATIONAL FIRM
FUNCTIONAL TYPE (Cont.)

– LIGHT MANUFACTURING/ ASSEMBLY--LOWER TECH,
 USUALLY CLEAN, STRATEGIC LOCATION TO FACTOR
 INPUTS, LOW-TO-MODERATE COST LABOR ESPECIALLY
 IMPORTANT
– WAREHOUSE/DISTRIBUTION--NO ACTUAL MANUFACTURING
 TAKING PLACE HERE, STRATEGIC LOCATION TO END
 MARKETS IMPORTANT
– FLEX SPACE– COULD INCLUDE ANY OF THE ABOVE USES
 EXCEPT HEAVY MANUFACTURING, 80% OPEN SPACE/20%
 OFFICE, BUT FLEXIBLE SPACE TO ACCOMMODATE
 CHANGES OVER TIME
 CLASSIFICATION OF DIFFERENT
TYPES OF INDUSTRIAL SPACE (Cont.)

   TENURE BASED ON SURVEY OF 7 BILLION
    SQ.FT. OF INDUSTRIAL SPACE IN TOP 52 U.S.
    MARKETS (WHEATON, 1989):
    – APPROXIMATELY 50% OF INDUSTRIAL
      SPACE IS OWNER-OCCUPIED
    – 25% OCCUPIED BY A LARGE SINGLE
      TENANTS
    – 25% OCCUPIED BY MULTIPLE TENANTS
LINKAGE: DEMAND FOR INDUSTRIAL
   SPACE AND BUSINESS CYCLES

    DEMAND FOR INDUSTRIAL SPACE
     COMES PRIMARILY FROM THE
     MANUFACTURING AND WHOLESALE
     TRADE SECTORS
    THESE ARE TYPICALLY BASIC
     EMPLOYMENT AND ARE VERY
     CLOSELY TIED TO NATIONAL
     BUSINESS CYCLES
DEMAND FOR INDUSTRIAL SPACE
AND BUSINESS CYCLES (Cont.)
   INDUSTRIAL SPACE CONSTRUCTION IS
    OFTEN FUNDED INTERNALLY, AND
    APPEARS MOST FEASIBLE WHEN
    INTEREST RATES ARE LOW,
    INVENTORIES DEPLETED, AND DEMAND
    LOOKING UP.
   FOR THESE REASONS, INDUSTRIAL
    SPACE IS OFTEN BUILT JUST AFTER THE
    END OF A TROUGH IN THE BUSINESS
    CYCLE
  NATIONAL TRENDS AND THE
OUTLOOK FOR INDUSTRIAL SPACE

   THE INDUSTRIAL SPACE SECTOR IS
    LARGE--IN THE TOP 52 MARKETS, ABOUT
    TWICE THE SQ.FT. OF OFFICE SPACE
    (WHEATON)

   LARGE MARKETS DO NOT GET
    OVERBUILT AS FAST AS SMALLER ONES

   GRUBB & ELLIS REPORT A HEALTHY 7%
    VACANCY RATE IN 1999

   NOW CLOSER TO 10% NATIONALLY
    NATIONAL TRENDS AND THE
OUTLOOK FOR INDUSTRIAL SPACE (Cont.)


     AT THESE RELATIVELY LOW VACANCY
      RATES, INVESTMENT CAN APPEAR
      FAVORABLE. ALSO, RISK IS LOWER DUE
      IN PART TO RECOURSE PROVISIONS

     INDUSTRIAL CONSTRUCTION INCREASED
      IN LATE 1990S
SOURCE: LANDAUER, 1991
LOCAL TRENDS AND OUTLOOK FOR
      INDUSTRIAL SPACE



   MANUFACTURING AND WHOLESALE
    EMPLOYMENT GENERALLY FLAT OR
    DOWN IN CLEVELAND METRO AREA
   LOCAL INDUSTRIAL MARKET IS STABLE
    TO GROWING WITH VACANCY AT
    DESIRABLE LEVELS (UNDER 10%)
LOCAL TRENDS AND OUTLOOK FOR
INDUSTRIAL SPACE (Cont.)
   1988 SOCIETY OF INDUSTRIAL AND OFFICE REAL
    ESTATE (SIOR) SURVEY OF ALL INDUSTRIAL
    SPACE IN GREATER CLEVELAND FOUND 292
    MILLION SQ.FT OF SPACE:
       • 120 MILLION SQ.FT. IN CENTRAL CITY
       • 172 MILLION SQ.FT. IN SUBURBS

   1995 OSTENDORF-MORRIS STUDY SHOWED 302
    MILLION SF, MODEST BUT STEADY GROWTH, AND
    VACANCY RATES ABOUT 5%. SUBURBAN
    GROWTH THE TREND
LOCAL TRENDS AND OUTLOOK, (Cont.)

   A MORE RECENT GRUBB & ELLIS SURVEY OF
    MULTI-TENANT OFFICE/WAREHOUSE SPACE
    IN POST-1965 BUILDINGS OVER 20,000 SQ.FT
    IN GREATER CLEVELAND FOUND MORE
    THAN 15 MILLION SQ.FT OF SPACE
   THE BULK OF LOCAL INDUSTRIAL SPACE IS
    OWNER- OCCUPIED, NOT MULTI-TENANT
    SPACE. MULTI-TENANT SPACE COULD BE
    CONSIDERED A NICHE MARKET
                                                                            East Bay
                                                                           Honolulu
                                                                            Houston        Boston+1
                                                                        Jacksonville    Charlotte+1
            Industrial Market Cycle Analysis                            Kansas City      Chicago+1
                                                                          Las Vegas Cincinnati +1
              1st Quarter, 2002                                          Nashville-1Cleveland+1
                                                                          New York
                                                                                       Columbus+1
                                                                             Norfolk
                                                                                          Detroit+1
                                                                     Orange County
                                                                                         Dallas FW
                                                                            Portland
                                                                                         Hartford+1
                                                                                            Memphis
                                                                           Riverside
                                                                                      Minneapolis+1
                                                                         Sacramento
                                                                                      Philadelphia+1
        LT Average Occupancy                            11                                  Raleigh-
                                                   10         12                             Durham
                                                                                           Richmond
                                               9                                          San Jose+1
                                        8                                13             St. Louis +1
                                                                                           Tampa+1
                                    7                             Baltimore
                                6                               Los Angeles
                                                                Long Island
                                                                                    14
                                                                   Miami-1               15
                   4     5                                       Milwaukee                       16
1   2        3                                               New Orleans+1                                 1
                                                              N. New Jersey
                                                             Oklahoma City                           Austin+1


                                                                                      Atlanta
                                                                                      Denver    San Diego+1
                                                                               Ft.Lauderdale    W. Palm-1
                                                                                Indianapolis    Salt Lake+1
                                                                                   Orlando-1    San Francisco
        Source: Mueller, 2002                                                   Palm County     Seattle+1
                                                                                     Phoenix    Stamford+1
                                                                                Pittsburgh+1    Wash DC+1
                                                                              San Antonio+1     NATION+1
   Industrial Market Cycle FORECAST
                            2nd Quarter, 2005 Estimates




Cleveland        New York
    Columbus     Oklahoma City
   Dallas FW     Pittsburgh
       Detroit   Portland
                 Raleigh-Durham                                                               11
  Indianapolis
  Kansas City    Richmond
                                                              Riverside                 10              12
                                                              W. Palm Beach+1
  Long Island    San Francisco                                                   9
                 Stamford
     Memphis
     Nashville   St. Louis                                           8                                       13
                                Denver
                             Milwaukee
                                                          7                     LT Average Occupancy
                        Washington DC              6                                                              14
                                                   Los Angeles                                                         15
                              4          5         Orange County                                                            16
    1       2         3                            San Diego                                                                     1
                                  East Bay
               Atlanta+1
   Baltimore                      Houston
                Austin+1
   Boston                         Jacksonville+1
              Charlotte+1
   Hartford                       N. New Jersey
              Chicago+1
                                  Norfolk
            Cincinnati+1                                                             Source: Mueller, 2004
                                  Orlando+1
           Ft. Lauderdale
                                  Philadelphia
                Honolulu
                                  Sacramento
            Las Vegas+1
                                  Seattle
                   Miami
          Minneapolis+1
            New Orleans
                 Phoenix
                Salt Lake
             San Antonio
                 San Jose
                  Tampa
                NATION
    NATURE OF THE TYPICAL
     INDUSTRIAL PROJECT:
DEVELOPABLE SITES RATHER THAN
   SPECULATIVE BUILT SPACE
   INDUSTRIAL DEVELOPERS MARKET
    DEVELOPED INDUSTRIAL SITES.
    INDUSTRIAL PARK TREND CONTINUES.


   THE BEST SITES HAVE FACTORS
    DESIRED BY INDUSTRIAL LOCATION
    DECISION-MAKERS, PLUS HAVE ROOM
    FOR EXPANSION
TYPICAL PRICES AND LEASE RATES
  FOR INDUSTRIAL SPACE (SIOR)

   A DEVELOPED INDUSTRIAL SITE SHOULD BE AT
    LEAST 1-2 ACRES, PREFERABLY 3-5 ACRES.
    COSTS FOR LAND ARE BETWEEN $1.50-3.00 PER
    SQ.FT. OF LAND. LARGER SITES ARE CHEAPER
    PER SQ.FT.

   CENTRAL CITY SITES ARE CHEAPER THAN

    SUBURBAN SITES ABOUT $1/PER LAND SF
        TYPICAL PRICES
      AND LEASE RATES (Cont.)


   CONSTRUCTION COSTS FOR BUILT
    INDUSTRIAL SPACE ARE TYPICALLY $30-
    $55 PER SQ.FT. OF BUILDING SPACE.
    THERE ARE ECONOMIES OF SIZE.
         TYPICAL PRICES
       AND LEASE RATES (Cont.)

   LEASE RATES FOR INDUSTRIAL
    SPACE ARE USUALLY $2.00-5.00 SQ.FT.
    NET, AGAIN ECONOMIES OF SIZE AND
    STRATIFIED BY SUBMARKET.


   FLEX SPACE IS A TOP NICHE MARKET
    AND CAN LEASE FOR AS MUCH AS $6-
    9.00/BUILDING SF/YEAR NNN
Co Star market data

   Here is the Co Star National industrial
    market summary
         CONDUCTING THE
         MARKET ANALYSIS:
    COMPETITIVE CHARACTERISTICS FOR
INDUSTRIAL LOCATION FROM THE SUPPLY SIDE


   COMMON ELEMENTS INCLUDE LINKAGES
    I.E., MARKETS/FACTOR INPUTS/LABOR
   STATE AND LOCAL TAXES AND SERVICES


   DEVELOPMENT ALTERNATIVES OFFERED,
    EXPANSION POTENTIAL, AND PRICES
 THE LITERATURE ON CHARACTERISTICS
DEMANDED BY DECISIONMAKERS FROM THE
    INDUSTRIAL SITING LITERATURE

   INDUSTRIAL SITING LITERATURE IS DEEP,
    AND EXAMINES ISSUES OF IMPORTANCE
    TO INDUSTRIAL LOCATION
    DECISIONMAKERS--COMPANY
    PRESIDENTS

   ACCESS TO THE PROJECT FOR THE
    PRESIDENT AND TOP STAFF
    PERSONALLY IS IMPORTANT
      THE LITERATURE ON
     CHARACTERISTICS (Cont.)
   RELATIVELY INEXPENSIVE LABOR AND
    OPERATING COSTS ARE IMPORTANT
    (FACTORS: UNIONIZED LABOR,
    WEATHER, CHEAP MORTGAGE
    FINANCING, PROPERTY TAX
    ABATEMENT)
   PREDICTABILITY/EXPECTATIONS
    REGARDING UNANTICIPATED
    DEVELOPMENT COSTS OR LIABILITY
    (ENVIRONMENTAL)
       THE LITERATURE ON
      CHARACTERISTICS (Cont.)
   TRANSPORTATION LINKAGES ARE
    IMPORTANT


   LOCAL BUSINESS ENVIRONMENT IS
    IMPORTANT


   PROPERTY TAXES NET OF BENEFITS
    RECEIVED ARE IMPORTANT.
       THE PUBLIC ROLE IN
    INDUSTRIAL DEVELOPMENT

 JOB CREATION OR RETENTION--THE
  ENGINE OF GROWTH
 INDUSTRIAL DEVELOPMENT IS OFTEN
  BASIC EMPLOYMENT WITH
  SUBSTANTIAL ECONOMIC AND FISCAL
  BENEFITS BEYOND THE DEVELOPMENT
  COSTS
 POLITICAL CONSEQUENCES OF DOING
  NOTHING AS CENTRAL CITY SHARE OF
  INDUSTRIAL MARKET SHRINKS IS VERY
  LARGE
       THE PUBLIC ROLE (Cont.)


   CITY ENCOURAGES/FACILITATES
    INDUSTRIAL LOCATION THROUGH
    SEVERAL APPROACHES
    – CITY CREATES MODERN INDUSTRIAL PARKS
     ATTRACTIVE TO INDUSTRIAL DEVELOPMENT
    – ENSURES APPROPRIATE ZONING
       THE PUBLIC ROLE (Cont.)


– CITY MARKETS OLDER INDUSTRIAL PROPERTIES,
  MANY OF WHICH ARE FUNCTIONALLY OBSOLETE

– CITY CAN REDUCE ENVIRONMENTAL CONCERNS
  BY TESTING AND/OR CLEANING SITES

– FINANCING ECONOMIC DEVELOPMENT THROUGH
  LOW INTEREST LOAN PACKAGES, TAX
  ABATEMENT, INDUSTRIAL DEVELOPMENT BONDS,
  AND VARIOUS STATE PROGRAMS
Tonight’s Speaker: Peter Rubin

 President, Coral Company
 Developer of retail and mixed use
  centers
 Attorney-at-Law
 Socratic Instructor

				
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posted:10/21/2011
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