Bruce K. Erhardt, ALC Cushman & Wakefield of Florida, Inc. Tampa Bay Land Market Overview 2Q 2013

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1 Bruce K. Erhardt, ALC Cushman & Wakefield of Florida, Inc. Tampa Bay Land Market Overview 2Q 2013 The following represents excerpts from economic and real estate journals, notes from conventions, seminars and other meetings I attended, along with personal opinions of my own and others that affect the land market in the Tampa Bay Region. Previous Market Overviews can be found at. Erhardt s Quick Look at the Land Market Multifamily land With single family home prices escalating, townhome land is active as the new entry level. Condominium sites in urban and beach locations are active. Rental continues to be active. Single Family As for the last 15 quarters, builders and developers are closing and making offers on A and B locations. Offers are continuing to be made on large, master planned community suburban sites. CDDs Bondholders continue to take title through special purpose entities, and there continues to be transactions where the bonds are being purchased to get the deed. Retail - Same as last 24 quarters, land prices are flat but not declining. Retail development continues to be driven by single tenant, necessity retail and end users. Outparcels continue to be active. Industrial We closed on our first industrial developer transaction since 2007 at a value of 46% of peak. Amazon is under contract for a development site in south Hillsborough County for 1,000,000 square foot distribution facility. This is important to the Tampa Bay market, as other large distribution users will follow. End users are most active, but I believe we are close to spec development. Office No change, users only. Several large users (250,000+) are looking. Office condo is starting again. Hospitality Development activity is starting. Bank Deals Another two years to go before this land inventory is cleared. Agricultural Land Active, along with recreational land. ERHARDT COMMENT: A classic development cycle is underway, being led by residential. Job growth and population growth continue. These are the main drivers of land absorption. Page 1 of 14

2 The Big Picture Department of Economic Opportunity, release date: June 21, 2013, Employment for St. Petersburg-Tampa-Clearwater MSA: Year over year change May 2012 to May 2013: 0.9% increase in employment 33,800. Total private jobs increased 35,600 or 3.5%. Other increases were in financial activities 3.0%, finance and insurance 0.8%, real estate rental and leasing 3.7%, business and professional services 5.0%, education and health services 4.8%. Government decrease 1.2%. Click on this link to read more: Bay MSA Job Growth Through May 2013.pdf Economic Indicators to Watch, April 2013, Brian Kench, Associate Professor of Economics, University of Tampa Gross sales year over year gross sales continue to increase. Housing Case Schiller HPI declined 48% since May 2006 peak, and has risen 9.6% from the November 2011 trough. Buying a home is less expensive than renting, for the same size home. Employment year over year non-farm payrolls have increased for two years. Five out of eight sectors are adding jobs year-on-year. Unemployment rates are falling. Note from Urban Land Institute (ULI) San Diego, California Spring Meeting, May 2013 I heard about a rental project in New York City that allows multiple tenants to occupy the same unit, because they have closets that are removed and put into storage and replaced with the next person s closet. There is also a new project in Philadelphia that has a car elevator that goes right to the entry of the residential unit. FDOT Future Florida Corridors Below is a brief description of various projects that have received some level of evaluation by FDOT / Turnpike. Click on this link to read more: Projects.pdf Page 2 of 14

3 The following are the projects studied: 1. Heartland Coast to Coast from Hillsborough-Manatee line east to I-95 and the St. Lucie area. 2. Heartland north/south parkway from I-4 / 429 and Polk Parkway south to S.R. 82 east of Ft. Myers. 3. Suncoast Parkway to from the current terminus of the Suncoast Parkway at Hwy. 98 continuing north to U.S. Hwy. 19 in Citrus County. 4. Extend Florida s Turnpike from its current northern terminus at I-75 near Wildwood in Sumter County to U.S. Hwy. 19 in Levy County. 5. A new toll road alignment paralleling U.S. Hwy. 231 from Panama City to Alabama, west of Dothan, approximately 66 miles in length. 6. First Coast outer beltway from I-10, west of I-295 south and then east to I-95 in St. John s County. Supreme Court Just Handed Real Estate Developers a Huge Win Historic property-rights ruling with far reaching implications for the leverage local land use agencies may use to extract concessions from property owners and developers for a common environmental good. Click this link to read the entire article: Court.pdf Kiplinger Report, April 26, 2013, Global Forecasts GDP GROWTH World 3.0% 3.6% United States 2.0% 2.9% Euro Zone -0.2% 1.2% China 8.1% 8.2% Japan 1.1% 1.4% United Kingdom 0.8% 1.7% Brazil 3.6% 4.3% Russia 3.4% 4.1% Canada 1.6% 2.6% India 6.0% 6.8% South Korea 2.9% 4.0% Mexico 3.4% 3.9% Moody s Analytics, Precis U.S. Metro, Tampa, March 2012, click on this link to view the full report: Analytics-Tampa Precis Report March 2013.pdf Page 3 of 14

4 Dividend Capital Research Cycle Monitor Real Estate Market Cycles, Q1-2013, Physical Market Cycle Analysis of All Five Major Property Types in More Than 50 MSAs. Commercial real estate has been following the slow U.S. economic recovery for almost three years now, with occupancy and rent gains at slow, but positive levels in all property types (except for retail rents). Office and retail are moving the slowest while apartment, industrial and hotel are making the best progress. There is also a wide performance gap between top tier cities versus secondary and tertiary markets. The MSA cycle positions are spread wider than we have seen in the past. Office occupancies improved 0.1% in Q1-2013, and rents grew 0.2% for the quarter and 1.4% annually. Industrial occupancies improved 0.2% in Q1-2013, and rents grew 0.8% for the quarter and 2.4% annually. Apartment occupancies improved 0.1% Q1-2013, and rents grew 0.7% for the quarter and 3.4% annually. Retail occupancy improved 0.2% in Q1-2013, and rents grew 0.6% for the quarter, but were down 0.2% annually. Hotel occupancies improved 0.6% in Q1-2013, but RevPAR grew 4.0% for the quarter and 8.8% annually. Office Market Cycle Analysis The national office market occupancy level improved 0.1% for Q and was up 0.6% year over year. Office space demand continues to be sluggish due to the slow employment recovery. Two other major factors that have reduced office demand in this cycle are: 1) the large amount of shadow space (leased, but unused space) that exists from the Great Recession and 2) tenants are moving to smaller space per employee models with collaborative spaces, fewer private offices and part time work at home designs. In a recent presentation at the Harvard Executive Real Estate Program, a corporate real estate executive from Bank of Boston stated that their new space would use 108 square feet per employee versus their historic 200 square feet per employee. Only 49 million square feet were absorbed in 2012, less than half the amount in Downtown office continues to improve faster than suburban office space. Average national rents were up 0.2% in Q1-2013, the tenth consecutive quarter of increase and were up 1.4% year over year, but are still below peak rents of Tampa has moved up to level 3 of the recovery phase. With Tampa are Nashville, Jacksonville and Charlotte. Behind Tampa are Ft. Lauderdale and Miami. Ahead of Tampa is Raleigh- Durham. Page 4 of 14

5 Industrial Market Cycle Analysis Industrial occupancies improved 0.2% in Q and were up 1.0% year over year. Industrial is now at the end of the recovery phase of the cycle at point #5 on the cycle graph. Demand for space is now higher than re-recession levels with absorption of more than 40 million square feet in Q1-2013, which rivals the highest absorption seen in more than 20 years. Logistics and E- commerce are growing rapidly creating the demand for well located, big box distribution centers in the major distribution markets. Amazon and Home Depot are the leaders in the growing E- commerce industry and demanding millions of new square feet of warehouse space. The industrial national average rent index increased 0.8% in Q and was up 2.4% year over year. Tampa jumped two positions to level 4 in the recovery phase. With Tampa are Charlotte, Miami and Raleigh-Durham. Behind Tampa are Atlanta, Jacksonville, Nashville and Orlando. Ahead of Tampa is Ft. Lauderdale and Palm Beach. Apartment Market Cycle Analysis The national apartment occupancy average improved 0.1% in Q and was up 0.5% year over year. The national average vacancy rate is now hovering around 5%. Approximately 125,000 apartment units were absorbed in 2012, much higher than previous economic recovery periods which averaged 45,000 units annually. Absorption for Q was a strong 36,000 units, but 150,000 new apartment units are expected in Now that the home ownership market has begun to recover, it is uncertain if landlords will be able to continue raising rents at above inflation levels. Average national apartment rents improved 0.7% in Q and were up 3.4% year over year. Tampa is in the same spot as the last seven quarters, at level 3, the beginning of the recovery phase. With Tampa are Atlanta, Charlotte, Jacksonville, Orlando and Raleigh Durham. Behind Tampa is Memphis. Ahead of Tampa are Ft. Lauderdale, Palm Beach, Nashville and Miami. Retail Market Cycle Analysis Retail occupancies improved 0.2% in Q and were up 0.3% year over year. Retail continues to be divided between the national chains who are expanding (both high end fashion and low end dollar stores) and the small retailers who are closing stores. The majority of demand growth was in center city and dense urban areas, while the suburbs continued to lose tenants, except in the large regional malls. Congress passed the sales tax on internet purchases, which should help most store owners compete on equal footing in the future. Asking rents are still at 2007 levels and while average rents increased 0.6% in Q102013, they were down 0.2% year over year. For the fifth quarter, Tampa is at level 3 of the recovery phase. With Tampa are Orlando, Nashville, Memphis, Jacksonville and Charlotte. Behind Tampa are Atlanta, Ft. Lauderdale and Richmond. Ahead of Tampa are Miami and Raleigh Durham. Page 5 of 14

6 Hotel Market Cycle Analysis Hotel occupancies improved an average of 0.6% in Q and were up 1.8% year over year. Twenty hotel markets improved their occupancy levels enough to advance one or more points on the cycle graph. This improvement also allowed the national average to move to point #7 on the cycle graph, firmly in the growth phase of the cycle. We expect to see more new hotel construction in the year ahead. National average Hotel RevPAR improved a large 4% in Q1-2013, with both business and leisure travel increasing and with full flights, it drove RevPAR up 8.8% year over year. Tampa has moved to level 6, the beginning of the expansion phase. Behind Tampa are Richmond, Memphis, Atlanta, Charlotte, Jacksonville and Raleigh Durham. Ahead of Tampa are Nashville, Ft. Lauderdale, Orlando and Palm Beach. Tampa Bay Retail Market Overview CoStar Group, Q St. Petersburg/Tampa In the first quarter, the overall vacancy rate went from 6.9% in the previous quarter to 7.0% in the first quarter. Absorption was -134,479 square feet, and vacant subleased space increased by 127,830 square feet. Quoted rental rates increased to $13.74/psf. New construction delivered 10 retail buildings with 71,008 square feet and 246,172 square feet are under construction. SweetBay closings were the main additions to vacated space. Vacancy Shopping centers vacancy rate went from 10.6% at the end of Q to 11.0% at the end of Q Power centers vacancy went from 4.5% at the end of Q to 4.8% at the end of Q Tampa Bay Single Family Market Overview Metro Development Opening Union Park Ryland, Homes by WestBay, K. Hovnanian and David Weekley are reportedly under contract to purchase lots at Union Park in the Wesley Chapel market of Pasco County at $1,100 / per front foot. Page 6 of 14

7 Builder Magazine, May 14, 2013 Of the top 100 homes listed in the 2012 Builder 100, 19 are building in the Tampa Bay market. John Burns Real Estate Consulting, Top Single Family Permit Markets in 2012 Tampa was number 12 in the country with 5,884. Other southeast markets in the top 20 were Atlanta, Orlando, Raleigh, Charlotte, Nashville and Jacksonville. The fastest growing year over year percentage of single family permits were Miami 88%, Orlando - 60%, and Sarasota 45% Rank Metro Area 2012p 2011 Rank 2005 Peak Rank 1 Houston 28, Dallas* 12, Phoenix 11, Atlanta 9, Wash DC* 9, Austin 7, Orlando 7, Raleigh 6, Charlotte 6, Las Vegas 6, Seattle* 6, Tampa 5, Denver 5, Minneapolis 5, Oklahoma City 5, Nashville 5, Fort Worth* 5, San Antonio 5, Jacksonville 4, Portland 4, *Metro Division Source: US Census Bureau, John Burns Real Estate Consulting Tampa Bay Multifamily Market Overview Marcus & Millichap, Q Report, Tampa Metro Area, Construction: Developers will complete 1,200 units this year and permitting will increase 8% to 5,300 units. Vacancy: Stronger job growth will support the creation of new rental households and drive down vacancy 80 basis points to 5.3%. Rents: Effective rents will increase 4.5% to $911/per month in 2013 as vacancy plunges. As a result of the increase, average rents will be 13% higher than at the start of the recession. Page 7 of 14

8 Submarket Vacancy Ranking Rank Submarket Vacancy Rate Y-O-Y Basis Effective Rents Y-O-Y % Change Point Change 1 Peninsula 4.4% -110 $ % 2 Egypt Lake/Lowry Park 5.0% -30 $ % 3 Clearwater 5.2% -30 $ % 4 North Pinellas County 5.3% 40 $ % 5 Central Tampa 5.5% 20 $1, % 6 Carrollwood/Citrus Park 5.6% 130 $ % 7 Town and Country/Westchase 5.7% -30 $ % 8 North St. Petersburg 5.9% -70 $ % 9 Brandon/Southeast 6.0% -210 $ % Hillsborough County 10 South St. Petersburg 6.0% -380 $ % From Triad Research & Consulting, Inc., Michael Slater, President, We believe the Tampa Bay market continues to validate its strength and the depth of demand. Two year old product, started at the beginning of the cycle, was stabilized within 12 months and has achieved 95% occupancy. During lease up, these projects were averaging 30 to 50 leases per month. Most of the newer product has been urban mid-rise and high-rise, followed by urban suburban product (Westshore), followed by A located suburban. In a recent study, we saw rents increasing 4% to 8% in the A locations, with some units being at 97% occupancy. Very little concessions. The Apartment Report, Top Developers Of the Top 20 apartment developers, ten are building in Tampa. The Houston Chronicle, June 25, 2013, Houston s Urban Apartment Market Booming About 18,000 apartments are under construction in the Houston area, with some 10,000 of those units in close-in areas. ERHARDT COMMENT: The urban infill wave is real and here to stay. I believe the $ $2.00/sf renter market is deeper than people think. I feel we are further along in the apartment development cycle. A developer recently told me he felt we are in the 5 th inning. Page 8 of 14

9 Office Market Overview: Cushman & Wakefield Market Overview - Tampa Westshore Office Overview: Overall vacancy at the end of 2nd quarter 2013 is 13.0% compared to 14.6% last year and 13.0% last quarter. Class A is at 14.9% compared to 16.1% last year and 13.4% last quarter. I-75 Office Overview: Overall vacancy at the end of the 2nd quarter 2013 is at 19.5% compared to 23.0% a year ago and 22.0% last quarter. Class A is at 17.5% compared to 22.5% a year ago and 18.80% last quarter. Tampa Central Business District: Overall vacancy at the end of the 2nd quarter 2013 is at 15.7% compared to 16.3% a year ago and 15.4% last quarter. Class A is at 15.0% compared to 15.5% a year ago and 15.3% last quarter. ERHARDT COMMENT: We have our first office site under contract, for a 60,000 square foot build to suit, since Industrial Market Overview: Cushman & Wakefield Market Overview - Tampa West Tampa Industrial Overview: The overall vacancy at the end of the 2nd quarter, 2013 is 6.9% compared to 8.2% a year ago and 7.5% last quarter. Warehouse distribution is at 4.6% vacancy compared to 8.1% a year ago and 5.2% last quarter. Office Service Center is at 14.1% vacancy compared to 11.4% a year ago and 14.8% last quarter. East Tampa Industrial Overview: The overall vacancy at the end of the 2nd quarter 2013 was 8.5% compared to 8.1% a year ago and 8.7% last quarter. Warehouse distribution is at 8.9% vacancy compared to 8.5% a year ago and 9.2% last quarter. Office Service Center is at 15.9% vacancy compared to 15.3% last year and 15.9% last quarter. Plant City Industrial Market Overview: The overall vacancy at the end of the 2 nd quarter 2013 was 1.2% vacancy compared to 0.8% a year ago and 1.2% last quarter. Page 9 of 14

10 Warehouse distribution is at 1.8% vacancy compared to 1.2% a year ago and 1.8% last quarter. Lakeland Industrial Market Overview: The overall vacancy at the end of the 2 nd quarter 2013 was 4.9% vacancy compared to 4.1% a year ago and 4.2% last quarter. Warehouse distribution is at 6.3% vacancy compared to 5.1% a year ago and 5.2% last quarter. Service center is at 17.1% compared to 17.5% a year ago and 17.0% last quarter. ERHARDT COMMENT: I recently heard Cabot is breaking ground on a 145,000 square foot spec warehouse at U.S. Highway 30 and the Leroy Selman Expressway. Tampa Bay Business Journal, June 17, 2013, Tampa Ports Economic Impact Measured in New Study The Port of Tampa generates $15.1 billion in annual economic activity. The Port s 80,216 direct and indirect jobs generate $4.2 billion in wages and salaries. A study found that cargo activity created 73,478 jobs and a $14.4 billion economic impact. Cruise ship activity generated nearly 2,000 jobs and about $380 million in economic activity. Another 3,100 people work at Port shipyards, creating $175 million in economic activity. Cushman & Wakefield of Florida Statewide Brokerage Meeting, Miami Beach, Florida, May 2013, Industrial Report With people moving to more urban areas, existing distribution centers are going to end up being in the wrong place. Globalization is good for Florida because of exploding developing economies. Catalog and internet is 24% of retail. Inventories are exploding and distribution centers need to be closer to the market. Amazon has a goal of delivering 80% within one day in certain submarkets, of which Tampa will soon be one. Page 10 of 14

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13 Land Sales Single Family Retail 1. Ryland Homes purchased 34 lots in the South Fork community in south Hillsborough County for $58,235 per developed lot. 2. Homes by WestBay purchased 10 lots at Lakeshore Ranch in north/central Pasco County for $1,000 per developed lot. 3. DR Horton purchased seven single family lots in Sarasota County for $92,857 per developed lot. 4. Landmark Real Estate Investments purchased 88 lots in the Summer Chase subdivision in northwest Pasco County for $16,500 per developed lot. 5. Ryland Homes purchased 40 lots in the Gray Hawk Landing subdivision in north Bradenton, Manatee County, for $51,000 per developed lot. 6. Connerton Village 5 in north/central Pasco County recently closed for $6,650,000 or approximately $12,157 per upland acre. 7. DiVosta Homes purchased 50 acres in Palmer Ranch, south Hillsborough County, to build 111 homes, for $58,550 per paper lot. 8. WCI purchased the 2,400 acre Sarasota National Golf Course Community in Venice, south Sarasota County, for $48,520,000. The property includes an 18 hole golf course. 1,300 acres will be preservation conservation and open space. Reportedly, this transaction was a result of the Community Development District (CDD) bonds being purchased. 9. M/I Homes purchased 543 acres on U.S. Highway 41, north of S.R. 52, in north/central Pasco County, for $6,100,000. The property had site plan approval for 756 units or $8,068 per paper lot. Cushman & Wakefield represented the Seller in this transaction. 10. Walton Acquisitions purchased a site in Polk County for $25,000, DMG Three, LLC purchased 750 acres at S.R. 776 and Manasota Beach Road, south Sarasota County, for $6,700 per acre. The property is zoned for 1,450 residential units. 12. Homes by WestBay purchased nine developed lots at Fishhawk Ranch, south Hillsborough County, for $72,333 per developed lot. 13. Recent developed lot sales in Newland Communities FishHawk Ranch, traded for $1,122, $1,167, and $1,511 per front foot. Purchasers were Cardell and Homes by WestBay. 14. Neal Communities purchased 1,208 acres at the northwest quadrant of U.S. Highway 301 and Moccasin Wallow Road in Manatee County for $6,622 per gross acre. The property is entitled for 1,690 units, or $4,081 per paper lot. 15. M/I Homes purchased 32 developed lots on Kings Highway, Hillsborough County, for $47,000 per developed lot. 16. Gen Florida IX, LLC purchased acres in south Hillsborough County, for $23,331 per acre. The property will be developed for 111 single family lots ($17,342 per paper lot). When the lots are developed, it will be purchased by Homes by WestBay. 1. Macy s bought their pad at the new Taubman/Benderson Mall in Sarasota County for $5,000,000. Page 13 of 14

14 2. Red Cass Bloomingdale, LLC purchased acres in the northwest quadrant of Bloomingdale and Lithia in Hillsborough County for $75,436 per acre. The property is currently going through the entitlement process for a Wal-mart. 3. Wal-Mart Neighborhood Grocery purchased a site at the southwest corner of Highway 60 and Belcher in Clearwater, Pinellas County, for $3,100, Kane Furniture purchased a 3.94 acre parcel on U.S. Highway 41 in Naples, $10.84 per square foot. Kane plans to build a 58,000 square foot Savon Furniture store on the site. 5. Wal-Mart Stores purchased a site in Largo, Pinellas County, for $7,900, Wal-Mart purchased a site at I-275 and Bearss Avenue, north Hillsborough County, for $6,250, John Falkner and Tom Brown, Jr. purchased acres on Highway 64 in Myakka City, Manatee County, for $121,292 per acre. The purchasers are holding for future development. Multifamily 1. Gino Sedillo purchased the last Riviera Dunes condominium pad for $350,000. The property is zoned for 42 units ($8,333/unit). Cushman & Wakefield represented the Seller in this transaction. Agricultural 1. The Weyerhaeuser Company purchased 665,500 acres in Oregon and Washington for $2,650,000,000 or approximately $4,000 per acre. Industrial 1. Johnson Development purchased 117 acres zoned for 1,200,000 sf, on the east side of County Line Road, Lakeland, for $3.75/building foot. Cushman & Wakefield represented the Seller in this transaction. Page 14 of 14