2018 Greater Portland Market Outlook GREATER PORTLAND MARKET OUTLOOK CBRE The Boulos Company 31

Transcription

1 2018 Greater Portland Market Outlook 31

2 A MESSAGE FROM OUR MANAGING DIRECTOR CBRE The Boulos Company is pleased to present the 2018 Market Outlook for Greater Portland s commercial real estate market. We are pleased to present you with this year s Market Outlook for the State of Maine s commercial real estate environment. We have focused on the trends and factors influencing our market in 2017 and forecast expectations for The pace of change continues to gain momentum in our world and Maine s real estate market will be impacted by market disruptors. Twenty-four-hour news cycles, endless social media posts, s, and podcasts all vie for consumer attention with predictions about our future. What can we expect in a rural state like Maine? Will we soon have our pizza delivered by drones? Will Amazon take over retail, rendering our malls and downtown shopping districts obsolete? Will the growing telecommuting trend leave our office buildings vacant? Will self-driving cars eliminate the need for parking lots and garages? Will tiny house developments be the new normal? In this publication, we are stepping back and reviewing the fundamentals of our market. We are looking through a lens which is aware of the new trends and disruptive industries, but real-world data should still govern investment and development decisions. Our industrial market is hotter than it s ever been, unemployment and interest rates remain low, and our multifamily market is experiencing record growth and investment demand. The main factor limiting the velocity of transactions in Capital Markets is a lack of available product. In the office market, as long as firms continue to hire and expand in Portland, the need for office space will increase. New product will be constructed to meet this demand. Due to new construction projects and renovations of existing spaces, lesser-quality buildings will struggle to retain their tenant base, unless owners make necessary investments and improvements. How long will this strong market last? In all likelihood, we are just past the peak in the market cycle. Now is presumably a good time to sell, as prices have started to soften over the past 12 months. We expect cap rates to flatten over the next year and pricing to stabilize in all sectors. Still, 2018 is expected to be a strong market with solid tenant and investor demand. Given the amount of conflicting information coming at us from every direction, it can be difficult to make informed real estate decisions. We are here to provide consultation and advice based on objective, real market data. While most of us do not have plans of moving into a tiny house any time soon, we are looking forward to having our lunch delivered by drones one day. As the leading firm in Maine s commercial real estate market, we are continuously making the investment in educating professionals to ensure we are on top of emerging trends and able to advise our clients with their current and upcoming real estate needs. Best of luck throughout the year in Yours truly, Drew Sigfridson, SIOR Managing Director

3 TABLE OF CONTENTS Office Market Overview 2 Vacancy Rate Summary 4 Downtown Class A Space and Asking Rates 6 Capital Markets Outlook 8 Multifamily Market 10 Spotlight: Restaurants 12 Industrial Market Recap 14 Medical Meets Retail: Medtail 16 Portland - Maine s Vibrant Growing, City 18 Spotlight: New Developments 20 Regional Market Observations: Augusta, Gardiner & Waterville 22 Regional Market Observations: L/A & Midcoast Maine 24 New England Overview 26 About Us 28 Notes & Credits 28 Brokerage Team 29 MAINE CBRE The Boulos Company One Canal Plaza, Ste 500 Portland, ME NEW HAMPSHIRE CBRE Portsmouth 14 Manchester Sq, Ste 235 Portsmouth, NH Photo: Corey Templeton mainemarketoutlook.com 2018, CBRE The Boulos Company. All rights reserved. No portion of this document may be reproduced or transmitted without written permission from CBRE The Boulos Company.

4 Downtown Over the past several years, the downtown office market was the key driver behind overall falling vacancy rates, but in 2017 downtown office markets inched up to 6.93%. Even with this slight increase, we still saw a positive net absorption of 14,000± sf due to the Class A market, where we added 42,000± sf at 16 Middle. There was lower activity in the Class A market with a slight increase to 3.55% vacancy, but more DOWNTOWN VACANCY RATES importantly, no new direct leases were signed over 8,000± sf last year due to the limited availability of space. There were very few CLASS A CLASS B 10 spaces for Class A tenants looking for space over 8 8,000± however, additional product in the pipeline and low absorption could lead to more opportunities in The Class B office vacancy saw a marginal decline to 9.85% with OFFICE MARKET OVERVIEW By Nate Stevens, Associate Broker The Greater Portland office market finally surpassed a total market size of 12 million square feet in 2017 in 341 Class A and Class B buildings due to the addition of several new buildings. Vacancy rates continued to fall for the 8th consecutive year. Overall vacancy decreased to direct rates of 4.41% with a total rate of 4.61% that included subleased space. This is the lowest total vacancy rate we ve seen since We had positive net absorption of 364,000± sf, which is considerably more than the previous three years however, this absorption can be attributed to just a few deals. It s interesting to note that the suburban market out-performed the downtown market for the first time in three years. slowed activity over the last 12 months. The largest vacancies in the Class B market remain in the larger office towers in the Monument Square area. Smaller buildings in the historic Old Port area have much lower vacancy rates. The lack of movement overall downtown can be attributed to a lack of supply of Class A office space and a lack of demand in the Class B office space. Suburban As previously mentioned, the suburban market had its SUBURBAN VACANCY RATES largest drop in vacancy in over 10 years with a total 14 CLASS A rate of 3.41%, similar to CLASS B 12 the rates we saw in 2005 and 2006, and down 10 from 6.53% in The 8 suburban market had a positive net absorption of 6 303,000± sf; due in a large 4 part to Maine Health s purchase of the 134,000± 2 sf building at One Riverfront Plaza in Westbrook a property that had been vacant for several years. This one transaction dramatically influenced the suburban market and overall vacancy rate. Another significant suburban transaction was WEX s lease of 30,000± sf at 30 Darling Avenue in South Portland. As expected, the Westbrook and South Portland/Scarborough submarkets accounted for the majority of the suburban activity in Medical Available medical space MEDICAL VACANCY RATES remained scarce through 2017 with medical companies behind 14 CLASS A some of the larger suburban 12 CLASS B office leases. The overall vacancy rate fell to just 1.57%. 10 Only one vacancy was reported 8 out of the 36 Class A medical 6 buildings in Greater Portland, resulting in some medical 4 practices leasing Class B office 2 buildings and retail buildings. Significant transactions included Maine Medical Center leasing 19,000± sf at 265 Western Avenue in South Portland, Intermed leasing 24,000± sf across the street at 50 Foden Road, and the sale and occupancy of the10,000± sf building at 117 Auburn in Portland. In 2017 the total office market increased by 191,500± sf in new construction projects. 16 Middle, Portland, 42,000± sf 97 Technology Park Drive, Portland, 20,000± sf 705 US Route One, Yarmouth, 35,000± sf 1 Tyler Drive, Yarmouth, 94,500± sf (expansion) Photo: 97 Technology Park Drive, Portland Source: Scott Simons Architects and Robert Benson Photography Summary We anticipate additional new space will be introduced to the market in We also expect vacancy rates, especially in Class A markets, to remain low enough to spur new construction, with several significant projects already underway. Developers recently broke ground on the 100,000± sf WEX headquarters on Hancock in downtown Portland and two buildings totaling 40,000± sf are under construction at 1945 Congress. Another smaller building in downtown Portland is set to break ground shortly, this results in great opportunities for businesses looking to relocate or grow their businesses. In short, 2018 should be another year of steady but limited improvement with no large vacancies on the horizon and several new construction projects coming to fruition. 2 3

5 VACANCY RATES BY SUBMARKET ABSORPTION Total SF Occupied 11,563, Total Occupied 11,199,610 VACANCY RATE SUMMARY LOCATION CLASSIFICATION Total Rentable '17 Available SF '16 Vacancy Rate '16 Available SF '17 Vacancy Rate '17 Sublease '17 363,486 SINCE 2016 SUBMARKET SIZE FALMOUTH, CUMBERLAND & YARMOUTH 1,043,195 Downtown Portland Class A 2,007,368 51, % 63, % 14,192 Class B 2,327, , % 229, % 8,822 Subtotal 4,335, , % 292, % 23,014 Suburban Portland Class A 950,307 8, % 12, % - Falmouth, Cumberland Yarmouth Class B 931,454 40, % 31, % - Subtotal 1,881,761 48, % 44, % - Class A 781,425 2, % 12, % - Class B 261,770 10, % 19, % - Subtotal 1,043,195 13, % 31, % - Westbrook Class A 382, , % % - Class B 243,975 20, % 14, % - Subtotal 626, , % 14, % - Downtown Portland Suburban Portland 2017 TOTAL VACANCY RATES WESTBROOK 626,519 PORTLAND DOWNTOWN 4,335,200 Maine Mall Area Class A 1,640,903 57, % 45, % 1,812 Scarborough South Portland All Suburban Markets Class B 413,290 78, % 44, % - Subtotal 2,054, , % 90, % - Class A 354,431 9, % 9, % - Class B 524,395 54, % 19, % - Subtotal 878,826 64, % 28, % - Class A Suburban Total 4,109, , % 79, % 1,812 Class B Suburban Total 2,374, , % 130, % - Falmouth, Cumberland, Yarmouth Subtotal 6,484, , % 209, % - Westbrook Maine Mall Area Scarborough, South Portland All Suburban Markets Medical 1% 2% 3% 4% 5% 6% 7% SUBURBAN PORTLAND 1,881,761 SCARBOROUGH 878,826 MAINE MALL AREA 2,054,193 MEDICAL 1,276,792 Medical Class A 971,163 4, % 10, % - Class A Downtown, Suburban & Medical Class B Downtown, Suburban & Medical Class B 305,629 30, % 20, % - Subtotal 1,276,792 35, % 30, % - 7,088, , % 153, % 16,004 5,008, , % 379, % 8,822 Total Office Space and Vacancy - Direct Lease 12,096, , % 533, % - SUBLEASE SPACE 72, % 24, % - Totals 12,096, , % 558, % 4 5

6 DOWNTOWN CLASS A SPACE AND ASKING RATES One Canal Plaza Two Canal Plaza Three Canal Plaza One City Center Two City Center 145 Commercial 254 Commercial 511 Congress 7 Custom House 280 Fore 300 Fore 54 Marginal Way 63 Marginal Way 84 Marginal Way 16 Middle 100 Middle East Tower 100 Middle West Tower 130 Middle One Monument Square Two Monument Square 25 Pearl 27 Pearl One Portland Square Two Portland Square TOTALS Building SF 129,780 44,273 64, ,754 26,753 30,400 95, ,400 49,600 69,481 61,129 50,989 34, ,804 42, ,149 99,600 32, , ,442 32,000 46, , ,000 2,007,368 Available SF 7,706-1,675 5, ,369 6, ,128-4,935-14, ,278 63,574 Price/SF MG $ $23.75 $ $24.50 $ $ $ $ $26.00 Occupancy 94.06% 100% 97.40% 97.40% 100% 100% 96.45% 94.85% 100% 100% 100% 100% 100% 100% 61.74% 100% 95.05% 100% 87.71% 100% 100% 100% 100% 97.05% 96.83% Sublease 7, ,450 4, ,192 Floors Built

7 Equity markets at historic highs U.S. equities were up 16.9% in 2017 REITs were up 2.6% and on average are trading at NAV (Net Asset Value) Markets remained bullish despite geopolitical uncertainty and economic cycle concerns Debt markets remained favorable The 10-year treasury yield was stable at attractive levels Life Company lending continued to post strong origination activity, accounting for more than 24% of non-agency commercial loan closings in Q2. This level was down from their 38% market share in Q1, but above their 20% share a year ago. Banks accounted for 18% of loan volume in Q2, compared to 26% in Q1 and almost 50% a year ago Other lenders made up 28% of real estate lending CMBS conduits led all other lenders in terms of market share tracked by CBRE Capital Markets. They accounted for 36% of non-agency origination activity in Q2, well above their 16% market share in Q1 and 10% market share a year earlier Real estate activity has moderated from the 2015 high YTD 2017 sales were down 7% REITs were net sellers, while foreign capital was a net buyer. Foreign investors continued to have an appetite for US real estate. However, foreign investors favored large gateway U.S. cities. Investor appetite is reacting to the changing landscape in commercial real estate Longer term trends continue to support U.S. real estate Institutions remain under-deployed to real estate Foreign capital continues to look to the U.S. Real estate within alternative investments is capturing more capital High net worth noticeably targeting commercial real estate investments CAPITAL MARKETS OUTLOOK By Chris Paszyc, CCIM, SIOR, Broker, Partner Sector Fundamentals Office transactions were down 18% Year Over Year(YOY). Investors have been more willing to step up to Central Business District office deals in the less pricey non-major Metro locales. Industrial transactions were up 8.2% YOY. Northeast and West markets witnessed a significant cap rate compression in the sector while both cap rates and prices remained flat in other regions over the past few years. Retail transactions were down 32% YOY. Multifamily transactions were down 5% YOY. September 2017 volume was down 16% YOY suggesting that there is concern over future trends at current prices. Hotel transactions were down 45% YOY. Hotel cap rates have been trending up over the past two years due in part to changes in the quality of what is transacting. Limited service hotels were at a 9.2% cap rates in Local Trends We expect continued strong demand for investment property statewide. Cap rates were essentially unchanged in most markets and sectors. Large-scale multifamily assets and single-tenanted buildings with A credit long-term leases continue to trade in the lowest cap rate range. Similar to 2016, long-term fixed debt and historically low rates were available to investors throughout the year. There also continued to be a steady mix of out-of-state capital and local buyers demanding product throughout the State of Maine. We had the pleasure of assisting our clients in over $230 million in sale transaction volume in Nearly $200 million of that volume represented investment transactions. The multifamily sector alone accounted for 42% of total sales transaction volume at over $84 million. The most challenging factor in 2017 continued to be finding enough investment product to satisfy demand. As I write this article, several investment properties are coming to market and we expect that to bring robust activity into the first and possibly second quarter of National Trends (source CBRE Capital Advisors) 2017 CAPITAL MARKETS TRANSACTIONS BUILDING NAME ADDRESS CITY BLDG SF SALE PRICE CAP RATE TYPE Residence Inn 145 Fore Portland 179 Rooms $53,700,000 DND Hospitality Brunswick Landing Portfolio 74 Neptune Drive Brunswick 407 Units $45,000, % Multi Family Anthem Headquarters 2 Gannett Drive South Portland 217,672 $42,171,294 DND Office RiverPlace Apartments 1 River Place South Portland 136 units $33,250, % Multi Family Sunbury Village 955 Ohio Bangor 115 units $30,500, % Senior Housing Bangor Savings Bank 280 Fore Portland 69,979 $21,500, % Office Hathaway Creative Center 10 Water Waterville 236,000 $20,150, % Multi Family / Office Dead River Company 82 Running Hill Road South Portland 114,017 $17,900, % Office Mallside Plaza 198 Maine Mall Road South Portland 98,948 $16,500,000 DND Retail Augusta Crossing 274 Western Avenue Augusta 41,235 $12,000, % Retail Rite Aid 210 Main Waterville 14,673 $11,650, % Retail Cumberland Avenue Portfolio Cumberland Avenue Portland 80,485 $8,600, % Mixed Fore Portfolio Fore and Wharf s Portland 65,000 $7,500, % Retail / Multi Family / Office Gorham Savings Bank 63 Marginal Way Portland 27,740 $5,400, % Office 740 Broadway 740 Broadway South Portland 22,152 $4,100,000 DND Retail CVS 8 Union Auburn 10,125 $3,500, % Retail Rite Aid 461 Main Saco 11,739 $3,054, % Retail 75 Darling Avenue 75 Darling Avenue South Portland 30,000 $2,700, % Office Park East Apartments 321 Stillwater Avenue Bangor 40 Units $2,700, % Apartments Harvey Building Products 80 Anthony Avenue Augusta 33,000 $1,900, % Industrial 105 Main 105 Main Bangor 22 units $1,875,000 DND Multi-Family 30 Thomas Drive 30 Thomas Drive Westbrook 18,693 $1,850,000 DND Office / Industrial Central Maine Power 280 Bath Road Brunswick 25,335 $1,600, % Industrial Bangor Savings Bank 20 Marginal Way Portland 0.41 ac $1,444,444 DND Land Dollar General 947 Sokokis Trail North Waterboro 9,100 $1,287, % Retail NATIONAL CAPITAL MARKETS YEAR-OVER-YEAR ACTIVITY Office Transactions 18% Retail Transactions 32% Hotel Transactions 45% Multi-Family Transactions 5% Industrial Transactions 8.2% *Source: CBRE Capital Markets Photos: 10 Water, Waterville Brunswick Landing,Brunswick 82 Running Hill Road, South Portland 8 9

8 2017 NOTABLE MULTIFAMILY TRANSACTIONS MULTIFAMILY MARKET By Vince Ciampi, Broker PROPERTY ADDRESS CITY NUMBER OF UNITS SALE PRICE PRICE/UNIT CAP RATE 74 Neptune Drive Brunswick 407 $45,000,000 $110, % 1 Riverplace South Portland 136 $33,250,000 $244, % 321 Stillwater Avenue Bangor 40 $2,700,000 $67, % 145 Main Biddeford 18 $850,000 $47, % National The National multifamily market experienced little change over the past year and has remained healthy and strong. While the statistical change in vacancy rates and effective rents was minimal year-over-year, both trend in a negative direction. Vacancy rates are trending upward, and effective rents have decreased (both by less than 1%). The minor changes in vacancy and rents can be attributed, in part, to the completion of new units that are outpacing the rate of absorption. The unbalanced supply and demand for existing multifamily product has resulted in a decrease in year-over-year transaction volume and could potentially shift the focus from acquisitions to new developments. Demand for pre-existing multifamily product remained at an all-time high, but the pool of sellers effectively disappeared in Results from 2017 showed an increase of 5% in acquisition volume that pointed to more sellers entering the market. As new completions continued to outpace absorption and the supply/demand ratio remained unbalanced, the market continued to be in favor of the seller. Units Completed (millions) DEMAND AT THE HIGHEST LEVEL IN THREE YEARS, BUT OUTSOURCED BY COMPLETIONS Completions Net Absorption Year Ending Year Ending 2017 Local Reflecting National trends, the local market experienced a similar change over the past 12 months. Valuations and cap rates remained seemingly unchanged, however, transaction volume decreased significantly. The peak in demand for the past five years and a proportionate amount of inventory hitting the market resulted in sustained low cap rates and healthy transaction volume. In 2017 there was a shift in the supply (sellers) in the market that resulted in less frequent transactions. Over the past 12 months Portland experienced only one sale of an apartment building with more than 10 units. Investors seeking multifamily acquisitions in 2017 had to look outside the Portland market. The larger transactions occurred in Biddeford, Bangor, Brunswick, and South Portland (See table A Notable Transactions). Maine s largest multifamily transaction in 2017 was the sale of 74 Neptune Drive in Brunswick also known as The Brunswick Landing Portfolio. This portfolio consisted of 407 units and achieved a price of $45,000,000 at a cap rate of 7.2 percent. Another notable sale in 2017 and the best indicator of the current market sentiment was River Place in South Portland. The 136-unit waterfront complex sold for $33,250,000. The cap rate on the sale was 5.5 percent. The high price per unit and low cap rate were indicators that we remain in a seller s market. Demand is high and remains steady with inventory still lacking, and despite the higher cost of debt, sellers still hold the greater leverage in multifamily acquisition negotiations. Another factor that contributed to low acquisition volume in 2017 was the threat of a rent control ordinance in Portland. Most investors or current owners were in a holding pattern as they waited for election results. In November, the ordinance was voted down by approximately 6,000 votes in a total turnout of just over 20,000 voters. Moving Forward Thus far, local absorption of new rental units appears to be positive. Two notable apartment buildings added to the market were 117 Lofts, a 56-unit redevelopment of the Schlotterbeck & Foss property on Preble, and Hiawatha Apartments, a new 132-unit building at the former Joe s Smoke Shop site on Congress. Each of these were successfully filled within six months of completion and are currently performing well. To safely assume the current trends continue, the local market should continue to experience positive absorption and potentially see new construction taper off. Some developers may see the demand for rental units come to a peak in Portland as we ve already seen JB Brown convert what was intended as a multifamily development into condominiums on the corner of York and High s. If the local market continues to reflect national trends, new unit completion will begin to outpace absorption and we will likely experience new sellers taking advantage of the market as seen in the report from CBRE. Units Sold (millions) ACQUISITIONS RISE 5% YEAR-OVER-YEAR National Multifamily Market (source CBRE Capital Advisors) Photo: Riverplace Apartments, South Portland Source: CBRE New England PREDICTIONS Continued slow increase in apartment vacancy rates as new units are completed and hit the market. Transaction volume to increase with no threat of rent control and sellers taking advantage of the unbalanced supply and demand ratio. Slow absorption as new construction outpaces the demand for high-end units. Local markets continue to reflect national trends and remain strong

9 SPOTLIGHT: RESTAURANTS By Catie Seavey, Associate Broker Portland is known for its restaurant scene, and ends up at the top of many best of lists throughout the country. The city and its surrounding communities have embraced our designation of a foodie town and every year, there s a lot of shuffling in the market from food trucks becoming restaurants to existing restaurateurs opening new locations to showcase different food styles. But it isn t just local growth; while people were initially wary of national chains, they re expanding in our area as well. Here are some highlights from the vibrant restaurant scene: Restaurant and food service jobs account for 10% of employment in the State Source: Maine Restaurant Association EATERY EVOLUTION As local foodies palates continue to evolve, so does the restaurant scene. Sudden closures of what were once considered neighborhood staples created an opportunity for successful chefs and restaurateurs to expand their loyal customer bases by exploring new neighborhoods and concepts. CONVENIENCE CUISINE While several sectors of Maine s restaurant scene experienced growth and expansion, there has been a significant shift in quick-serve establishments. Where various chains have closed their doors, others have found an opportunity to bring new tastes to the state. For example, both local and national fast/casual restaurants repurposed the newly vacated Tim Horton s restaurants to expand or establish their presence. STILL CRAFTY No summary of greater Portland s restaurant scene would be complete without a mention of the continued growth and expansion of local craft beverage businesses. Each year, new concepts pop up to accommodate consumer demand for locally-sourced beer and wine proving that there s still plenty of opportunity surrounding Portland s craft beverage marketplace. TRUCKS TO TABLES The food truck frenzy made its way to Portland several years ago which created an opportunity for chefs to bring unique food concepts to the area at relatively low start-up costs. Trucks, campers, and carts were transformed into mobile test kitchens and gave chefs the opportunity to experiment with different recipes and locations while fine-tuning their menus and establishing a loyal customer base. Over the past few years owners have opted to permanently park their trucks and set up shop in more traditional restaurant locations. Love Kupcakes/ baristas + bites 469 Fore, Portland Mami 339 Fore CN Shwarma/Baharat 91 Anderson Highroller Lobster Co. 104 Exchange 32 LICENSED FOOD TRUCKS IN PORTLAND Bob s Clam Hut 315 US Route One, Kittery Additional new location: 109 Cumberland Ave, Portland Tuscan Kitchen Royal River Grill, Yarmouth, and Tuscan Bistro, Freeport Additional new location: 390 Gorham Road, South Portland Juiced 130 Water, Hallowell Additional new location: 561 Forest Avenue, Portland Tipo Central Provisions, 414 Fore, Portland Additional new location: 182 Ocean Avenue, Portland New to the Area: Krispy Kreme Chick-fil-A Popeye s Firehouse Subs Notable Expansions: Aroma Joe s Starbucks Chipotle Sweet Frog Five Guys Amato s Holy Donut Mainely Wraps Here are just a few of the notable new entrants and/or expansions in the craft beer and wine market. Goodfire Brewing Co. 219 Anderson, Portland Blue Lobster Urban Winery 219 Anderson, Portland Bow Market Tasting Room 495 Forest Avenue, Portland Maine Craft Distilling 123 Washington Avenue, Portland Flight Deck Brewing Brunswick Landing Nonesuch River Brewery Scarborough 12 13

10 INDUSTRIAL MARKET RECAP By Derek Miller, Associate Broker Overall vacancy rates in the industrial market remain at all-time lows The industrial market in Maine in 2017 continued the strong trend that was a hallmark of 2016 that saw robust commercial real estate activity. Overall vacancies remained at all-time lows (below 5%) which was a boon for property owners and that drove an up-tick in pricing. It has also led to numerous properties being built-to-suit. Lack of supply meant occupiers of industrial real estate had to be opportunistic in their searches and, in all likelihood, either be flexible in terms of location or willing to pay top dollar for their desired locale. The Greater Portland market was especially tight, with markets in Central and Southern Maine not too far behind. In 2017, some notable new construction warehouse projects landed tenants. At 155 Rumery Road in South Portland a new 24,000± sf build-to-suit was marketed after the old building was destroyed by snow load. The new building was leased in its entirety by Webber Supply in Q2 of 2017 and has since been completed. In 2016, 15 Saunders Way hit the market in Westbrook as a proposed 60,000± sf building. A lease was signed by Maine Beer Company for 30,000± sf in the fall of 2017, and the property is expected to be completed in Q The balance of the building is being developed on speculation and is available for lease. That said, new construction in the Greater Portland industrial market in 2017 was not just limited to large blocks of space. At 15 Washington Avenue in Scarborough, a developer built a spec building that catered to another market segment where it can be equally challenging to find space: small industrial users who want 1,500-3,000± sf. Tenants looking for space this size were historically limited to a select few properties in the area such as 1 Industrial Way in Portland or 125 John Roberts Road in South Portland. Vacancies in those properties have been scarce and when they become available, tend to lease quickly. Marketing began on 15 Washington Ave in the summer of 2017 and the response from prospective tenants was overwhelming. At the end of 2017 the building was fully committed. There are a few more of these multi- SIGNIFICANT INDUSTRIAL LEASE TRANSACTIONS IN MAINE 2017 Southport Yachts 70,056± SF 650 River Rd, Gardiner CHEP 60,000± SF 7 Washington Ave, Scarborough Modula 47,411± SF 75 Westminster St, Lewiston Eimskip, ISA 44,626± SF 90 Spencer Dr, Wells PODS 39,834± SF 1 Madison St, South Portland A. Duie Pile 34,000± SF 1 Runway Rd, South Portland Dieletric, LLC 32,173± SF 1 Gendron Dr, Lewiston Webber Supply 29,760± SF 155 Rumery St, South Portland Huttig Building Products 20,480± SF 64 Anthony Ave, Augusta Scholastic 20,400± SF 33 Spring Hill Rd, Saco Clear H2O 20,000± SF 117 Pleasant Hill Rd, Scarborough tenanted industrial buildings comprised of smaller suites planned in Southern Maine and with the success of projects like 15 Washington Avenue, there may soon be more to come. It is important to note that each of the three new projects described here were built on land already owned by the developer/landlord. Construction costs are at an all-time high, and tenants can rarely afford to pay the lease rate required for ground-up construction that includes land acquisition costs. Asking lease rates for new construction range from $6.75 to $8.50/sf NNN. We have seen some smaller flex spaces rent for pricing in the range of $10.00/sf NNN. The largest new industrial project currently planned for Southern Maine is the 120,000± sf Americold facility on West Commercial in Portland. This project needed a zoning change in order to accommodate its 68 building height. After unanimous approval by the Portland planning board, the Portland city council granted the needed zoning change in September with an 8-1 vote. This specialized freezer warehouse is an exciting project for Portland s port and seafood businesses and will serve to further grow Portland s relationship with shipping company Eimskip. The zoning change also paves the way for the possibility for other specialized marine facilities to be built along Portland s West Commercial. This tight market, due to low vacancy rates, left limited options for tenants who had larger space needs which we see as a contributing factor to some notable lease renewals. One of the largest of 2017 was at 10 Southgate Road in Scarborough were Alere Scarborough, Inc. renewed its lease of 111,290± sf. Image: Proposed Americold Building at West Commercial, Portland Source: Canal5 Architects Another sizable renewal was CHEP s lease of 60,000± sf at 7 Washington Ave in Scarborough after exploring other area options. As Maine s state government grapples with crafting the recreational cannabis laws, investors have been busy getting ready to secure a foothold in this new (and undoubtedly lucrative) business. Industrial properties both large and small have been purchased in an effort to scale their operations as quickly as possible when the doors to Maine s recreational cannabis market finally open. Many industrial properties that languished for years or suffered from being (at least somewhat), functionally obsolete have been purchased with an eye toward growing alongside Maine s newest cash crop. Increase in demand from this new industry has made it more challenging for traditional industrial businesses to lease and purchase real estate in a market with already low supply. We expect continued strong demand in 2018 for quality warehouse space. This will likely keep pricing power strong for landlords. The success of the build-to-suit projects that were new to the market in late 2016 and early 2017 we feel will lead to more of the same for 2018; however construction costs are sometimes prohibitive with resulting lease rates that are often too high for tenants. It remains to be seen how legalization of recreational cannabis will impact the state s industrial market, but with the government poised to pass some form of the law in the upcoming year we are sure to find out

11 MEDICAL MEETS RETAIL: MEDTAIL By Drew Sigfridson, SIOR, Managing Director Traditional medical office space vacancy rates still hover at the 1% mark Who can predict what companies will be the next Circuit City, Kohl s, Best Buy, Sears or K-Mart? As additional vacancies dot the retail landscape, there are not enough large retail users to backfill the space. Amazon is building distribution facilities in industrial areas, and has only a small brick-and-mortar presence which makes it easier to shop online than go to a store. Grocery stores have not been disrupted yet in Maine; but other retailers are closing stores throughout the state and the demand for retail space is changing. Large retail boxes are being repurposed for service-based businesses and entertainment. We have witnessed many such spaces turn into yoga studios, trampoline parks, go-kart tracks, and churches. Other larger spaces have been converted to back-office operations such as a portion of the Auburn Mall for TD Bank s call center and Paychex at the Promenade Mall. However, the biggest opportunity yet for retail landlords and developers is on the way: hospitals and healthcare providers. As with many industries, healthcare organizations are under pressure and dealing with competition, diminishing operating margins, and changing customers in this case patient expectations. Patients demand convenience, fast response times, limited waiting times, and consumer-friendly experiences. This translates into demand for a real estate footprint that is closer to major transportation routes, closer to rooftops, highly visible with convenient access and significant parking. Enter the Medtail concept: as retail big-box developments start to transition with limited prospects for retail back-fill opportunities, healthcare organizations will find options for prime real estate at a discounted cost when compared with ground-up development options. The renovation of these retail properties falls squarely in line with the goals of providing more convenient, lower cost ambulatory care and increases their ability to handle large volumes of outpatient services in a more efficient manner. The locations were built to handle a high number of customers. There are large parking fields and off-site transportation infrastructure to handle significant traffic demand. The visibility and signage potential are added benefits in this increasingly competitive industry for gaining market share. This medtail trend began in our market several years ago as ambulatory and urgent care facilities started leasing spaces in prime retail locations, such as Concentra on Western Avenue near the Maine Mall and more recently Convenient MD, which will open in a newly renovated center on Marginal Way in We have seen a continued shift towards more Urgent and Primary Care facilities with extended hours, shorter wait times and more convenient locations. There are several projects underway where a medical user is taking space that was occupied by, or is fit for, a retail use: 50 Foden Road, South Portland Intermed is taking over a 24,000± sf building for imaging, quick care and lab facilities 265 Western Avenue, South Portland Maine Medical Center has signed a lease on a 19,000± sf former Kaplan University location which was previously a furniture store 191 Marginal Way, Portland ConvenientMD leased 5,044± sf as the anchor tenant at a newly redeveloped retail strip Over time, we expect this trend to continue beyond urgent care facilities mixing with other retail uses in small shopping centers. As more junior box and big box spaces become available, these prime real estate locations will be consumed by larger hospital and healthcare functions due to the below replacement cost value and convenient locations. Eventually, we will see more medical office buildings, micro-hospitals, comprehensive care centers, imaging centers and primary care facilities in these retail locations hopefully, next to our favorite bakery and yoga studio. Features of retail properties that are desirable to medical users: Proximity to major transportation routes and public transportation High traffic counts and visibility Abundance of parking on-site Proximity to residential areas 16 Images: 191 Marginal Way, Portland Source: Ben Walter CWS Architects 50 Foden Road, Portland Source: Canal5 Studio Architects 265 Western Avenue, South Portland 17

12 PORTLAND MAINE S VIBRANT, GROWING CITY By Jon Rizzo, Associate During the power outage after the storm in the fall of 2017, I was chatting with my neighbor across the street about the frustrations of not having electricity. He works from his home for a Boston company, and travels to the city once a week. He was worried about being online so he could work. My wife called her friend in Eliot for advice on how to warm our six month old son s bottle. Her husband also works remotely and his company is based in Boston. The five days we had without power gave me opportunity to ponder the many friends and acquaintances I have in the greater Portland area who work remotely. They have the ability to work from anywhere in New England and they chose to live here. Why? My wife and I were living in Denver, Colorado and knew we would move back to the East Coast where we d both grown up in order to start a family and be closer to our family and friends. We fell in love with Denver during the six years we lived there because of the lifestyle of living in a smaller city. There was no stress about traffic, finding a parking spot, or being able to easily escape the city and be on a bike trail in fifteen minutes. There were many transplants from all over the country who were proud to say they lived in Colorado. There was a strong sense of community and life was comfortable people took the time to appreciate their natural surroundings. I see many similarities between Denver and Portland. When we moved to Denver in 2010, the city was growing. There were only a handful of craft breweries and rent was cheap. As word got out about how great Colorado was, there seemed to be a steady influx of millennials who relocated and called Denver home. As a result, all of the warehouse spaces that sat vacant for decades became hot commodities, and were turned into breweries, boutiques, coffee shops, or urban marketplaces something we see happening in Portland s East Bayside neighborhood. Neglected neighborhoods became places people wanted to live, mainly because population growth and job opportunities became the catalyst for development in those areas. While we haven t seen, and may never (or want to see), the level of growth in Greater Portland that Denver experienced, I have the same feeling today as I did when I first arrived in Denver in 2010 there s an energy to the city and surrounding area that draws people in. There s a sense of community and quality of life here that you don t get to experience Portland, Maine. Yes. Life s good here in a larger, more crowded city. You dine on cuisine from all over the world and almost any restaurateur will be able to tell you which local farm your produce and poultry came from. You can go to Two Lights or the Eastern Prom and watch the sunrise, for free. If there ever does come a point where you need a change of scenery, you can hop on the Downeaster and be down in the big city in no time at all. I m proud to tell people I live in Maine and that my son was born here. And, while Portland may still be a small city, it certainly has big potential. There s a sense of community and quality of life here that you don t get to experience in a larger, more crowded city. Photos: Corey Templeton 18 19

13 SPOTLIGHT: NEW DEVELOPMENTS By Samantha Marinko, Associate Greater Portland continues to see expansion throughout the major commercial real estate sectors. Here are some examples of projects underway or making their way through the permitting and approvals process. HOSPITALITY With occupancy rates and revenue climbing, we see continuing robust activity in a sector that in recent years, has already added hundreds of new rooms throughout Greater Portland. In addition to several hotel properties completed in 2017, the following projects are in the planning stages: West Elm has announced plans for a 150-room, full-service boutique hotel to be developed in Portland Foreside, formerly Portland Company Complex, off Fore. A 148-room hotel has been proposed for the active, mixeduse Thompson s Point site. The developer proposing to build on the Rufus Deering Lumber site on Commercial recently updated its master plan to include a 128-room hotel. A Florida-based developer has plans for a 128-room hotel at 203 Fore. A plan for a 96-room hotel has been proposed on the waterside of Commercial. OFFICE Construction is underway on the 100,000± sf building designed for WEX. The developer, 0 Hancock, LLC, purchased the site from the City of Portland, and the building will have approximately 5,000-10,000± sf of retail space available. An 18,000± sf, three-story office building is under construction on Widgery Wharf in Portland. The top floor has been leased and the other floors are being marketed. INDUSTRIAL A new 60,000± sf building is under construction at Saunders Business Park. 30,000± sf of the high-bay warehouse has been leased, with the remainder available for a new tenant. At 15 Washington Avenue in Scarborough, a new 12,000± sf industrial building was constructed on spec, designed to accommodate users from 1,500 6,000± sf. Within just a couple months of marketing, the entire building was leased. RETAIL Dirigo Plaza, a 500,000± sf regional power center is under construction in Westbrook, with Market Basket as its anchor tenant. ConvenientMD is the anchor tenant in a newly redeveloped strip center on Marginal Way in Portland. Several suites are available for lease. ADDITIONAL SIGNIFICANT DEVELOPMENTS Currently under contract to a Scarborough-based developer; redevelopment of Scarborough Downs seems likely. Even if it s not the next Amazon HQ, it looks like a sizable mixed-use redevelopment is inevitable. Maine Medical Center s plan for a $512 million expansion and renovation was approved by the State; groundbreaking is set for The City of Portland is currently in negotiations with several developers looking to transform the vacant lots and existing buildings where the Public Works presently resides in the Bayside neighborhood. Some developers are looking to seek permits and approvals for residential and commercial uses in early The Children s Museum will be moving from 142 Free to Thompson s Point. The 3-story, 30,000± sf building is expected to be ready by the spring of Images: 65 Hanover, Lot 5, Portland Source: Barrett Made WEX Headquarters at Hancock, Portland Source: Jonathan Cohen 20

14 REGIONAL MARKET OBSERVATIONS AUGUSTA, GARDINER & WATERVILLE Augusta Late in 2017, FD Stonewater and the State of Maine broke ground at the former Department of Transportation site on Capitol in Augusta. Plans include a 26,000± sf office building for the Maine Public Employees Retirement System (MainePERS), which is currently located next door to the site. Additionally, a three-story, 104,000± sf office building will be constructed and leased to the State of Maine. The MainePERS building is scheduled to be built first, the existing MainePERS building will be demolished to make way for the 104,000± sf building. The larger building will house approximately 520 state employees, predominantly from the DHHS. Gardiner Work started in 2017 at the former T.W. Dick parcels on Summer. The developers are planning to build 15 units of workforce housing and an 8,000± sf facility leased to Fresenius Medical Care, an international company that specializes in dialysis services. The construction of the buildings commenced in autumn of 2017 and will take approximately nine months to complete. By Nick Lucas, Associate A recent study showing that affordable housing was in high demand in Gardiner was the catalyst for this development. Gardiner has seen growth in the downtown area since the iconic Milliken Block sold for $287,500 in The building has since been converted into an artist space and microbrewery. Waterville Waterville continued to experience the redevelopment of its downtown in 2017 led by Colby College and the Alfond Foundation. Colby College is currently constructing a $25.5 million dollar residential complex at 150 Main. The 100,000± sf building will house 200 students and eight faculty members, with 7,500± sf of retail space. Colby also purchased and demolished the former Levine s clothing store. A 42-room boutique hotel is scheduled to be constructed in its place in the spring of More than $5 million has been invested in The Hains Building located at 173 Main where CGI, a Montreal-based IT company will be a tenant and has pledged to create 200 jobs within four years. The Hains building will also house Colby faculty and two 2,500± sf street level retail units. In 2018 we anticipate the downtown to continue its transformation into a vibrant area with shops and restaurants. Capital Markets Activity 274 Western Avenue in Augusta, a recently constructed 41,235± sf retail plaza, sold as an investment sale for $12 million with a capitalization rate of 6% in Known as Journal Square, tenants include Five Guys Burgers & Fries, Starbucks, Supercuts, US Cellular, Men s Wearhouse, Goodwill, and a land lease to Bangor Savings Bank. The other significant investment sale in the market was the Hathaway Creative Center in Waterville, which sold for $20 million. Maine General is a tenant in the 236,000± sf building which includes high-end apartments and retail offices. The Central Maine Commerce Center in Augusta is a 304,200± sf multi-tenanted office building that has been listed with an asking price of $24 million. The Shaw s Plaza in Augusta was auctioned in late 2017, and other retail centers in the market may meet the same fate in Images: Colby Residence Hall Main, Waterville Source: Colby College Former Hains building Main, Waterville Source: Colby College Former DOT site Capitol, Augusta Source: FD Stonewater 22 23

15 REGIONAL MARKET OBSERVATIONS LEWISTON/AUBURN & MIDCOAST MAINE By Tim Millett, Associate Broker Lewiston-Auburn In November, residents of Lewiston and Auburn soundly rejected the proposed merger of the two cities, therefore, both municipalities will continue as they have since they were both respectively incorporated. Positive momentum with Lewiston s downtown revitalization efforts continued in Spurwink Services and Rinck Advertising moved downtown. Berman & Simmons, a century-long downtown Lewiston law firm, made their commitment to Lewiston known by undergoing a total exterior and interior renovation of the historic Osgood Building at 129 Lisbon. The Hartley Block is poised to start construction in the upcoming year, adding 60 units of mixed-market housing with street level retail units. The Promenade Mall, now known as Gendron Place, acquired its first office tenant, Paychex, and looks to continue repurposing efforts into The most notable investment offering in the market during 2017 was the 63,982 ± SF State of Maine DHHS property at Main. The building is fully leased to four tenants and was priced at $7.5 million. The major story coming out of L-A in 2017 was a high-performing industrial sector. A significant amount of vacant product was absorbed. For example, 32,173 ± SF was leased by Dielectric at 1 Gendron Drive in Lewiston, 47,514 ± SF was leased by Modula at 75 Westminster in Lewiston, and the 120,000± SF former Cascades Auburn Fiber building sold for $2 million to an owner/user. We expect 2018 to be a year characterized by new industrial and multifamily housing construction. As we see industrial rates rise and vacancy decrease in Portland, demand in Lewiston/Auburn will remain strong due to competitive rates, central location, and blue collar workforce. Housing development is slated for the Mount Auburn Avenue community and various sites in Lewiston. Midcoast There was a lot of redevelopment and growth to report on in Brunswick and Topsham in Most notably, 407 units of former Navy base housing were purchased for $45 million and the new owners are already planning to build more units on excess land due to strong demand. Over the six years since the naval base closed, Brunswick Landing has experienced $350 million in private sector investment and is now home to 1,500 jobs. Cook s Corner activity remained strong; Sam s Italian leased a build-to-suit building at 21 Gurnet Road, CDI (Center for Diagnostic Imaging) leased build-to suit space at the entrance to Brunswick Landing on Admiral Fitch Drive, and Summit Realty has indicated their Cook s Corner Mall has major redevelopment plans for 2018 as well. The Topsham Fair Mall area saw continued growth in 2017 and we expect the trend to continue in Both the former Best Buy center and Dick s Sporting Goods center at 105 & 131 Topsham Fair Mall Road sold in The Best Buy center will be redeveloped. In 2018 we anticipate the Midcoast Regional Redevelopment Authority (MRRA) will offer more Navy-owned properties to the private sector. Given the overwhelming success of TechPlace, a manufacturing incubator on the Landing, we should see growth of those startups move from the incubator to their own designated space on the Landing. We also expect new businesses to expand or relocate to Cook s Corner, following Tucker Ford vacating their 157 Pleasant location for the former Bill Dodge Hyundai at 262 Bath Road. Images: 62 Spring, Auburn Source: PDT Architects 188 Lincoln, Lewiston Source: Caleb Johnson Studio 131 Topsham Fair Mall Road, Topsham 24 25

16 NEW ENGLAND OVERVIEW By Evianne Netherwood-Schwesig and Suzanne Duca, CBRE New England Commercial real estate has often been critiqued as being out of step with today s fast-paced, tech-driven, sharing-economy world was arguably the first year in which the industry made major strides in closing that gap, and New England was at the forefront of this transformation. From West Cambridge to Windsor, Connecticut, occupiers and owners have been changing their relationships with the built environment in ways that are affecting all the players in the ecosystem not to mention the end users who ultimately live and work in the reimagined properties. Flexible workplaces are a trend that have been gathering steam in the last few years and epitomizes what much of this new paradigm is about. Driven by the purported preferences of Millennial employees, who make up an ever-increasing share of the workforce, traditional office configurations have become a borderline liability in many places. Instead of long hallways with closed-door private offices and low-ceilinged, fluorescent-lit cube farms, open bench seating and exposed HVAC systems are becoming de rigueur for most remodeling efforts. Glass-walled huddle rooms provide privacy for small group discussions and confidential phone calls, while lounge areas and expanded cafes encourage collaboration and innovation. Boston is particularly well-positioned for this talentdriven economy, with the stability of world-class educational institutions. The perennial strength of these universities also bolsters the overall economy in the region, which has weathered recent downturns much better than much of the country. If there was one struggle in past years, it was trying to identify why so many of these young graduates fled the region after graduation. This issue hasn t been entirely solved, but the tide has been stemmed, partially due to the proliferation of Boston s TAMI (technology, advertising, media and information) and life science industries. Companies in these fields continue to drive demand in Greater Boston, with lab rents, in particular, on a seemingly never-ending upward trajectory. Some landlords with build-to-suit spaces have begun designing them as lab-ready in hopes of luring this lucrative industry segment. It s not just workplaces that are feeling the influence of Millennial tastes. As more people turn to the internet to complete their shopping, an unprecedented convergence of the retail and industrial worlds is occurring. Retailers have been seen transitioning their real estate into experiencedriven showrooms, and sometimes not carrying much inventory they re no longer fighting the idea of the consumer buying online as long as people are still buying their product from them. This means that they need to have competitive shipping options, which increasingly translates to same-day delivery. As a result, warehouse spaces close to the urban core have become a hot commodity, even if the buildings are outdated. By contrast, their suburban brethren are growing into monster logistics centers with more square footage, more loading docks and higher clear heights, in order to accommodate the increased volume that they are responsible for processing. From the design of spaces, to where they are placed, to who occupies them and for how long, it s clear that commercial real estate is going through radical changes. What s less clear is how these changes will affect the long-term health of the market. Will the industry s embrace of these new concepts be forward-thinking, or will some trends prove to be only fads? Perhaps the answer matters less than it would have a decade ago. Commercial real estate is finally showing itself to be able to adapt to changing winds, disassociating its pace of change from the word glacial. As the economy heads towards what many consider to be uncertain waters, this newly developed skillset will enable landlords and tenants to navigate more smoothly, ensuring a straighter course for themselves and all those they interact with

17 ABOUT US NOTES & CREDITS BROKERAGE TEAM CBRE The Boulos Company is Northern New England s largest commercial real estate services firm. The Boulos Company was founded by Joseph Boulos in 1975 and became the Maine affiliate of CBRE the world s largest commercial real estate firm in The company services real estate owners, investors, and occupiers by offering strategic advice and execution for property leasing and sales, along with property and facilities management and project management services. In 2017, CBRE The Boulos Company represented clients in over $312 million in transaction volume. Today, the company, with offices in Portland, Maine, and Portsmouth, NH, consists of 20 licensed brokerage professionals who assist clients in all aspects of commercial real estate transactions across the entire state of Maine and seacoast of New Hampshire. Our client list includes many of the region s largest employers, developers and commercial real estate investors. Information contained herein is researched and provided by our in-house staff of administrative assistants, associates, associate brokers, and brokers. We have included, to the best of our knowledge, all Class A & Class B office buildings in the Greater Portland area. Please feel free to contact us if we have inadvertently missed one. Survey data collected is current as of 12/1/2017. Rents are shown as modified gross and defined as all expenses included, except electricity for lights and plugs, tenant s janitorial, and parking. Rents not quoted as modified gross were converted by the addition of an estimated $1.50 for HVAC and common area maintenance expenses as reported by owner. Retail space is not included in this Survey. Net Absorption measures the total amount of SF leased over a period of time minus space vacated during the same period. Rental rates outlined in this Survey reflect rates for direct lease availabilities. When a range of rental rates are available, the prevailing rate is reported. Only direct lease rates are quoted in cases when direct and sublease space is available. When only sublease space is available, no rate is quoted. Definitions of Class A & B office buildings vary between markets. We define Class A office buildings as those that are investment-grade properties that feature a unique design with immediate access to parking. They must be ADA-compliant and benefit from highly professional property management. Class B office buildings are considered to offer utilitarian space without special amenities, are of ordinary design, except for historic, renovated buildings and feature good maintenance with all floors handicapped accessible. Please note that outside the context of this report, the Greater Portland market uses many definitions and thus any building noted herein may, as a matter of opinion, fall into a different category in the open marketplace. Drew Sigfridson SIOR, Partner, Managing Director Nate Stevens Associate Broker Jessica Estes Partner, VP of Operations Derek Miller Associate Broker Micki Francombe Assistant Office Manager Greg Boulos Partner Ty Hobbs Associate Broker Kim Paquette Administrative Assistant Dan Greenstein Partner Catie Seavey Associate Broker Michelle Peacock Marketing Specialist Tony McDonald CCIM, SIOR, Partner Tim Millett Associate Broker Courtney Acheson Executive Assistant Craig Young CCIM, Partner Jon Rizzo Associate Katherine Gemmecke Front Desk Admin Chris Paszyc CCIM, SIOR, Partner Samantha Marinko Associate Charles Day Broker Nick Lucas Associate 28 Photo: Corey Templeton 29