Research & Forecast Report NASHVILLE INDUSTRIAL 2nd Quarter 2016 Strong Industry and Robust Development Benefit Industrial Market at Mid-Year 2016 2Q 2016 Summary > > The tightening market coupled with high demand continues to push rental rates upward. Average industrial rent reached $4.81 per square foot, a 4.6% increase since last quarter and a 25.5% increase over the last 12 months. > > At the close of the second quarter, Nashville s industrial market absorbed 3,330,799 million square feet, exceeding last year s mid-year 2015 numbers by 1.4M square feet. > > Nashville s industrial vacancy rate has decreased for the ninth consecutive quarter, down to 4.5% at mid-year 2016. > > Nashville boasts 4.2 million square feet of industrial space under construction, with 3.5 million square feet scheduled for completion by the end of 2016. > > The outcome of the Brexit vote has created economic uncertainty in markets around the world. Andrew Nelson, Chief U.S. Economics with Colliers International, predicts that the fallout from Brexit should do little to alter tenant demand. Meanwhile, the impact on property transactions is uncertain, as the Brexit volatility could heighten investor caution. Nashville Economic Market The first half of 2016 has been very promising for the future of Nashville s industrial market, as demand for modern space continues to ignite new development, job growth in the manufacturing sector remained consistent, and existing industrial giants expanded their footprint and investment in the region. The presence of Nashville s booming auto manufacturing industry continues to bode well for the industrial market. Nissan is currently building a 1.5M square foot supplier park, investing $160 million in Rutherford County, and is planning to create 1,000 new jobs. This expansion will bring over 400 suppliers to the park. IDI is building a 760,000 square foot distribution center in Wilson County for Nissan that will deliver in 3Q 2016. Nashville has experienced consistent job growth in its manufacturing industry from January through May of this year. One in three manufacturing jobs in Nashville is in the auto industry, according to Moody s Analytics. Given the strength of Nashville s automotive industry and strong job gains, the industrial market may have yet to hit its stride and is not slowing down any time soon. Industrial Market Indicators Relative to prior period Q2 2016 Q3 2016* VACANCY NET ABSORPTION CONSTRUCTION RENTAL RATE** Note: Construction is the change in Under Construction. *Projected **Rental rates for current quarter are for the entire metro. Rent forecast is for metro-wide rents. Summary Statistics 2Q 2016 Nashville Industrial Market Q2 2015 Q1 2016 Q2 2016 Vacancy Rate 6.1% 4.6% 4.5% Absorption 799,923 2.0M 1.4M New Supply 310,541 51,800 790,820 Under Construction 2.5M 2.2M 4.2M Asking Rents Per Square Foot Per Year Overall Asking Rate $4.81 Flex $9.38 Bulk $4.00 Small/Mid-Range $7.12 Job Growth & Unemployment Unemployment May-15 May-16 Nashville 4.7% 3.0% Tennessee 5.8% 4.1% U.S. 5.5% 4.7% Job Growth Annual Change # of Jobs Nashville 2.7% 25,000 Tennessee 2.1% 61,000 U.S. 1.7% 2.4M
Notable Development Rising rental rates and high occupancy fueled construction and development throughout the Nashville region during the first quarter. 4.2 million square feet are now under construction throughout the region, with 3.5 million square feet scheduled for completion by the end of 2016. The Nashville market currently has 4.8M square feet of industrial space in the pipeline. Nearly 800,000 square feet of industrial space was added to the market during the second quarter, and 72% of this space is preleased. Prologis CentrePointe 3 (148,050 SF) and Panattoni s CentrePointe Distribution Park Building 1 (601,520 SF) in the Southeast submarket, and Ameriplex Building B (41,250 SF) in the East submarket were delivered this quarter. > > The largest speculative developments in the region totaling 731,520 square feet, Panattoni s CentrePointe Buildings II & III, are under construction in the Southeast submarket, and will be added to the market in 2Q 2017. Panattoni CentrePointe Building I Panattoni CentrePointe Bldg. III Rendering Skyline Distribution Center Rendering > > Prologis CentrePoint III & IV in La Vergne is a development that includes two 150,000 square foot buildings. Both buildings are already fully leased. > > Construction continues on the 1.5 million square foot Nissan Supplier Park in the Southeast submarket. > > Speculative construction continues on Panattoni s Skyline Distribution Park. The park includes three warehouses 100,000, 125,000 and 375,000 square feet and will add nearly 600,000 square feet in the North submarket in 4Q 2016. SouthPark Business Center Rendering > > SouthPark 24 Business Center, a notable development in the Southeast submarket, is a 172,420 square foot project under construction set for delivery in 3Q 2016. Nashville Market New Deliveries 10-Year Vacancy & Inventory 8000000 200 12% 7000000 6000000 190 10% Square Feet 5000000 4000000 3000000 2000000 1000000 Total Inventory (In Millions of SF) 180 170 160 8% 6% 4% 2% Average Total Vacancy (%) 0 2000 2001 2002 2003 200420042006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 150 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0% Deliveries 10-Year Average Deliveries Total Inventory Average Total Vacancy 2 Nashville Research & Forecast Report 2Q 2016 Industrial Colliers International
Vacancy & Availability > > Nashville s industrial vacancy rate has decreased for the ninth consecutive quarter down to 4.5% in the second quarter. > > The overall vacancy rate for flex space is down for the tenth consecutive quarter, closing out mid-2016 at a record 4.5% low despite a net absorption of negative 114,379 square feet. Only 660,230 square feet of vacant flex space remains in the Nashville market. > > New supply totaling nearly 800,000 square feet helped alleviate demand for Class A industrial space during the second quarter. Options in the market for an industrial tenant seeking to lease over 100,000 square feet are limited; eight projects are currently under construction. > > New industrial product coming to the market over the next half of 2016 will likely result in Nashville s vacancy rate remaining steady into 2017. Market Vacancy Snapshot Rental Rates Snapshot IBD 2.1% 5.0% 4.5% Small/ Mid-Range NORTH SOUTHEAST Bulk EAST $4.14 $4.28 $4.85 Flex $6.93 Rental Rates > > The tightening market coupled with high demand continues to push rental rates upward. Average industrial rent reached $4.81 per square foot, a 4.6% increase since last quarter and a 25.5% increase over the last 12 months. > > The average rental rate for flex product has reached a new record high at $9.38 per square foot, marking the first quarter that market flex space rent has surpassed $9.00 per square foot. > > Despite strong construction levels and a robust amount of industrial development in the pipeline, Nashville s industrial rents can be expected to trend upward throughout the remainder of 2016, as vacancy continues to tighten and tenant demand for modern space remains high. SOUTHWEST WEST MARKET Historical Rental Rates $8 $6 $4 $2 $4.81 $5.19 $7.20 Absorption & Leasing Activity > > At mid-year 2016, Nashville s industrial market absorbed 3,330,799 million square feet, exceeding last year s mid-year 2015 numbers by 1.4M square feet. > > The industrial market experienced a strong first quarter with 1,424,483 square feet absorbed, marking the ninth consecutive quarter of positive absorption. > > Large occupancies in the market contributed to a strong first quarter 2016. Move-ins including Sinomax USA s 505,000 square feet at the Whirlpool building in the Southeast submarket, FedEx s 210,526 square foot occupancy at its new distribution facility in the East submarket, and Veritiv s occupancy of 151,200 square feet at CentrePoint 4. > > Notable leases signed this quarter representing a combined 705,700 square feet of leased space included US Lumber Group LLC (270,000 SF) SF), Falken Tire (148,175 SF) and Elite Flooring (34,299 SF). Square Feet $0 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Market Average Small/Mid-Range Bulk Absorption, New Supply & Vacancy Rates 8000000 7000000 6000000 5000000 4000000 3000000 2000000 1000000 0-1000000 -2000000-3000000 -4000000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 New Supply Net Absorption Vacancy 12.0% 10.5% 9.0% 7.5% 6.0% 4.5% 3.0% 1.5% 0.0% Vacancy Rate 3 Nashville Research & Forecast Report 2Q 2016 Industrial Colliers International
Q2 Notable Deals Q2 2016 NOTABLE INVESTMENT ACTIVITY PROPERTY BUYER SALE PRICE SIZE SF SUBMARKET Airpark Business Center Silverman Group $87,000,000 1,155,037 Southeast 1870 General George Patton Drive Horn USA Inc. $10,600,000 100,880 Southwest 600 11th Avenue North Pappas Properties $10,000,000 25,250 IBD 50 Rachel Drive Harrod Properties $6,600,000 32,269 East 1120 Menzler Road HG Properties LLC $5,700,000 88,500 IBD Q2 2016 NOTABLE LEASING ACTIVITY PROPERTY TENANT LEASE TYPE SIZE SF SUBMARKET 211 Nesbitt Lane US Lumber Group, LLC Renewal 270,000 North 104 Challenger Drive Falken Tire New 124,000 North CentrePoint 3 Veritiv New 98,700 Southeast 3607 Trousdale Drive Cambria New 67,197 Southwest 2300 Clifton Avenue Mattress Firm New 50,400 IBD 520 & 917 Airpark Center Drive Elite Flooring Renewal 34,299 Southeast 840 Cowan Street Accurate Staging Renewal/Expansion 31,104 IBD 750 Cowan Street Soundcheck LLC Expansion 30,000 IBD *Bold text indicates a Colliers transaction. 1. West 2. North 3. IBD 4. East 5. Southeast 6. Southwest DEFINITIONS Colliers Inventory All industrial and flex properties of more than 10,000 SF including owner-occupied. Research subject to revisions due to discrepancies in past reporting. Flex A type of building designed to be versatile, which may be used in combination with office R&D, quasi-retail sales, and industrial warehouse and distribution uses. Leasing Activity The square footage that is committed to and signed for under a lease obligation in each quarter, including direct leases, subleases, renewals of existing leases, and preleasing activity for buildings under construction or planned. Absorption (Net) The net change in occupied space between the current quarter and the previous quarter, calculated by summing all the positive changes and subtracting all the negative changes. Vacancy Rate Percentage rate of the total amount of vacant space divided by the total amount of existing inventory. Build-To-Suit Property that can be leased or owned by a tenant that was developed specifically for them. Triple Net Rent (NNN) Includes rent payable to the landlord and does not include additional expenses such as taxes, insurance, maintenance, janitorial and utilities. All industrial and high-tech/r&d rents in this report are quoted on an annual, triple net per square foot basis in U.S. dollars. New Construction Includes completed speculative and build-to-suit construction. New construction quoted on a net basis after any demolitions or conversions. 4 Nashville Research & Forecast Report 2Q 2016 Industrial Colliers International
2Q 2016 Submarket Comparisons MARKET BUILDINGS TOTAL INVENTORY (SF) DIRECT VACANT (SF) SUBLEASE VACANT (SF) TOTAL VACANCY RATE 2Q NET ABSORPTION YTD NET ABSORPTION AVERAGE ASKING RENTAL RATE (PSF) EAST Small/Mid-Range 221 5,153,425 75,580 0 1.5% -1,017 49,454 $7.31 Bulk 134 33,492,598 1,137,371 0 3.4% 348,275 380,335 $3.60 Flex 54 1,875,664 131,104 0 7.0% -3,508-3,745 $8.44 East Total 409 40,521,687 1,344,055 0 3.3% 343,750 426,044 $4.14 IBD Small/Mid-Range 321 6,754,156 151,824 0 2.2% -34,104-52,604 $10.05 Bulk 78 9,416,602 357,025 30,000 4.1% 110,094-4,906 $4.07 Flex 46 1,792,354 41,608 2400 2.4% -13,300-16,290 $10.97 IBD Total 445 17,963,112 550,457 32,400 3.2% 62,690-73,800 $6.93 NORTH Small/Mid-Range 355 7,634,123 129,508 0 1.7% 53,240 28,806 $5.47 Bulk 243 39,123,177 1,608,521 0 4.1% 86,611 777,189 $3.64 Flex 75 3,295,458 62,629 6,991 2.1% 289-11,202 $9.70 North Total 673 50,052,758 1,800,658 6,991 3.6% 140,140 794,793 $4.28 SOUTHEAST Small/Mid-Range 213 4,740,839 129,311 0 2.7% 34,141 60,133 $7.04 Bulk 225 50,324,508 3,263,025 0 6.5% 1,032,453 1,964,985 $3.93 Flex 92 4,295,322 352,904 1,792 8.2% -78,385-113,943 $8.83 Southeast Total 530 59,360,669 3,745,240 1,792 6.3% 988,209 1,911,175 $4.85 SOUTHWEST Small/Mid-Range 137 3,030,446 69,424 0 2.3% -57,008-23,066 $7.15 Bulk 77 8,072,795 312,418 202,895 6.3% -45,803-62,298 $6.63 Flex 61 3,452,882 71,985 10,000 2.3% -19,475-7,772 $13.51 Southwest Total 275 14,556,123 453,827 212,895 4.5% -122,286-93,136 $7.20 WEST Small/Mid-Range 105 2,201,528 56,260 0 2.6% 73,380 73,380 $6.57 Bulk 39 7,809,267 620,893 0 8.0% -61,400 292,343 $4.57 Flex 8 222,257 0 0 0.0% 0 0 $7.25 West Total 152 10,233,052 677,153 0 6.6% 11,980 365,723 $5.19 MARKET Small/Mid-Range 1,352 29,514,517 611,907 0 2.1% 68,632 136,103 $7.12 Bulk 796 148,238,947 7,299,253 232,895 5.0% 1,470,230 3,347,648 $4.00 Flex 336 14,933,937 660,230 21,183 4.5% -114,379-152,952 $9.38 MARKET TOTAL 2,484 192,687,401 8,571,390 254,078 4.5% 1,424,483 3,330,799 $4.81 5 Nashville Research & Forecast Report 2Q 2016 Industrial Colliers International
554 offices in 66 countries on 6 continents United States: 153 Canada: 34 Latin America: 24 Asia Pacific: 231 EMEA: 112 $2.5 billion in annual revenue MARKET CONTACT: Janet Miller CEDC FM CEO & Market Leader +1 615 850 2704 janet.miller@colliers.com REGIONAL AUTHOR: Katie Barton CPRC Director of Research +1 615 850 2758 katie.barton@colliers.com Colliers International Nashville 523 3rd Avenue Nashville, TN 37210 +1 615 850 2700 www.colliers.com/nashville 2 billion square feet under management 16,000 professionals and staff About Colliers International Colliers International is a global leader in commercial real estate services, with more than 16,300 professionals operating out of 554 offices in 66 countries. Colliers International delivers a full range of services to real estate occupiers, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and insightful research. Colliers International has been recognized and ranked by the International Association of Outsourcing Professionals Global Outsourcing 100 for 10 consecutive years, more than any other real estate services firm. colliers.com Copyright 2016 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.