JLL Research

Louisville | Q1 2017

Industrial Outlook

JLL Research

An in-depth look at the Louisville industrial market. Analysis includes leasing, sales, construction and employment.

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

Q1 2017

Insight

Louisville Industrial Outlook

After finishing 2016 with ten straight years of positive absorption, the Louisville market delivered once again in the first quarter with 605,767 square feet of absorption. Driven by Arvato’s lease signed at Molto’s645,000-square-foot Airport Commerce Center II and multiple deals signed in the Riverport submarket leasing activity started 2017 on a high note. While there are quality large blocks of space available in the market, only three exceed 500,000 square feet of space with one currently under construction. With multiple large tenants in the market, developers will look to begin construction on larger projects as current blocks of available space are absorbed in the next two quarters.

The first quarter saw multiple project announcements within the Airport and East submarkets as developers look to infill sites to attract tenants in the market. As land costs and competition have increased in the Bullitt County and Southern Indiana submarkets, one-off infill sites will continue to attract developers looking to enter or expand in the market. Landlords continue to push leasing rates with average rates remaining at 5-year highs.

OutlookAs the product in the development pipeline delivers in the first half of 2017, vacancy rates are projected to remain inflated and rental rates will level off, at least in the short-term. Investment activity is forecasted to ramp up into 2018 as projects in the pipeline are leased up, and investors look for footholds in the market to add to their portfolios. Located within a day’s drive to two-thirds of the U.S. population and several important distribution hubs, Louisville’s location was made even more desirable with Amazon’s pledge to invest $1.5 billion in a 3.0-million-square-foot air services hub at CVG Airport in Northern Kentucky. This announcement in addition to the UPS Worldport facility and multiple ground hubs in Louisville will continue to drive demand from e-commerce and 3PL users.

Fundamentals Forecast

YTD net absorption 605,767 s.f. ▲QTD net absorption 605,767 s.f. ▲Under construction 1,804,553 s.f. ▲Total vacancy 10.2% ▼Average asking rent (NNN) $3.70 p.s.f. ▲Tenant improvements Falling ▼

0

5,000,000

10,000,000

2013 2014 2015 2016 YTD

2017

Supply and demand (s.f.) Net absorptionDeliveries

Industrial market quick out of the gate to start to 2017

7.2% 6.6% 5.7%

8.7%10.2%

2013 2014 2015 2016 YTD 2017

Total vacancy

$3.30

$3.40

$3.50

$3.60

$3.70

$3.80

2013 2014 2015 2016 YTD 2017

Average asking rents ($/s.f.)

• The modern bulk market built upon momentum from a successful 2016 with 605,767 square feet of positive absorption in Q1.

• Developer confidence remains high as they continue to acquire land for speculative development in every submarket.

• Clarion Partners purchased the 645,840-square-foot Air Commerce II from Molto Properties for $42.3 million to end the quarter.

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

Inventory

(s.f.)

YTD

total net

absorption

(s.f.)

YTD

total net

absorption

(% of stock)

Total

Vacancy (%)

Average

total asking

rent

($ p.s.f.)

YTD

completions

(s.f.)

Under

construction

(s.f.)

Airport 20,169,841 645,840 3.2% 3.3% *$3.90 645,840 452,745

Bullitt County 12,261,199 0 0.0% 10.1% $3.83 0 981,010

East 5,028,451 0 0.0% 0.0% $5.50 0 0

Riverport 11,957,666 -40,073 -0.3% 9.6% $3.14 0 370,798

Southern Indiana 9,460,055 0 0.0% 30.9% $3.86 1,257,600 0

Louisville Totals 58,877,212 605,767 1.0% 10.2% $3.70 1,903,440 1,804,553

Analyzes all industrial buidings greater than 100,000 s.f. with a minimum clear height of 24'

2,117,585

1,014,608

1,750,850

2,234,6481,934,181 2,059,001

2,742,8893,029,702

3,843,783

605,767

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Q1 2017

Statistics

Louisville Industrial Outlook

15.1% 15.6%

12.2%

9.2%8.3%

7.2%6.6%

5.7% 8.7%

10.2%

2.0%

5.0%

8.0%

11.0%

14.0%

17.0%

2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2017

Total vacancy rate (%)

Total net absorption (s.f.)

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

This report analyzes industrial sales in the last 12 months > 100,000 s.f.

$212,852,385

10

*$68

6.15-7%

100.0%

0.0%

6-6.5% 0 - -

7.5% 0.0% 10 $212,852,385

Top 10 sales transactions the past 12 months

Size (s.f.) $ p.s.f. Sale date

645,840 $65 Mar-17

303,369 $138 Apr-16

611,000 $53 Jun-16

470,000 $55 Jun-16

151,750 $117 Feb-17

270,000 $55 Jun-16

221,000 $55 Jun-16

137,500 $82 Jun-16

212,500 $46 Apr-16

Setzer Properties

ARES

Radial Inc. (Formerly eBay)

The LandMark Group

$41,893,105

$32,200,000

$25,605,600

$17,700,000

2311 South Park Rd Monmouth Real Estate Gray Construction $11,304,000

9001 Cane Run Rd Industrial Property Trust Brennan Investment Group $9,700,000

Radial Inc. (Formerly eBay) $14,709,600

7700 Trade Port Dr Industrial Property Trust Radial Inc. (Formerly eBay) $12,040,080

9101 Cane Run Rd Industrial Property Trust

7601 Trade Port Dr Industrial Property Trust

65 Kingbrook Pkwy Berger Foundation

12900 Plantside DrColumbia Property

Investors

649 Omega Parkway Industrial Property Trust

2500 Export Drive Clarion Partners Molto Properties $42,300,000

Building address Buyer company Seller company Sales price $

Sales volume $ by submarket

Warehouse/Dist. sales

volume as % of total YTD

Flex/R&D sales volume as %

of total YTD

Cap rate range

Core Class A Ind.

Core Class A Flex

Average Class A price p.s.f.

YTD* (skewed by Fedex and

Faurecia sales)

At a glance

Total volume YTD

Number of transactions YTD

Average Class A cap rate

YTD

Sales activity by building type

Transactions details

Number of partial interest

transactions

Top sellers (s.f.)Top buyers (s.f.)

Number of domestic

buyers

Foreign capital $

Average partial interest

acquired

Number of foreign

buyers

Domestic Capital $

3,149,124 s.f.

$212,852,3850 s.f.

500,000 s.f.

1,000,000 s.f.

1,500,000 s.f.

2,000,000 s.f.

2,500,000 s.f.

3,000,000 s.f.

3,500,000 s.f.

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

$250,000,000

Warehouse / Distribution

Sum of Price ($) Sum of RBA (SF)

57%

20%

10%

5%4% 4%

Industrial Property Trust Clarion Partners

Columbia Property Investors Berger Foundation

Monmouth Real Estate Another Room Self Storage

31%

21%19%

10%

7%

5%4% 4%

Radial Inc. (Formerly eBay) Molto Properties

ARES Setzer Properties

Brennan Investment Group The LandMark Group

Gray Construction DCT Industrial

$67,455,280

$59,593,105

$53,604,000

$32,200,000

Riverport

East

Airport

Bullitt County

Q1 2017

Sales

Louisville Industrial Outlook

57%

20%

10%

5%4% 4%

Industrial Property Trust Clarion Partners

Columbia Property Investors Berger Foundation

Monmouth Real Estate Another Room Self Storage

31%

21%19%

10%

7%

5%4% 4%

Radial Inc. (Formerly eBay) Molto PropertiesARES Setzer PropertiesBrennan Investment Group The LandMark GroupGray Construction DCT Industrial

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

This report analyzes all industrial developments under construction & new deliveries > 100,000 s.f.

Total leased at delivery (%) 54.0%

Total speculative at delivery (s.f.) 3,835,572

Total BTS at delivery (s.f.) 2,076,969

Total Owner-User at delivery (s.f.) 362,500

Total # of properties delivered 18

Asking rental rate (low - high) $3.69 - $4.25

Top 5 projects delivered past 12 months

Building RBA (s.f.) Delivery dateLeased at

delivery (%)

Crossdock River Ridge 664,800 Q1 2017 0%

Aiport Commerce Center II 645,840 Q1 2017 100%

Van Trust River Ridge 592,800 Q1 2017 0%

LogistiCenter at 480 546,000 Q4 2016 0%

Pinchal River Ridge 458,640 Q3 2016 0%

Total pre-leased (%) 0.0%

Total speculative under construction (s.f.) 1,804,553

Total BTS under construction (s.f.) -

Total Owner-user under construction (s.f.) -

Total # of properties UC 4

Asking rental rate (low - high) $3.75 - $4.25

Top projects currently under construction

Building RBA (s.f.) Delivery datePre-leased

(%)

Velocity 65 Bldg 1 721,050 Q3 2017 0%

New Cut Center Bldg 1 452,745 Q2 2017 0%

Riverport Distribution Center 370,798 Q2 2017 0%

Park 65 Business Center 259,960 Q4 2017 0%

Speculative

Speculative

Speculative

Submarket

Under construction

1,804,553Under construction (s.f.)

Under construction in-depth

Upcoming deliveries by year (s.f., excludes YTD completions)

New deliveries

Completions in-depth

6,275,041Total delivered past 12 months (s.f.)

Historical deliveries (s.f.)

Construction typeOwnerSubmarket

Southern Indiana

Bullitt County

Southern Indiana

Airport

Southern Indiana

Pinchal & Co.

Dermody Properties

Van Trust

Molto

Crossdock Dev.

Speculative

Speculative

Bullitt County

Riverport

Airport

Bullitt County

Speculative

Owner Construction type

Speculative

Johnson Development

IAC

Main Street Realty

Browning

Speculative

Speculative

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

2010 2011 2012 2013 2014 2015 2016 YTD 2017

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2017

Speculative

Q1 2017

Construction

Louisville Industrial Outlook

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

Q1 2017

Construction

Louisville Industrial Outlook

New Cut Center Bldg 1Signed tenant(s): noneSquare Feet: 452,745Landlord: Main Street Realty

Est. completion: Q2 2017

Gateway 600Signed tenant(s): noneSquare Feet: 592,800Landlord: VanTrust

Completed: Q1 2017

Air Commerce Center IISigned tenant(s): ArvatoSquare Feet: 645,840Landlord: Molto Properties

Completed: Q1 2017

Velocity 65 Bldg 1Signed tenant(s): noneSquare Feet: 721,000Landlord: Browning Investments

Est. completion: Q3 2017

Crossdock River RidgeSigned tenant(s): noneSquare Feet: 664,800Landlord: Crossdock Development

Lewis and Clark Bridge

Completed: Q4 2016

Completed: Q1 2017

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

23%

13%

13%13%

12%

10%

7%

Trade, Transportation & Utilities

Educational & Health Services

Professional & Business Services

Manufacturing

Government

Leisure & Hospitality

Financial Activities

Mining, Logging & Construction

Other Services

Information

Q1 2017

Employment

Louisville Industrial Outlook

4.7%U.S. unemployment

1.5%U.S. 12-month job growth

4.7%Louisville unemployment

2.8%Louisville 12-month job growth

5.0%Kentucky unemployment

1.6%Kentucky 12-month job growth

0.0%

0.7%

1.4%

2.1%

2.8%

3.5%

2013 2014 2015 2016 2017

Louisville U.S.

-300

100

100

100

700

1,100

1,600

4,400

4,700

5,300

-2,000 -1,000 0 1,000 2,000 3,000 4,000 5,000 6,000

Government

Information

Leisure & Hospitality

Other Services

Financial Activities

Educational & Health Services

Mining, Logging & Construction

Trade, Transportation & Utilities

Manufacturing

Professional & Business Services

-2.0

3.0

8.0

13.0

18.0

2013 2014 2015 2016 2017

Professional & Business Services Information

Government Financial Activities

0%

4%

8%

12%

400,000

500,000

600,000

700,000

800,000

2013 2014 2015 2016 2017

Employment Unemployment

Employment vs. unemployment rate

Employment by industry Office employment trends (12-month change, 000s)

Job growth by sector (12-month change)

Job growth (12-month change)

Job growth by sector (12-month change)

© 2017 Jones Lang LaSalle IP, Inc.

All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

Andrew BatsonVice President, Director of Research+1 216 937 4374andrew.batson@am.jll.com

Ross BratcherResearch Analyst+1 513 719 3706ross.bratcher@am.jll.com

About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. AFortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $136 billion. At year-end 2016, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of more than 77,000. As of December 31, 2016, LaSalle Investment Management has $60.1 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.

About JLL Research

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