Economic Indicators MSA Employment MSA Unemployment U.S. Unemployment Market Indicators Overall Net Absorption/Overall Asking Rent 4-QTR TRAILING AVERAGE 2,500,000 2,000,000 1,500,000 1,000,000 500,000 INDIANAPOLIS INDUSTRIAL Overall Vacancy Q2 17 Q2 18 1059.0k 1075.2k 3.3% 3.0% 4.3% 3.8% 12-Month Forecast Numbers above are quarterly averages; May 2018 data used to represent Q2 2018 for Overall Vacancy Overall Absorption Under Construction Average Asking Rent* *Rental rates reflect net asking $psf/year ** Q2 17 Q2 18 5.1% 5.2% 459K 2.0M 7.2M 7.6M $3.74 $4.09 0 2011 2012 2013 2014 2015 2016 2017 2018 8% 7% 6% 5% 4% 3% 2% 1% Net Absorption Historical Average = 6.1% Asking Rent, $ PSF 12-Month Forecast 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 Economy The economy continues to provide fuel for local industrial real estate growth. The Circle City continues to operate near full employment while sustaining consistent wage growth. For 16 of the past 17 consecutive quarters, wage growth has remained above 2.5%. This is significant to the industrial sector because labor costs account for nearly 21% of revenue. One percentage point in labor cost inflation could negatively affect earnings by as much as 1.5%. Locally, Indiana s rising labor force participation rate (65.4%) and falling unemployment rate (3.0%) have forced companies to pay higher wages to attract talent. Indiana also continues to add jobs. Construction jobs grew 5.6% year-over-year (YOY) followed by Trade, Transportation, and Utilities jobs at 3.0% YOY and Manufacturing jobs at nearly 1.0% YOY. Production has not missed a beat either. The Institute for Supply Management (ISM) manufacturing purchasing managers index (PMI), a solid indicator for industrial space demand, topped out at 60.2 in June. The reading represented the strongest expansion in the manufacturing sector in four months and the highest reading since 2004. Current growth suggests the economy is shifting into a higher gear. Industrial Production Index (INDPRO) supports this view, providing another new historical high in April (107.339) before falling slightly in May (107.306). From a consumer standpoint, evaluation of present-day conditions were mostly unchanged. The Conference Board reported an increase to the Consumer Confidence Index in May to 128.8 ahead of a minor dip in June to 126.4. The slight reduction in optimism suggests less confidence in future economic conditions which can partly be attributed to current trade tensions with China. The recent announcement of $34 billion in levies on US soybeans, airplane, and motor vehicle exports comes after $34 billion in tariffs on Chinese auto parts, electronic components, jet engine parts, compressors and other machinery exports. For a sector that has been squeezed by trade tensions and rising labor costs, the market does not appear to be slowing, but rather keeping speed into future quarters. Market Overview The industrial market performed exceptionally well during the second quarter 2018, with positive 2.1 million square cushmanwakefield.com
feet (msf) directly absorbed. Among the industrial submarkets, the Southwest posted the largest net absorption total with positive 1.7 msf for the quarter. Other top-performing submarkets include the Northeast and the South. Among the major industrial product types, Modern Bulk facilities experienced positive 1.5 msf absorption followed by Medium Distribution facilities with positive 291,326 square feet (sf) and Manufacturing with positive 127,258 sf. THERE ARE CURRENTLY 24 PROJECTS TOTALING NEARLY 7.6 MSF UNDER CONSTRUCTION WITH JUST OVER 25% PRELEASED. Six newly constructed buildings were delivered during second quarter 2018 totaling 1,649,425 sf. The Southwest submarket experienced the most deliveries with three buildings totaling 1,192,042 sf. This total included Duke Realty s new 708,230-sf build-to-suit for Hewlett Packard at 1301-1397 Smith Rd. The industrial market will continue to see elevated construction numbers throughout 2018. Currently, 24 projects totaling nearly 7.6 msf under construction with just over 25% preleased. Rental rates continue to rise rapidly, up 8.2% YOY. Even though demand kept step with supply for second quarter 2018, we expect that supply will edge out demand causing rental rate growth to slow slightly, but remain at a healthy pace for the remainder of 2018. Vacant Space by Product Type PERCENTAGE OF TOTAL VACANT SPACE Q4 2017 50% 6% 7% Office Showroom 3% 18% 16% Manufacturing Employment INDIANAPOLIS-CARMEL-ANDERSON MSA Medium Distribution Traditional Bulk Modern Bulk Manufacturing Flex Source: Cushman & Wakefield Research MSA Manufacturing Employment (Ths., SA) 94 92 90 88 86 84 82 80 78 76 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: U.S. Bureau of Labor Statistics Historical Net Absorption INDIANAPOLIS CONTINUES THE STREAK OF STRONG ABSORPTION Outlook The industrial market performed exceptionally well during the second quarter 2018 with positive 2.1 msf directly absorbed. We expect supply to edge out demand during the second half of the year. Six buildings were constructed during the second quarter 2018 totaling 1.6 msf leaving 24 projects totaling nearly 7.6 msf under construction and just over 25% preleased. Rental rates continue to rise rapidly, up 8.2% YOY. Expect rental rate growth to slow slightly, but still continue at a healthy pace. 9 8 7 6 5 4 3 2 1 0 Net Absorption (MSF) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: The Conference Board cushmanwakefield.com I 2
SUBMARKET TOTAL BLDGS INVENTORY SUBLET VACANCY DIRECT VACANT DIRECT VACANCY RATE CURRENT DIRECT NET ABSORPTION YTD DIRECT NET ABSORPTION TOTAL OCCUPIED UNDER CONSTRUCTION OVERALL ASKING RENT* Downtown 180 11,000,461 57,306 64,482 0.6% 59,310 23,800 10,878,673 0 $4.74 East 507 41,863,045 418,691 1,396,460 3.3% 27,840 503,510 40,047,894 490,000 $3.69 Northeast 256 13,773,020 27,764 597,346 4.3% 163,180 172,862 13,147,910 0 $7.71 North 159 6,932,248 131,774 281,690 4.1% 8,308 102,121 6,518,784 223,656 $4.54 Northwest 485 55,443,602 150,372 3,783,069 6.8% 67,378 120,513 51,510,161 2,077,898 $4.10 Southeast 261 18,802,517 5,000 457,229 2.4% -19,743-7,503 18,340,288 0 $4.27 South 132 15,423,582 0 862,719 5.6% 108,105 92,807 14,560,863 2,354,102 $3.98 Southwest 518 80,687,451 203,341 4,703,252 5.8% 1,707,465 1,861,769 75,780,858 2,429,962 $3.73 West 156 15,546,988 0 332,510 2.1% -7,200 82,000 15,214,478 0 $6.28 PROPERTY TYPE Office Showroom 486 14,085,968 26,473 860,575 6.1% 71,089 183,052 13,198,920 30,000 $7.00 Medium Distribution 967 55,435,597 462,055 2,169,002 3.9% 291,326 399,851 52,804,540 1,899,812 $4.72 Traditional Bulk 145 35,991,305 271,960 1,998,246 5.6% 51,114 274,446 33,721,099 0 $3.52 Modern Bulk 166 85,187,790 164,875 6,294,692 7.4% 1,592,010 1,992,631 78,728,223 5,555,086 $3.49 Manufacturing 571 57,093,971 0 779,118 1.4% 127,258 130,043 56,314,853 90,720 $3.90 Flex 240 8,350,864 68,885 367,124 4.4% -18,154-28,144 7,914,855 0 $7.68 Transport 79 3,327,419 0 10,000 0.3% 0 0 3,317,419 0 $5.60 2,654 259,472,914 994,248 12,478,757 4.8% 2,114,643 2,951,879 246,994,157 7,575,618 $4.09 *Industrial asking rents converted to NNN Key Transactions Q2 2018 (±250,000 SF) 1801 Innovation Blvd, Clayton 545,010 Geodis Logistics Direct Southwest 8677 Logo Athletic Ct, 536,804 adidas Renewal East 3522 Perry Blvd, Whitestown 440,314 Undisclosed Direct Northwest 5352 Performance Way, Whitestown 380,000 LaCrosse Footware Inc. Renewal Northwest 4255 S 500 E, Whitestown 369,499 Kuehne + Nagel d/b/a Rockwell Automation Direct Northwest 2155 Stafford Rd, Plainfield 357,000 Clorox Direct Southwest 317 S Enterprise Blvd, Lebanon 305,597 General Cable Industries, Inc Renewal Northwest 5425 Exploration Dr, 280,163 Integrated Distribution Services Direct Southwest Industrial Deliveries 2018 (±300,000 SF) 1301-1397 Smith Rd/Allpoints Midwest, Plainfield 708,230 Build-to-Suit - HP/Ryder Logsitics Q2 18 Southwest 901 Edwards Dr, Lebanon 338,500 Build-to-Suit - Kens Foods Q2 18 Northwest 701 Columbia Rd/MetroAir Bldg 6, Plainfield 382,654 Speculative Q2 18 Southwest Upcoming Industrial Deliveries (±425,000 SF) 3124 Plainfield Rd/GreenPark III, Plainfield 702,000 Speculative Q3 18 Southwest 831 N Graham Rd, Greenwood 495,977 Speculative Q3 18 South Collins Rd/ Newgistics 446,500 Build-to-Suit Newgistics Q3 18 South 2856 S Ronald Reagan Parkway, Easton Cascade 430,000 Build-to-Suit - Bauer, Easton Cascade Q3 18 Southwest cushmanwakefield.com I 3
INDUSTRIAL SUBMARKETS INDIANAPOLIS Cushman & Wakefield One American Square, Suite 1800, IN 46282 USA cushmanwakefield.com Matt Niehoff Senior Research Analyst Direct +1 317 639 0460 matt.niehoff@cushwake.com Mitch Ostrowski Research Analyst Direct +1 317 639 0487 mitch.ostrowski@cushwake.com About Cushman & Wakefield Cushman & Wakefield is a leading global real estate services firm that delivers exceptional value by putting ideas into action for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with 48,000 employees in approximately 400 offices and 70 countries. In 2017, the firm had revenue of $6.9 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter. 2018 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources believed to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy.
Methodology Cushman & Wakefield s quarterly estimates are derived from a variety of data sources, including its own proprietary database and historical data from third party data sources. The market statistics are calculated from a base building inventory made up of industrial properties deemed to be competitive in the Central Indiana marketplace. Older buildings unfit for occupancy or ones that require substantial renovation before tenancy are not included in the competitive inventory. The inventory is subject to revisions due to resampling. Vacant space is defined as space that is available immediately or imminently after the end of the quarter. Sublet space still occupied by the tenant is not counted as available space. The figures provided for the current quarter are preliminary and all information contained in the report is subject to revisions based on additional data received. New Statistical Series To ensure the highest level of data integrity, Cushman & Wakefield periodically undertakes a comprehensive, quantitative and qualitative, review of all industrial inventory in the Central Indiana marketplace. During Q1 2017, Cushman & Wakefield Research conducted an extensive review of the industrial market and transitioned to a new data series. Explanation of Building Characteristics Office Showroom: Buildings designed to meet the needs of distributors or sales agents who do not require high ceilings or rail service. Tenants are typically under 25,000 sf, but sizes can vary. Common features include ceiling heights of 12-16 ; few docks and/or drive-indoors; and office space of 20% to 25%. Medium Distribution: Buildings designed to meet the needs of intermediate-sized distributors. Tenants typically range from 12,000 sf to 75,000 sf. Common features include 14' 20' ceilings; docks and/or drive-in doors; office space of 10% to 20%; and, occasionally, rail service. Traditional Bulk: Buildings constructed prior to 1995 designed for large-scale distributors. Tenants typically are over 100,000 sf, with sizes varying. Common features include 20' 28' ceilings; multiple dock height doors with levelers and seals; office space of 1% to 5%; and, often, rail service. Modern Bulk: Buildings constructed since 1995 designed for large-scale distributors. Tenants typically are over 100,000 sf, with sizes varying. Common features include 28' clear ceiling heights or higher; multiple dock height doors with levelers and seals; office space of 1% to 5%; and, often, rail service. Flex: Buildings generally distinguished by office space ranging from 25% to 100%. Tenants typically are under 30,000 sf, but sizes can vary considerably. Common features include 12' 16' ceilings; high parking ratios; common dock areas; individual service doors; full window lines; and, landscaping. Manufacturing: Buildings designed for production, research, and development of goods. Tenant size varies from 5,000 SF to over 1 msf. Common features include 16' 24' ceilings; heavy power capacity; processed gas; floor drains; cranes; 1% to 10% office space; and, rail service. Transport: Buildings designed for vehicle upkeep, repair and storage. Tenants typically are 5,000 to 20,000 sf. Common features include 16' 24' ceilings. About Cushman & Wakefield Cushman & Wakefield is a leading global real estate services firm that delivers exceptional value by putting ideas into action for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with 48,000 employees in approximately 400 offices and 70 countries. In 2017, the firm had revenue of $6.9 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter. 2018 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources believed to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy. cushmanwakefield.com I 5