Industrial Real Estate and Containerized Trade

Over the past 10 years, international trade and outsourcing have become the primary drivers of demand for industrial space. Of course, total domestic sales and production, the final consumers of imports, drive the aggregate demand, but international trade drives demand on a market and submarket level. The Inland Empire submarket of the greater Los Angeles market is the best example. Over the past ten years, the national warehouse market has grown by about 20 percent, while the Inland Empire market has doubled in size, grown to the seventh largest warehouse market in the country and become considered its own market instead of just a submarket of Los Angeles. Proximity to the Ports of Los Angeles and Long Beach and a similar rate of growth in containerized traffic, measured by twenty-foot equivalent units – TEUs, were the underlying drivers. However, when discussing TEUs, it is important to look beyond the headlines and focus on the true driver of industrial demand: imports. In March 2011, the Port of Los Angeles reported total volume of 600,796 TEUs. Of these, 110,923 were empty and 192,849 were loaded outbound – exports. The remaining 297,023 were loaded inbound – imports. Year-over-year growth was 10.2 percent for imports, 19.2 percent for exports and -6.6 percent in empties, blending to a total growth of 9.2 percent. The accompanying chart shows 2010 and 2009 volumes of only loaded, inbound TEUs. These numbers will appear smaller than what market participants are used to seeing, but these are the volumes impacting the local industrial real estate markets. The growth, 16.3 percent, and the overall story remain intact; the purpose here is to capture and track the underlying driver that is impacted by constantly changing macroeconomic variables such as the strength of the U.S. dollar.   Source: Grubb & Ellis, Zepal

Need more information? Contact:

Rene Circ

National Director of Research, Industrial

312.224.3962

Bryan Hague Joins Grubb & Ellis Tucson

Bryan Hague Rejoins Grubb & Ellis Company

as Associate Vice President, Retail Group

TUCSON, Ariz. (April 20, 2011) – Grubb & Ellis Company (NYSE: GBE), a leading real estate services and investment firm, today announced that Bryan Hague has rejoined the company as associate vice president, Retail Group, focusing on retail leasing and investments.    

“Bryan is a seasoned commercial real estate professional who has built an impressive track record representing clients in transactions valued in excess of $250 million over his 13-year career.  He is an excellent addition to our office and we are pleased to have him on board,” said Howard Kong, vice president and managing broker of Grubb & Ellis’ Tucson office.

Prior to joining Grubb & Ellis, Hague spent four years as president of River Rock Investments LLC, a locally based commercial real estate investment and development company.  While with River Rock, he syndicated the acquisition and development of land, hotel, retail and office properties with an aggregate value in excess of $30 million.  Previously, Hague spent seven years with Bourn Partners LLC, where he was responsible for numerous lease, disposition and acquisition transactions valued in excess of $150 million.  Hague began his career with Grubb & Ellis in 1997. 

Clients he has represented include The Home Depot Inc., Well Fargo Bank N.A., Metro Fitness, Goodwill Industries International Inc. and Pizza Hut Inc. 

Hague holds a bachelor’s degree from Brigham Young University.  He is a member of the International Council of Shopping Centers and serves on the executive board of directors of the Boy Scouts of America, Catalina Council. 

Land Purchase for New Church in Green Valley

Grubb & Ellis Company Represents Corporation of Presiding Bishop of the Latter-day Saints in Land Purchase for New Church

TUCSON, Ariz. (April 20, 2011) – Grubb & Ellis Company (NYSE: GBE), a leading real estate services and investment firm, today announced that Jeff Utsch, vice president, Investment Services, represented the Corporation of the Presiding Bishop of the Latter-day Saints in its purchase of 5.4 acres of land located at the northwest corner of Desert Bell and La Canada in Green Valley, for $1.3 million. 

The land will be used for the construction of a church, which will commence later this year.  According to Utsch, the land was chosen for its central location at a prominent intersection with close access to Interstate 19. 

The seller, WLC Green Valley Ltd. Partnership, represented itself in the transaction.     

Broad Dollar Index; Dollar vs. Currencies of Broad Group of Trading Partners

April 18, 2011

Broad Dollar Index; Dollar vs. Currencies of Broad Group of Trading Partners

After a multi-decade run of appreciation, the U.S. dollar has fallen in value by some 26 percent since 2002 against the currencies of a large group of major U.S. trading partners. The dollar spiked during the credit crisis of late 2008 and early 2009 as investors piled into safe U.S. Treasuries, only to resume its decline when the worst of the crisis passed. The weak dollar reflects the U.S. economy’s sluggish growth prospects relative to other countries where interest rates are higher. It also reflects expansionary monetary policies pursued by the Federal Reserve to stimulate the economy, i.e. policies to keep interest rates low, and it may reflect negative investor sentiment over high levels of deficit spending by the federal government. The weak dollar benefits U.S. exporters by making their wares cheaper for overseas buyers, but on the negative side, it contributes to inflationary pressures in markets that import U.S. goods, and it could be a harbinger of inflation in the U.S., already evident in gas and food prices. For commercial real estate, the weak dollar has stimulated demand for industrial properties by exporters, but if gas and food prices continue to rise, the weak dollar is likely to dampen core retail sales (which exclude gas and food) and, by extension, leasing activity in shopping centers. The weak dollar makes U.S. properties more affordable for overseas investors, which could add to the already-strong demand for Class A properties in primary, supply constrained markets – the niche most favored by these investors.


Robert Bach, Senior Vice President, Chief Economist, has 30 years of professional experience in real estate market research, consulting and city planning. His commentary on the real estate markets is provided here on a weekly basis.

Need more information?

Contact:

Robert Bach
Senior Vice President, Chief Economist
312.698.6754

First Quarter 2011 Industrial Market Statistics Point to Accelerating Recovery



First Quarter 2011 Industrial Market Statistics Point to Accelerating Recovery

April 14, 2011

The national industrial market definitely met and potentially exceeded expectations during the first quarter. Based on preliminary results, approximately 31 million square feet were absorbed, the strongest quarterly performance since the fourth quarter of 2007, while construction has remained muted – only 5 million square feet was delivered during the quarter, and 13 million square feet remains under construction across the country. Improving demand and minimal new construction deliveries drove the national vacancy rate down 20 basis points to 10.2 percent from the fourth quarter 2010, 70 basis points down from its recent peak of 10.9 year over year. Asking rental rates have bottomed, with preliminary numbers showing an increase of nearly 2.4 percent from the previous quarter, translating into 9.9 percent annualized growth.

Overall, we are very encouraged by the recovery in the broader industrial market. While delivery of new construction will delay the return to pre-recession levels, local market conditions are getting closer and closer to experiencing sustained and meaningful net effective rent growth.

Stay tuned for the full national report, which is scheduled to be released later this month. Local reports should be available over the course of the next week. Source: Grubb & Ellis

Grubb & Ellis Delivers at Christmas for Diamond's Children

Article from the UMC Foundation Spring/Summer 2011 issue:

U.S. Office Market First Look: 2011-Q1

U.S. Office Market First Look: 2011-Q1

·     The first quarter brought further improvement in some leasing market metrics, but the rate of improvement is disappointing.

·      The vacancy rate was stable at 17.7 percent, no change from the fourth quarter and down by a slim 20 basis points from the cyclical peak recorded in the first and second quarters of 2010. Vacancy remains well above the equilibrium level of 12-14 percent where landlords and tenants negotiate on an even playing field.

·      Absorption was low but positive, ending the quarter at 5.0 million square feet. During the 2005-2007 expansion, by comparison, the quarterly average was 18 million square feet.

·      Absorption barely outpaced completions, which totaled 4.7 million square feet for the quarter. Projects left in the construction pipeline totaled 16.4 million square feet, the lowest level in nearly two decades. Two towers under construction on the World Trade Center site account for more than one-third of the space still under construction.

·      The average Class A asking rental rate for space available at the end of the first quarter was $31.59 per square foot per year, full service gross, a surprising increase of 1.3 percent from the fourth quarter. This was the first increase since the second quarter of 2008. The average Class B rate of $23.22 was 0.8 percent above the fourth quarter. The gains were paced by selected CBD markets on the East and West coasts.

·      Sublease space hit a three-year low of 84.4 million square feet.

Forecast

The office leasing market just completed its fourth consecutive quarter in the recovery cycle, but the pace of recovery is sluggish. The vacancy rate has declined by 20 basis points from the peak compared with a normal recovery where the decline should be more like 200 basis points by now, i.e. 50 basis points per quarter. Corporate profits and cash reserves are high, and companies are starting to hire at a faster pace. But the backlog of shadow space – cubes, wings and floors emptied by layoffs while still under lease – is a significant drag on new demand for space. With oil prices continuing to escalate, many economists have backed off their aggressive forecasts for GDP growth this year. A near-term recession is unlikely, but the pace of economic recovery looks less certain than it did one quarter ago. There is little on the horizon to suggest that the office market recovery is about to pick up the pace.

To view more graphs depicting the nation's office market, click here to open an Excel file and then click through the worksheet tabs at the bottom of the page.

Do not hesitate to contact me if you have any questions or comments.

Best regards,

Bob

Robert Bach

SVP, Chief Economist

Grubb & Ellis Company

Phone: 312.698.6754