3Q 2017 DFW Industrial Market Brief

DFW INDUSTRIAL MARKET BRIEF 3Q2017

TABLE OF CONTENTS

1. DALLAS/FORT WORTH INDUSTRIAL TEAM

1 2 3 4

2. DALLAS/FORT WORTH INDUSTRIAL SUBMARKETS

2. OVERALL DALLAS/FORT WORTH INDUSTRIAL MARKET

A. Dallas/Fort Worth Overall Industrial Market Overview

B. Facts and Figures

3. SUBMARKET INTELLIGENCE

A. Great Southwest/Arlington

B. C. D. E. F. G.

DFW Airport Northeast Dallas South Dallas Northwest Dallas North Fort Worth South Fort Worth

DFW INDUSTRIAL MARKET BRIEF 3Q 2017

HLC INDUSTRIAL DALLAS/FORT WORTH

TEAM

Partner - Texas Leasing jbrice@hldallas.com 972.280.8328

JIM BRICE

MATT CARTHEY

Partner mcarthey@hlfortworth.com 817.710.1111

CANON SHOULTS

JOSHUA BARNES

ANDREW GILBERT Market Associate agilbert@hldallas.com 972.381.8312

BEN WALLACE

Market Associate bwallace@hldallas.com 972.421.1966

CLAY BALCH

GEORGE JENNINGS

MADDY CANTY

Market Director jbarnes@hldallas.com 972.280.8353

Brokerage Services Associate cbalch@hldallas.com 972.421.1956

1

Market Associate gjennings@hlfortworth.com 817.632.6151

DFW INDUSTRIAL MARKET BRIEF 3Q 2017

Managing Principal cshoults@hldallas.com 972.280.8328

Market Analyst mcanty@hldallas.com 972.280.8325

JOHN GORMAN

DONNIE RHODE

Principal jgorman@hldallas.com 214.920.9800

Market Director drhode@hlfortworth.com 817.710.7058

JAKE NEAL

THOMAS GRAFTON

Market Associate jneal@hlfortworth.com 817.284.5555

Market Associate tgrafton@hlfortworth.com 817.632.6152

HLC INDUSTRIAL DALLAS/FORT WORTH

SUBMARKETS

HLC SQUARE FOOTAGE BY SUBMARKET

DFW INDUSTRIAL MARKET BRIEF 3Q 2017

2

HLC INDUSTRIAL DALLAS/FORT WORTH

TRENDS AND TRANSACTIONS HLC OUTLOOK

The DFW industrial market continues to be one of the strongest industrial markets in the country and a top four choice for national logistics distribution. The overall industrial market persists with a single digit vacancy rate of 6.8%. Through 3Q 2017, leasing activity in DFW remained strong, posting approximately 13.8 million square feet YTD. At the conclusion of the 3Q 2017, YTD deliveries total 18.9 million SF. Between build-to-suits and speculative development, the market has approximately 21.1 million SF under construction. This activity encompasses the submarkets of North Fort Worth, South Dallas, GSW, Northwest Dallas, Northeast Dallas and DFW Airport. South Dallas notably accounts for approximately 6 million square feet of the total construction activity. Albeit a healthy market at 6.8% vacancy, investment capital may note a potential market trend whereby the current construction/absorption ratio is favoring new construction outpacing net absorption. However, speculative development will remain strong over the next 12 months in the DFW market as capital sources continue to accept leasing risk to obtain lower basis positions and build to a yield rather than compete for inferior product with record low cap rates.

TRENDS & TRANSACTIONS • Industrial product continues to be in high demand for institutional investment.

• Speculative development remains at a historical peak as capital sources seek alternative basis positions to “retail” acquisitions resulting from high demand and historically low cap rates.

• Due to continued population growth and consumer demand, E-commerce groups continue to be a driving force in the demand of bulk warehouse for fulfillment centers.

• Rental abatement has been re-established as a norm in the market as Landlords (1) seek to maximize property valuations through face rate and rent growth (2) second generation space seeks to remain competitive with new development and (3) new development under construction seeks to secure a tenant base prior to additional projects breaking ground.

• Since 2010, depending on the size of the transaction, rental rates have increased 20%-30% with 2%-4% annual escalations accepted by the market.

TOP LEASE TRANSACTIONS • Amazon leased 920,275 SF from VanTrust (DalParc I-20) at 3350 Altamoore Drive • Ghirardelli Chocolate/Geodis signed a Build-to-Suit for 700,000 SF with MetLife and Panattoni off Dallas Avenue • Amazon leased 604,800 SF from Clarion at 940 West Sandy Lake Road in Coppell • OO Shirts leased 230,400 SF from GLP at 850 Northlake Road in Coppell

3

DFW INDUSTRIAL MARKET BRIEF 3Q 2017

Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

4,016,478

5,509,848

9,569,077

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

6.8%

6.8%

6.5%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

7,057,481

10,880,576

15,283,948

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

21,149,728

21,277,772

24,055,859

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

3,987,345

4,094,551

5,671,434 Source: CoStar 2017 3Q Industrial Report

The majority of submarkets in 2017 should remain in single digit vacancy rates. However, submarkets such as South Dallas have approached 14% vacancy as new construction outpaces net absorption. Rental rates are stabilized under favorable conditions although concessions are more prominent from new development projects. Dallas is one of the top four regional distribution hubs in the country, yet seeks to establish a new equilibrium between supply and demand.

HLC Deal

• Electrolux leased 343,421 SF with Clarion at 2935 Danieldale Road in SouthPointe 20/35 • Dealer Tire leased 159,768 SF from ProLogis at 410 West Trinity Boulevard

TOP HLC LEASE TRANSACTIONS • Electrolux leased 343,421 SF with Clarion at 2935 Danieldale Road in SouthPointe 20/35 • Ecolab leased 192,350 SF from Hunt Southwest at 2101 Reeves Place • Alpha Furniture leased 150,803 SF at 2401 West Marshall with Industrial Crossing, LLC • Geomet Recycling signed a lease at 11420 Mathis totaling 86,411 SF • PODS, Inc. has leased 67,826 SF at 2101 Reeves Pl from Hunt Southwest

HLC INDUSTRIAL DALLAS/FORT WORTH

FACTS AND FIGURES

CONSTRUCTION - OVERALL DFW

VACANCY - OVERALL DFW 8.0%

30,000,000

6.80%

6.90%

7.0%

6.8%

25,000,000

6.5%

6.0% 20,000,000

5.0% 4.0%

15,000,000

3.0% 10,000,000

2.0%

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Q4 15

Total Vacancy

Q1 16

Q2 16

Q3 16

Direct Vacancy

Q4 16

Q1 17

5,000,000

1.0%

0.30%

0.20%

Q2 17

0.0%

Q3 17

Q3 14

Q4 14

Q1 15

Q2 15

Sublet Vacancy

Q3 15

Q4 15

Q1 16

Q2 16

Under Construction

ABSORPTION - OVERALL DFW

Q3 16

Q4 16

Q1 17

Q2 17

0

Q3 17

Delivered Inventory

OVERVIEW - OVERALL DFW 20,000,000

8.0%

12,000,000

18,000,000 16,000,000

10,000,000 7.5%

14,000,000

8,000,000

12,000,000 10,000,000

6,000,000

7.0%

8,000,000

4,000,000 6,000,000

6.5%

4,000,000

2,000,000

2,000,000

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Q4 15

Leasing Activity

Q1 16

Q2 16

Q3 16

Q4 16

Q1 17

Q2 17

Q3 17

6.0%

0

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Q4 15

Q1 16

Absorption

Total Net Absorption

Existing Inventory

Vacancy

Vacancy

Q2 16

Q3 16

Q4 16

Q1 17

Q2 17

Q3 17

0

Deliveries

# Bldgs.

Total RBA

Direct SF

Total SF

Vac. %

YTD Net Absorption

YTD Deliveries

Under Construction SF

YTD Leasing Activity

DFW Airport

601

70,885,960

3,932,126

4,190,832

5.9%

1,097,261

1,765,509

2,391,998

4,682,207

East Dallas

579

40,884,045

2,197,714

2,302,514

5.6%

473,143

351,874

0

612,249

1,058

101,251,750

8,666,834

8,874,123

8.8%

1,044,839

3,310,085

4,648,343

6,468,565

North Fort Worth

570

83,236,301

4,651,134

4,877,215

5.9%

4,979,484

3,288,671

2,889,845

3,845,760

Northeast Dallas

1,399

101,063,789

5,911,907

6,567,171

6.5%

1,285,654

2,340,320

2,560,916

3,614,210

Northwest Dallas

1,298

102,933,932

4,826,388

5,041,543

4.9%

2,609,808

1,747,331

1,600,594

4,174,304

633

86,319,053

9,497,961

9,751,190

11.3%

2,252,517

5,149,900

5,782,135

2,073,066

South Fort Worth

1,278

71,105,773

2,577,141

2,637,141

3.7%

7,655

236,250

751,164

1,349,078

South Stemmons

2,056

112,828,832

7,899,634

8,016,731

7.1%

87,672

733,241

524,733

2,098,966

Totals

9,472

770,509,435

50,160,839

52,258,460

6.8%

13,838,033

18,923,181

21,149,728

28,918,405

Market

Great SW/Arlington

South Dallas

Source: CoStar 20173Q Industrial Report

DFW INDUSTRIAL MARKET BRIEF 3Q 2017

4

SUBMARKET INTELLIGENCE

GREAT SOUTHWEST/ARLINGTON HLC OUTLOOK The Great Southwest submarket consists of 101 M SF and experienced negative absorption during the third quarter of 2017. The negative absorption of (650,630) SF is attributable to new construction slightly outpacing absorption. However, YTD absorption in the submarket is still a net positive of 1,044,839 SF. GSW remains as the second most active submarket for new development (behind South Dallas) and YTD deliveries are 3.3 M SF. Leasing activity and velocity remained consistent, posting over 6.4 M SF of leasing activity YTD. However, with the large increase of newly delivered product; the vacancy rate has increased when compared to previous quarters and currently sits at 8.8%. As 2017 concludes, we expect this vacancy rate to return to lower levels as tenants absorb additional product.

CANON SHOULTS Managing Principal cshoults@hldallas.com 972.280.8328

VITAL STATS

Absorption

9.0%

(650,360)

1,317,708

450,951

vs. Prev. Qtr

vs. 12 Mths Ago

2,000,000

8.8%

8.1%

6.4%

1,500,000

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

1,848,692

2,226,134

1,781,279

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,000,000 6.0%

500,000 0

5.0% (500,000) 4.0%

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Absorption

Q4 15

Q1 16

Q2 16

Q3 16

Deliveries

Q4 16

Q1 17

Q2 17

Q3 17

vs. 12 Mths Ago

Vacancy

8.0%

7.0%

vs. Prev. Qtr

2,500,000

3,000,000

(1,000,000)

4,648,343

3,816,343

6,128,119

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

880,186

1,720,730

Vacancy

Source: CoStar 2017 3Q Industrial Report

TOP LEASE TRANSACTIONS

NEW DEVELOPMENTS

• Alpha Furniture leased 150,803 SF at 2401 West Marshall with Industrial Crossing, LLC

• 1460 Avenue S – 83,125 SF spec with Port Logistics Realty

• Allegion/Schlage leased 56,400 SF from Liberty Property Trust at 5430 FAA Boulevard

• Arlington Commerce Center/Building E – 1,004,400 SF developed by Exeter and leased by UPS

• Dealer Tire renewed their lease of 159,768 SF from ProLogis at 410 West Trinity Boulevard

• General Motors Assembly Plant Expansion – 1,200,000 SF

HLC Deal

• Tigers Global Logistics leased 85,575 SF from Exeter at 14950 FAA Boulevard • Biagi Brothers renewed their lease of 179,750 SF at 605 110th Street

DEALS ON THE MARKET • Cardinal Health Distribution Center being sold by C&W – Class A 361,690 SF building in Grand Prairie; owned by AEW

• 2710 N Forum Drive – 301,000 SF spec with Scannell Properties

• 2251 E Bardin Road – 365,000 SF spec developed Liberty Property Trust and leased by FedEx • Park 20/360 – 4 building development 1,262,040 SF spec with Invesco • 2401 N Belt Line Roadd / Wildlife 6 – 832,000 SF spec with Crow Holdings Industrial

LARGE EXISTING VACANCIES • 1490 Frye Road – 494,990 SF • 950 E Avenue K, Building 3 – 487,752 SF • 1011 Isuzu Parkway, Regency II – 470,000 SF • NWQ Conflans Road & Hwy 360 – 450,340 SF • 1400 N Highway 360 – 437,000 SF • Airport Freeway – 430,759 SF • 2100 N Refuge Way – 342,526 SF

5

DFW INDUSTRIAL MARKET BRIEF 3Q 2017

SUBMARKET INTELLIGENCE

DFW AIRPORT

HLC OUTLOOK The DFW Airport market vacancy rate decreased significantly over the past quarter from 6.7% to 5.9%. The decrease in vacancy rate is coupled with over 1.1 million SF of absorption through Q3 2017. Development remained strong with approximately 2.3 million SF under construction. Deals have been taking longer to execute and tenant improvement dollars remain relatively high. With limited supply of fee simple land coupled with rising construction costs, speculative developments have been quoting $3.75 - $4.50 NNN for bulk warehouses.

JIM BRICE

Partner - Texas Leasing jbrice@hldallas.com 972.280.8328

VITAL STATS

Absorption

11.0%

2,500,000

10.0%

2,000,000

9.0%

1,500,000

8.0%

1,000,000

7.0%

500,000

6.0%

0

5.0%

Q3 14

Q4 14

Q1 15

Q2 15 Absorption

Q3 15

Q4 15

Q1 16

Q2 16

Q3 16

Deliveries

Q4 16

Q1 17

Q2 17

Q3 17

(500,000)

vs. Prev. Qtr

vs. 12 Mths Ago

1,147,618

(325,680)

564,071

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

5.9%

6.7%

8.0%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

1,503,300

1,035,441

2,524,840

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

2,391,998

2,361,841

1,353,045

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

616,639

-

167,796

Vacancy

Source: CoStar 2017 3Q Industrial Report

TOP LEASE TRANSACTIONS • Amazon leased 604,800 SF from Clarion at 940 West Sandy Lake Road in Coppell • OO Shirts leased 230,400 SF from GLP at 850 Northlake Road in Coppell • BFS Services, Inc. renewed their lease of 167,820 SF with Transpacific at 500 Airline Drive in Coppell • Staples leased 126,000 SF from Clarion at 500 Enterprise Drive in Flower Mound

DEALS ON THE MARKET • 500 Industrial Boulevard – 191,800 SF owned by Standard Motor Products

•

2800 Valley View Lane – A 294,795 SF building being developed and owned by Johnson Development Company will be delivered in March 2018. The building is being leased by Cushman & Wakefield.

LARGE EXISTING VACANCIES • 4250 Patriot Drive – 249,484 SF • 220 N Freeport Parkway – 211,000 SF • 801 Industrial Boulevard – 204,556 SF • 1040 Trade Avenue – 169,050 SF • 100 S Royal Lane – 166,704 SF • 4450 W Walnut Hill Lane – 161,782 SF

• 5931 Campus Circle – 210,000 SF owned by LBA

NEW DEVELOPMENTS •

3701, 3711 and 3801 S 20th Avenue – 3 building development totaling 646,796 SF to be delivered June 2018. The development is owned by Cabot and will be leased by Stream Realty Partners.

•

1255 Mustang Drive and 1275 Metro Circle – 2 building development totaling 266,766 SF to be delivered in October in 2017. The development is owned by Clarion and leased by CBRE.

DFW INDUSTRIAL MARKET BRIEF 3Q 2017

6

SUBMARKET INTELLIGENCE

NORTHEAST AND EAST DALLAS HLC OUTLOOK The Northeast and East Dallas submarkets continued to perform steadily throughout the third quarter of 2017 with over 1.7 million SF of net absorption year to date. We continue to see strong activity and have seen rates push past historical levels. They continue to gradually increase; spec warehouse and newer second-generation space between 100 – 200,000 SF now being quoted between $3.95 – $4.75 NNN. Speculative construction has increased considerably over the last 12 months with now over 2.5M under construction. While activity remains strong we anticipate that concessions might potentially increase but rates should continue to increase steadily.

JOSHUA BARNES Market Director jbarnes@hldallas.com 972.280.8353

VITAL STATS

Absorption

8.0%

1,500,000 7.0% 1,000,000

500,000 6.0%

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Q4 15

Q1 16

Absorption

Q2 16

Q3 16

Deliveries

Q4 16

Q1 17

Q2 17

Q3 17

vs. 12 Mths Ago

218,662

1,538,646

646,785

vs. Prev. Qtr

vs. 12 Mths Ago

6.2%

6.2%

5.8%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

1,098,262

1,903,577

1,537,611

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

2,560,916

2,148,390

2,757,531

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

351,874

1,231,750

38,096

0

5.0%

vs. Prev. Qtr

Vacancy

2,000,000

(500,000)

Vacancy

Source: CoStar 2017 3Q Industrial Report

TOP LEASE TRANSACTIONS

• XPO Logistics leased 113,216 SF at 10665 Sanden Drive in Dallas • Medical Specialties Distributors leased 100,355 SF at 1201 Big Town Boulevard in Mesquite • Bearcom renewed their 91,200 SF lease at 4009 Distribution Drive in Garland • SOCI, Inc. leased 73,222 SF at 9600-9660 Dilworth in Dallas • Bright-way Group leased 57,319 SF at 9600-9660 Dilworth in Dallas • Wycliff & Douglass 50,524 SF at 12750 Perimeter Drive in Dallas

DEALS ON THE MARKET

• 1201 Big Town Boulevard being sold by CBRE – 497,409 SF Class A building in Mesquite; 59% leased; owned by Amstar/ Huntington • Kingsley Transit Center being sold by HLC – 347,822 Two building project at 3310-3422 Kingsley Road; currently vacant; owned by Clarion • Miller Park/Lombardy – being sold by CBRE – 281,643 SF building at 2755-2975 North Miller Park Drive in Garland; owned

by Lincoln

HLC Deal

NEW DEVELOPMENTS

• 1601 South Shiloh Road in Garland – Two building development totaling 248,825 SF by Huntington Industrial Partners; 32’ clear height, cross dock; to begin construction December 2017

HLC Deal

7

DFW INDUSTRIAL MARKET BRIEF 3Q 2017

• 1200 South Jupiter Riad in Garland – 3 building spec development totaling 764,400 SF by Langford Property Company; cross dock configurations with trailer parking; to be delivered mid 2018 • 3800 Leon Drive in Garland – 494,000 SF spec building by IDI Gazeley; rear load with 107 trailer parks and 32’ clear height; to be delivered November 2017 • 2200 Trade Center Drive in Mesquite - 487,200 SF spec building

by IDI Gazeley; rear load with 107 trailer parks and 32’ clear height; to be delivered September 2017 • 75/Wilmeth in McKinney – 202,270 SF spec building under construction by Hunt Southwest; rear load building with additional land for trailer parking and 32’ clear height; to be delivered mid 2018

LARGE EXISTING VACANCIES • • • • •

8901 Forney Road – 419,626 SF 3000 West Kingsley Road – 341,840 SF; Sublease from Apex Tools 2901 West Kingsley Road – 253,900 SF; Sublease from IDQ 5200 E Grand Avenue – 220,692 SF 3310 West Kingsley Road – 218,787 SF

SUBMARKET INTELLIGENCE

SOUTH DALLAS

HLC OUTLOOK South Dallas Industrial submarket as surveyed is 118 M SF and is now 10.4% vacant which is 1.9% higher than reported in 2Q 2017. New construction is simply outpacing absorption. South Dallas had net absorption of 528,237 SF despite the continued flow of new construction. New construction was mitigated with 1,371,296 SF of transactions from Redhawk Golf Cart (24K SF), Pentair (83.6K SF), Electrolux (343K SF), and Amazon (920K SF). In 3Q 2017 South Dallas delivered 2.4M sf of new bulk warehouse and signed build-to-suits or design build projects for another 700K SF. South Dallas still has 6.1M SF remaining under construction. As expected, the southern corridors along I-20, I-35, and I-45 will continue to produce new opportunities for development but, the equilibrium needle between supply and demand is going to remain volatile as opportunity encounters overbuilding.

JOHN GORMAN Principal jgorman@hldallas.com 214.920.9800

Please note: The area CoStar uses for the South Dallas Submarket differs slightly from the Submarket John covers. Numbers may vary.

VITAL STATS

Absorption

12.0%

3,600,000

10.0% 2,600,000 8.0%

6.0%

1,600,000

4.0% 600,000 2.0%

0.0%

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Q4 15

Q1 16

Absorption

Q2 16

Q3 16

Deliveries

Q4 16

Q1 17

Q2 17

Q3 17

(400,000)

vs. Prev. Qtr

vs. 12 Mths Ago

761,958

460,041

2,539,474

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

11.3%

11.0%

7.0%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

165,308

1,548,869

1,514,021

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

5,782,135

5,128,462

6,196,229

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,123,939

1,295,142

1,501,030

Vacancy

Source: CoStar 2017 3Q Industrial Report

TOP LEASE TRANSACTIONS

• Core 5 Industrial – 754,897 SF spec with Core 5 at 1200 W Wintergreen Road (Interstate 45)

• Pentair expanded by 83,600 SF with Majestic at 1002 E Cleveland Road on Interstate 45

• Hines broke ground on 1,044,647 SF of their SouthLink project (expandable to 1,540,000 SF) at Bonnie View Road and Cleveland Road

• Electrolux leased 343,421 SF with Clarion at 2935 Danieldale Road in SouthPointe 20/35

HLC Deal

• Amazon leased 920,275 SF from VanTrust (DalParc I-20 Logistics) at 3350 Altamoore Drive • Ghirardelli Chocolate/Geodis signed a build-to-Suit for 700,000 SF with MetLife and Panattoni off Dallas Avenue

DEALS ON THE MARKET • CrossPoint 20/30 – 510,400 SF single building at 3737 Duncanville Road

by Barrngs Real Estate Advisers • Eagle Park 20/35 – 454,408 SF shell building at 1240 E Centre Park Boulevard from Stockbridge to Morgan Stanely • Paul’s Group Portfolio – 645,282 SF (3 buildings) Mountain Creek and Interstate 20 • Mountain Creek Distribution Center II with Crow Holdings is the seller – 663,000 SF

• Morgan Stanley broke ground at 3300/3900 Cedardale Road Development for 776,629 SF with Trammell Crow

LARGE EXISTING VACANCIES • Southport Parkway, Building 1 – 1,075,260 SF spec SouthPort Logistics Park (Interstate 45) • Copeland Commercial – 900,043 SF at 3535 N Houston School Road • SouthPointe 20/35 – 660,312 SF spec with Clarion • LogistiCenter at Dallas – 626,439 SF spec with Dermody Properties at 9890 Bonnie View Road • Park 20 – 468,300 SF with Huntington Industrial Partners on Houston School Road • Centre Park Boulevard (Eagle Park 20/35) – 454,408 SF spec with Ridgeline Property Group • 2425 W Danieldale Road – 399,971 SF with TA Realty Associates

NEW DEVELOPMENTS • I-35 Logistics Crossing – 1,221,612 SF (2 Bulidngs 610,806 SF each) by Crow Holdings • Mountain Creek DC – 1,021,440 SF by First Industrial • Crossroads Trade Center Building 3 – 948,392 SF spec with Clarion/ Hillwood (Interstate 35)

DFW INDUSTRIAL MARKET BRIEF 3Q 2017

8

SUBMARKET INTELLIGENCE

NORTHWEST DALLAS

HLC OUTLOOK Over the past quarter, Northwest Dallas continued to prove to be one of the strongest submarkets in Dallas. The submarket posted a 4.9% vacancy rate which was an improvement compared to Q2 2017 (5.4%). Billingsley’s Mercer Business Park and ProLogis’ Valwood Corporate Park are the two development highlights as the quality sites to develop are diminishing in Northwest Dallas. As the market continues to tighten, expect rates to continue to rise and rent concessions to continue to diminish. All indicators point to the market continuing to remain strong through 2017 and into 2018.

ANDREW GILBERT Market Associate agilbert@hldallas.com 972.381.8312

VITAL STATS

Absorption 2,000,000

10.0%

9.0%

1,500,000

8.0% 1,000,000 7.0% 500,000 6.0%

0

5.0%

4.0%

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Q4 15

Absorption

Q1 16

Q2 16

Q3 16

Q4 16

Deliveries

Q1 17

Q2 17

Q3 17

vs. Prev. Qtr

vs. 12 Mths Ago

656,925

524,026

1,792,154

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

4.9%

5.4%

6.1%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

1,273,318

1,618,688

2,275,660

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,600,594

1,601,352

2,720,812

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

121,758

301,223

338,355

(500,000)

Vacancy

Source: CoStar 2017 3Q Industrial Report

TOP TRANSACTIONS

• The Trade Group renewed their 80,440 SF lease at 1434 Patton Place owned by Duke Realty.

• Custom Assembly, located at 1228 Crowley Circle, renewed their lease totaling 110,700 SF with GLP. • Renaissance Repair & Supply leased 42,596 SF at 1200 Lakeside Parkway.

• Room & Board leased 28,739 SF at Billingsley’s new development, Mercer Business Park.

• Innovation Cabinetry leased 49,914 SF in Building 4 of Billingsley’s Mercer Business Park.

• Entrada Partners purchased the Dallas Flex Portfolio. The portfolio consists of 18 flex and industrial buildings totaling 509K SF. The buildings are spread across four different submarkets including Northwest Dallas.

DEALS ON THE MARKET

• Prime Logistics Portfolio – One building located within the portfolio in NW Dallas located at 2051 McKenzie. The building totals 242,187 SF and is occupied by a single tenant. The building is currently under contract.

• Addison Tech Center – Four Class A buildings totaling 228,221 SF located in Addison, Texas. This project is currently under contract.

9

DFW INDUSTRIAL MARKET BRIEF 3Q 2017

• 2325 Belt Line – 138,317 SF occupied by Iron Mountain who will be vacating in June ’18. Located with frontage on Belt Line Road.

NEW DEVELOPMENTS

• 1310 Electronics (Valwood Corporate Center) – Building Four totaling 235,900 SF to be completed in Q1 2018.

• Mercer Business Park Building 4 – 330,100 SF to be delivered November 2017 with Billingsley. There is 37,877 SF to left available for lease.

LARGE EXISTING VACANCIES • • • •

2701 South Valley Parkway (Building 6) – 329,060 SF 2900 South Valley Parkway (Building 5) – 222,686 SF 1001 West Crosby – 135,950 SF 1900 Lakeway Drive – 130,400 SF

SUBMARKET INTELLIGENCE

SOUTH STEMMONS

HLC OUTLOOK

Through the third quarter of 2017, the South Stemmons industrial submarket posted a 3.2% vacancy rate which is a minor increase from the 2.5% at the end of Q2. There continues to be a strong amount of leasing activity throughout the submarket for tenants between 10 – 50,000 SF. Absorption for Q3 was negative (550,000) SF, however this number is expected to reverse in Q4 due to the high demand of tenants pursuing a location along I-35 and the lack of developments in the submarket. As 2017 continues, rental rates are expected to continue to increase as the submarket becomes tighter and tenants are continuing to relocate north on I-35 from the spike in rental rates in the Design District. Since 2013, rents in the submarket have increased 25% for space under 50,000 SF. This is a key statistic as this size encompasses the majority of spaces in the submarket. Rental rates for 50,000 SF transactions have increased into the high $3/SF range and rates for 10,000 SF are now starting at $5.00/SF start rates. 20-25,000 SF are increasing to the low $4’s. I expect this trend to continue throughout 2017 and into 2018.

ANDREW GILBERT Market Associate agilbert@hldallas.com 972.381.8312

VITAL STATS

Absorption

10.0%

9.0%

(550,000)

596,190

536,636

vs. Prev. Qtr

vs. 12 Mths Ago

600,000

3.2%

2.5%

2.4%

400,000

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

600,343

737,454

1,408,171

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

200,000

0

(200,000)

6.0%

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Q4 15

Absorption

Q1 16

Q2 16 Deliveries

Q3 16

Q4 16

Q1 17

Q2 17

Q3 17

vs. 12 Mths Ago

Vacancy

8.0%

7.0%

vs. Prev. Qtr

800,000

1,000,000

(400,000)

524,733

807,240

1,307,948

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

215,000

-

Vacancy

Source: CoStar 2017 3Q Industrial Report

TOP TRANSACTIONS

• Humanetics purchased the Mary Kay manufacturing plant on Regal Row. Mary Kay is planning to move to Lewisville in a new 470,000 SF manufacturing facility which is currently under construction.

• BSP Warehousing and Distribution renewed their 115,125 SF lease at 11430 Ferrell Drive.

• Geomet Recycling signed a lease at 11420 Mathis totaling 86,411 SF. • Baker Metals expanded into 60,000 SF at 2527 Willowbrook.

• Arclight Dallas leased 20,000 SF at 4834 Reading Street.

• Citiquartz DFW signed a lease for 22,000 SF at 2474 Southwell.

LARGE EXISTING VACANCIES • • • • • •

2606 Brenner Drive – 65,726 SF 2025 Royal Lane – 50,027 SF 1108 Quaker Street – 42,874 SF 3151 Halifax – 47,080 SF 3000 Pegasus Park Drive – 30,910 SF 9020 Directors Row – 23,000 SF

HLC Deal

DEALS ON THE MARKET

• 8801 Ambassador – Single building totaling 200,066 SF currently occupied by Freeman. Ambassador Row is located in the heart of Brookhollow.

• Westwood Business Park – The project consists of twelve flex buildings totaling 227,709 SF. • 1371-1375 Round Table – Owned by a user with 1.5 acres of land to the north. The building totals 43,500 SF.

DFW INDUSTRIAL MARKET BRIEF 3Q 2017

10

SUBMARKET INTELLIGENCE

NORTH FORT WORTH

HLC OUTLOOK

The North Fort Worth industrial submarket was able to maintain positive momentum by posting a 3rd quarter vacancy of 5.9%, down from the 6.9% posted in the 2nd quarter. This can be attributed to a year-to-date net absorption figure of 4,979,484 SF which has perpetuated the growth of new developments with an additional 2,889,845 million SF under construction. Shallow-bay leasing in North Fort Worth sputtered during the Second Quarter but activity has seen an uptick over Q3 in both with the absorption of both new, spec developments and second generation vacancies. The overall vacancy rate decreased from 10% in Q2 down to 8.1% to round out Q3. The most vibrant sector in North Fort Worth has been within bulk warehousing. 92% of the overall, year-to-date absorption in North Fort Worth has come from this sector alone. As of today the market’s vacancy rate sits at 5.3% down from 6.0% at the end of the 2nd quarter. As projects such as 35 Eagle, Synergy Crossing and Park 820 come to completion, expect to see continued positive absorption by bulk distribution users that prefer the transit amenities North Fort Worth and Alliance have to offer.

DONNIE ROHDE Market Director drohde@hlfortworth.com 817.710.7058

VITAL STATS

Absorption

12.0%

3,000,000

10.0%

2,000,000

8.0%

1,000,000

6.0%

0

4.0%

(1,000,000)

2.0%

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Absorption

Q4 15

Q1 16

Q2 16

Q3 16

Q4 16

Deliveries

Q1 17

Q2 17

Q3 17

(2,000,000)

vs. Prev. Qtr

vs. 12 Mths Ago

2,228,469

1,335,561

2,559,396

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

5.9%

6.6%

9.0%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

239,309

1,088,745

3,304,856

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

2,889,845

4,643,980

3,089,675

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,754,135

-

1,870,500

Vacancy

Source: CoStar 2017 3Q Industrial Report

TOP LEASE TRANSACTIONS

• Iron Grip Barbell Company, Inc. has leased 96,000 SF at 3400 Northern Cross Boulevard from Lester M. Entin Associates • PODS, Inc. has leased 67,826 SF at 2101 Reeves Place from Hunt Southwest • FSI has leased 43,825 SF from at 731 Eight Twenty Boulevard from Exeter Properties • Amalgamate Processing has leased 40,000 SF at 2525 Handley Ederville Road from Queen Shiva, LLC. • Wise Foods, Inc. leased 33,673 SF at 800 Railhead Road from Sun Life Assurance Co. • Innovative Business Services has leased 20,385 SF at 800 Railhead Road from Sun Life Assurance Co.

HLC Deal

HLC Deal

DEALS ON THE MARKET

• 300 Gateway Parkway – 603,050 SF rear-load distribution facility in Alliance, Texas being sold by CBRE • 3100 Eagle Parkway – 153,226 SF manufacturing facility in Alliance, Texas being sold by NAI Robert Lynn • 1431 S Cherry Lane – 100,000 SF shallow bay facility recently built in West Fort Worth, being sold by NAI Robert Lynn

11

DFW INDUSTRIAL MARKET BRIEF 3Q 2017

NEW DEVELOPMENTS

• Trammell Crow has broken ground on buildings A, H & J, a 1.6 million square foot expansion of 35 Eagle in Alliance. The 3 buildings are expected to deliver in Q4 of 2017.

• Ironwood Realty Partners, LLC and TCRG Properties have broken ground on the first of a 5-building development at the NW corner of I-35 and Golden Triangle Boulevard. The first building will be a 496,782 SF cross-dock facility and is expected to deliver in Q4 2017. The entire development is slated for 2.8 million SF. • Ridge Development has proposed construction for a 361,860 SF cross-dock facility near the south-east corner of N Main Street and E Industrial Boulevard in Fort Worth. Projected construction commencement is slated for Q3 2017.

• Scannell Properties has broken ground on a 221,000 SF rearload facility near the NW corner of Loop 820 and Blue Mound Road Building 1 is expected to deliver Q1 of 2018.

LARGE EXISTING VACANCIES • • • • • •

14901 N Beach Street – 1,111,500 SF 300 Gateway Parkway – 603,050 SF 3300 Eagle Parkway – 588,262 SF 5650 Alliance Gateway Freeway – 445,870 SF 2900 Meacham Boulevard – 250,000 SF 1051 Republic Drive – 201,204 SF

SUBMARKET INTELLIGENCE

SOUTH FORT WORTH

HLC OUTLOOK

The South Fort Worth industrial submarket posted a third quarter vacancy of 3.7%, down from 3.9% in the second quarter. As of Q3 2017, there is approximately 3,000,000 SF of proposed industrial development, and 775,825 SF is currently under construction. We expect another 452,000 SF of shallow bay product to break ground in the fourth quarter. We don’t expect the remainder of the 3,000,000 SF to hit at once as Majestic, Mereken Land, Carter Foundation and TCRG control most of the developable tracts, but do expect increased activity from new developers seeking to enter the market.

Current lack of supply and increasing demand don’t appear to be slowing fueling this fire.

Shallow Bay product remains very strong and in high demand posting a vacancy rate of 1.6% down from 2.2% in the second quarter. This marks the lowest of all product types in the South Fort Worth submarket.

The warehouse sector is holding steady reporting a vacancy rate of 4.1% marrying 2Q results. Of the current projects under construction, 488,564 square feet is in the bulk warehouse.

MATT CARTHEY

Partner, Shareholder mcarthey@hlfortworth.com 817.710.1111

Year to date net absorption for the overall South Fort Worth market was positive 7,655 square feet. Due to the lack of supply and increase development we expect this to increase through 2018. Additionally, the submarket has delivered 236,250 square feet YTD.

VITAL STATS

Absorption

7.0%

52,089

63,356

479,610

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

3.7%

3.9%

3.7%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

328,949

721,668

937,510

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

200,000 0 5.0% -200,000 -400,000 4.0%

-600,000 -800,000

3.0%

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

Q4 15

Absorption

Q1 16

Q2 16

Q3 16

Deliveries

Q4 16

Q1 17

Q2 17

Q3 17

vs. 12 Mths Ago

600,000 400,000

6.0%

vs. Prev. Qtr

800,000

-1,000,000

751,164

770,164

502,500

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

19,000

171,250

34,927

Vacancy

Source: CoStar 2017 3Q Industrial Report

TOP LEASE TRANSACTIONS

• 2901 – 2951 Suffolk Drive - Suffolk LP sold its Class B shallow bay complex totaling 116,600 SF to Fort Capital • Ecolab leased 192,350 SF from Hunt Southwest at 2101 Reeves Place

HLC Deal

DEALS ON THE MARKET

• 5041 – 5021 David Strickland Rd – Berkeley Properties is under contract to sell it’s 18 building 136,200 SF portfolio to an undisclosed buyer.

• Riverbend West Distribution Center & 35/820 @ Mercantile Center – Hunt Southwest via HFF is marketing both assets totaling 958,543 SF. Both cross dock facilities, RBW totals 301,500 SF and is 32’ clear while MC totals 657,043 SF and is 36’ clear.

• Crow Holdings Capital Real Estate is under construction on a 488,564 SF development at 6633-6657 Oak Grove Road in the Carter Distribution Center. The two-building complex will be delivered November 2017. Building B totals 270,282 SF and is divisible to 67,860 SF. Building C totals 218,282 SF and is divisible to 54,860 SF. Both buildings are cross dock, 32’ clear, have 42 dock high doors and 4 oversized doors with ramps, 58 trailer positions and 212/190 car parks respectively.

LARGE EXISTING VACANCIES • • • •

7220 – 7550 Oak Grove Road – 1,142,150 SF 6601 Oak Grove Road – 504,125 SF 5000 South Freeway – 485,890 SF 1801 Riverbend West Drive – 101,500 SF

NEW DEVELOPMENTS

• Hunt Southwest has a 300,000 SF pad site ready for a build-tosuite at 8600 Will Rogers Boulevard. The space is being marketed as a Class A Industrial Food Processing Building located in S Central Tarrant County Industrial Submarket.

• Majestic Realty has broken ground on a 287,261 SF front load in South Fort Worth. This would be the first development within their Southland Business Park. The estimated delivery date is June 2018.

DFW INDUSTRIAL MARKET BRIEF 3Q 2017

12

DALLAS

5055 Keller Springs Road Suite 300 Addison, Texas 75001 T 972.241.8300 F 972.241.7955

FORT WORTH

300 Throckmorton Street Suite 550 Fort Worth, Texas 76102 T 817.710.1110 F 817.810.9017

HOUSTON

11757 Katy Freeway Suite 250 Houston, Texas 77079 T 713.850.8500 F 713.850.8550