4Q 2018 DFW Industrial Market Brief

Market Brief...

Dallas/Fort Worth

INDUSTRIAL

4Q18 Property Pictured Above: Parc Northeast | Telecom Parkway, Richardson, Texas

DFW INDUSTRIAL MARKET BRIEF 4Q 2018

TABLE OF CONTENTS 1. DALLAS/FORT WORTH INDUSTRIAL SUBMARKETS & EXPERTS

1 2 3

2. OVERALL DALLAS/FORT WORTH INDUSTRIAL MARKET

A. Industrial Trends & Transactions

B. Facts and Figures

2. 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

3

4

HLC SUBMARKET COVERAGE

DFW

HLC DFW INDUSTRIAL MARKET EXPERTS

JIM BRICE

MATT CARTHEY

CANON SHOULTS

JOHN GORMAN

JOSH BARNES

DONNIE ROHDE

ANDREW GILBERT

BEN WALLACE

Partner - Texas Leasing jbrice@hldallas.com 972.280.8306

Partner - Managing Principal mcarthey@hlfortworth.com 817.710.1111

Managing Principal cshoults@hldallas.com 972.280.8328

Senior Vice President jgorman@hldallas.com 214.920.9800

Senior Vice President jbarnes@hldallas.com 972.280.8353

Market Director drohde@hlfortworth.com 817.710.7058

Market Director agilbert@hldallas.com 972.280.8312

Market Associate bwallace@hldallas.com 972.421.1966

JAKE NEAL

THOMAS GRAFTON

CLAY BALCH

GEORGE JENNINGS

KEATON DUHON

MADDY CANTY

BLAKE BORGER

Market Associate jneal@hlfortworth.com 817.284.5555

Market Associate tgrafton@hlfortworth.com 817.632.6152

Market Associate cbalch@hldallas.com 972.421.1956

Market Associate gjennings@hlfortworth.com 817.632.6151

Market Associate kduhon@hlfortworth.com 817.284.5555

Market Associate mcanty@hldallas.com 972.280.8325

Market Analyst bborger@hldallas.com 972.265.0123

5

HLC OUTLOOK Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

6,333,710

3,927,727

8,571,461

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

6.4%

6.4%

6.6%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

7,360,014

14,688,795

12,211,428

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

17,412,172

21,577,477

24,396,840

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

6,725,716

7,948,297

8,093,231

The DFW industrial market continues to be one of the strongest industrial markets in the country and a top four choice for both national logistics distribution and institutional capital. As of 4Q 2018, CoStar reported YTD absorption of approximately 19.8M SF which is slightly off pace from 4Q 2017 (-2M SF).

However, the overall DFW industrial market vacancy remains stabilized at a healthy 6.4%. Notably, the 17.4M SF of projects under construction as of 4Q 2018 is less than 4Q 2017 numbers by 2.5M SF. In addition, 4Q 2018 deliveries were 24.4M SF versus 4Q 2017 deliveries of 26.4M SF. The majority of this construction activity encompasses the sub markets of GSW (5M SF), South Dallas (2.6M SF), and North Fort Worth (2.1M SF). The DFW Industrial market still remains healthy with an overall market vacancy of 6.4%. However, investment capital should observe isolated submarket trends whereby the current construction/absorption ratio is favoring construction outpacing net absorption. Given the lack of available portfolio dispositions, speculative development will likely remain strong in the coming year for the DFW market as capital sources continue to accept leasing risk to obtain lower basis positions and build to a yield rather than competing for inferior product with record low cap rates. As evidenced by the increased number of forward transactions.

HLC DFW

INDUSTRIAL TRENDS & TRANSACTIONS TRENDS & TRANSACTIONS

Industrial product continues to be in high demand for institutional investment including foreign sources of capital seeking to invest in the US economy. So much so that forward positions are becoming more prevalent.

Additionally, we continue to see new sources of capital competing for deals.

Speculative development remains at a historical peak due to the lack of acquisition opportunities and capital sources seeking alternative basis positions to “retail” pricing resulting from high demand and historically low cap rates.

Due to continued population growth and consumer demand, E-commerce groups and third-party logistics providers 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) in submarkets with new construction opportunities, existing second-generation space seeks to remain competitive and 3) new development under construction seeks to secure a tenant base prior to additional projects breaking ground. Deal velocity in 2018 has diminished such that rental abatement has intensified as owners seek to secure a limited number of transactions.

Since 2010, depending on the size of the transaction, rental rates experienced growth of 20%-30% with 2%-4% annual escalations accepted by the market. However, leases that have previously experienced substantive rent increases (leases signed in 2015) may have stabilized base rents albeit still subject to annualized rent increases upon expiration.

TOP LEASE TRANSACTIONS

• HD Supply build-to-suit with First Industrial Realty Trust for 1,021,440 SF at Mountain Creek Parkway & Interstate 20 • Ollies Bargain Outlet build-to-suit of 615,000 SF with Jones Development at Lancaster Hutchins and Wintergreen Road off Interstate 30 • Xpedient Logistics renewed their 274,808 SF lease with Clarion at 200 Northpoint Drive • Xpressdocs leased the full 221,000 SF at 1301 NE Loop 820 from Scannell • Chase Industries leased 174,120 SF with Liberty Property Trust at 5350 Frye Road • Panoramic Doors leased 127,000 SF with Stonelake Capital Partners at 15050 Frye Road • Hoya Optical leased 121,404 SF from Clarion Partners at 845 Regent Boulevard in Trade Center 8

TOP HLC LEASE TRANSACTIONS • Alpha Furniture renewed their lease of 320,366 SF from TS Partners at 2401 W Marshall • Rudy’s Food Products renewed their lease of 298,653 SF at 2115 East Beltline Road with Lexington Realty Trust • Bay Valley leased 132,825 SF at 8757 Autobahn Drive from TA Realty Associates • Marley Spoon leased 128,525 SF at 8900 Old Hickory from TA Realty Associates • Longhorn Paper Converting renewed their lease of 90,951 SF with Sealy at 1123-1139 W Carrier Parkway • Multipackaging Solutions Dallas leased 69,000 SF lease at 2755 Miller Park North with TA Realty • Brunton International, Inc. renewed their lease of 60,000 SF at 3306-3310 Quebec Street with TA Realty

HLC Deal

HLC Deal

HLC Deal

HLC Deal

HLC Deal

HLC Deal

HLC Deal

6

HLC DFW FACTS & FIGURES

Market

Existing Inventory

10,000,000

8,000,000

6.5%

6,000,000

4,000,000

6.0%

Total RBA

Direct SF

Total SF

Vac. %

DFW Airport

623

76,628,906

5,284,280

5,666,968

7.4%

East Dallas

596

43,053,617

2,567,738

2,586,820

6.0%

1,089

107,404,113

5,080,145

5,186,553

4.8%

17

1,186,131

29,387

29,387

2.5%

Henderson County

12,000,000

Vacancy

# Bldgs.

Great SW/Arlington

OVERALL DFW

7.0%

2,000,000

0

5.5% 4Q 15

1Q 16

2Q 16

3Q 16

4Q 16

1Q 17

2Q 17

Absorption

3Q 17

4Q 17

1Q 18

2Q 18

3Q 18

Deliveries

Vacancy

VACANCY - OVERALL DFW 6.9%

North Fort Worth

654

91,025,498

5,275,912

5,333,912

5.9%

Northeast Dallas

1,478

107,239,266

5,572,326

6,161,498

5.7%

Northwest Dallas

1,345

107,608,373

5,018,913

5,318,091

4.9%

NW Dallas Outlying

30

4,571,988

1,235,300

1,235,300

27.0%

South Dallas

679

98,644,032

12,798,580

12,798,580

13.0%

South Fort Worth

1,403

77,332,420

2,754,588

2,867,588

3.7%

South Stemmons

2,096

110,409,703

5,392,841

5,782,795

5.2%

Totals

10,010

825,104,047

51,010,010

52,967,492

6.4%

4Q 18

6.4%

8.0% 7.0%

6.7%

6.0%

6.2%

5.0% 4.0% 3.0% 2.0%

0.2%

1.0%

0.2%

0.0% 4Q 15

1Q 16

2Q 16

3Q 16

4Q 16

1Q 17

2Q 17

Direct

3Q 17

4Q 17

1Q 18

2Q 18

Sublet

3Q 18

4Q 18

Total

ABSORPTION - OVERALL DFW 20,000,000 18,000,000 16,000,000

YTD Net Absorption

YTD Deliveries

Under Construction SF

YTD Leasing Activity

14,000,000

2,215,286

3,904,160

542,887

5,343,993

8,000,000

129,142

520,666

1,873,009

1,397,106

4,000,000

5,965,925

1,691,518

5,007,588

10,173,903

Henderson County

0

0

0

0

North Fort Worth

3,079,873

4,111,822

2,139,494

2,345,876

Northeast Dallas

2,566,931

1,851,670

1,580,216

4,172,627

Northwest Dallas

890,645

1,469,723

1,656,412

7,536,669

NW Dallas Outlying

160,334

1,199,100

0

28,880

South Dallas

4,831,375

8,216,353

2,640,319

4,614,239

South Fort Worth

1,165,930

340,871

666,783

2,788,304

South Stemmons

(1,250,543)

1,078,933

1,305,464

4,456,728

Totals

19,754,898

24,384,816

17,412,172

42,858,325

Market DFW Airport East Dallas Great SW/Arlington

12,000,000 10,000,000

6,000,000

2,000,000 0 4Q 15

1Q 16

2Q 16

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Total Net

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

Leasing Activity

CONSTRUCTION - OVERALL DFW 30,000,000

25,000,000

20,000,000

15,000,000

10,000,000

5,000,000

0 4Q 15

1Q 16

2Q 16

3Q 16

4Q 16

1Q 17

Delivered Inventory

Source: CoStar 4Q 2018 Industrial Report

2Q 17

3Q 17

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

Under Construction

7

SUBMARKET INTELLIGENCE GREAT SOUTHWEST/ARLINGTON

HLC OUTLOOK

14+ YEARS CRE EXPERIENCE

The Great Southwest submarket consists of approximately 107M SF, and per CoStar reporting experienced 2018 YE positive absorption of 5,965,925 SF with 10.2M SF of leasing activity. This ranks GSW as the leading submarket for 2018 YE absorption and leasing activity. GSW 2018 YE absorption significantly outpaced 2017 absorption (3.9M SF). GSW reported new completions of 1.7M SF and an additional 5M SF of product currently under construction. (However, General Motors accounts for 2.2M SF of the construction activity.) The 4Q 2018 vacancy rate improved markedly to 4.8% versus 3Q 2018 at 6.0%. As we continue into 2019, we expect this vacancy rate to remain stable as absorption is keeping pace with construction.

CANON SHOULTS Managing Principal cshoults@hldallas.com 972.280.8328

TOP LEASE TRANSACTIONS Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

HLC Deal

6,333,710

3,927,727

8,571,461

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

6.4%

6.4%

6.6%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

7,360,014

14,688,795

12,211,428

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

17,412,172

21,577,477

24,396,840

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

6,725,716

7,948,297

• Panoramic Doors leased 127K SF with Stonelake Capital Partners at 15050 Frye Road • Alpha Furniture renewed their lease of 320,366 SF from TS Partners at 2401 W Marshall • Chase Industries leased 174,120 SF with Liberty Property Trust at 5350 Frye Road • Friedrich Air leased 101,563 SF with Prologis at 1130 Avenue S • Longhorn Paper Converting renewed their lease of 90,951 SF with Sealy at 1123-1139 W Carrier Parkway • Advanced Integration Tech renewed their 88,000 SF lease from Prologis at 901 Avenue S

8,093,231

HLC Deal

DEALS ON THE MARKET VITAL STATS

10.0%

3,000,000

9.0% 2,500,000

8.0% 7.0%

2,000,000

6.0% 5.0%

1,500,000

4.0% 1,000,000

3.0% 2.0%

500,000

1.0% 0

0.0% 4Q 15

1Q 16

2Q 16

Absorption

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Deliveries

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

Vacancy Source: CoStar 4Q 2018 Industrial Report

8

• Scannell Properties is selling a national portfolio with one building located in Grand Prairie. The building is 2710 Forum Drive and totals 290,817 SF. • Lucid Audio (user) is selling CentrePort VII. The building is 117,481 total SF and is currently under contract.

• Home Depot is selling their 322,824 SF building at 1102 State Highway 161/Pioneer Gardens in Grand Prairie and is currently under contract.

• Crow Holdings Industrial is selling their two (2) building 509,733 SF project at MacArthur Crossing and is under contract with Liberty Property Trust.

• Cabot Properties is selling RiverPark 1000. The building is 145,579 SF. • LaSalle is selling Pioneer 360. A three (3) building project containing 1.2M SF located at Pioneer Parkway and Hwy 360.

NEW DEVELOPMENTS • Wildlife 7, 9, 10 & 11 – 2401 N Belt Line Road – 1,126,286 SF Total with Crow Holdings Industrial (836,635 SF Preleased) • 2911 S Great Southwest Parkway – 271,794 SF with LaSalle • Cooper I-20 – Building C – 420,000 SF spec with Barings • 4100 New York Avenue – 110,468 SF with a private investor/developer • Parc Southwest – 5250 & 5251 Frye Road – 112,500 SF and 180,497 SF spec with GID/Jackson Shaw • Park Twenty Three-Sixty – 2275 E Interstate 20 & 2310 E Arbrook Boulevard – 271,106 SF with Invesco • GSW 77 – 313 N Great Southwest Parkway – 128,173 SF with Prologis (Pre-leased to Liquid Metal Sports) • General Motors Buildings 1 & 2 – 1.2M SF development with NorthPoint Development (100% leased to GM vendors) • 949 W Oakdale Road – 401,557 SF spec with PLR

LARGE EXISTING VACANCIES • • • •

14900 Frye Road – 494,990 SF 950 E Avenue K – 487,752 SF 951 Valley View Lane – 341,442 SF 1102 State Highway 161 – 322,824 SF (Home Depot Vacating) • 3254 W Trinity Boulevard – 305,000 SF (Discount Tire Vacating) • 4925 New York Avenue – 242,370 SF • 14601 Sovereign Road – CentrePort 4 – 232,700 SF

SUBMARKET INTELLIGENCE DFW AIRPORT

HLC OUTLOOK

25+ YEARS

The DFW Airport market vacancy rate is 7.4% at Year-End 2018 with absorption of 2,215,286 SF. Rental rates have remained strong ranging from $3.85 -$8.50 for bulk distribution and shallow bay product. Rental abatements range from 2 months to 8 months depending on renewal versus new deals and the size of the lease transaction. Tenant Improvement costs remain high because increasing tenant demands and construction costs.

CRE EXPERIENCE JIM BRICE

Partner - Texas Leasing jbrice@hldallas.com 972.280.8306

DFW Airport market continues to be one of the top three markets for institutional owners to buy or develop in the Metroplex. With fee simple land built out, most of the 3.8M SF of development currently taking place is on 40-year ground lease land owned by DFW Airport.

TOP LEASE TRANSACTIONS • Xpedient Logistics renewed their 274,808 SF lease Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

902,350

596,275

1,636,684

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

7.4%

5.7%

5.5%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

941,494

1,837,669

1,154,060

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

542,887

2,889,235

1,765,623

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

2,346,348

657,920

1,274,942

with Clarion at 200 Northpoint Drive • Hoya Optical leased 121,404 SF from Clarion Partners at 845 Regent Boulevard in Trade Center 8 • Fresenius Medical renewed their 114,000 SF lease with Duke Realty at 601 S Royal Lane • CID renewed their 114,105 SF lease with Duke Realty at 601 S Royal Lane • Frontline Advance leased 47,473 SF from Prologis at 1070 S Kimball Avenue • Jormac Aerospace leased 40,538 SF from LaSalle at 820 W Sandy Lake Road • Rhode & Schwartz leased 40,000 SF from Prologis at Prologis Park 121 building 5 • Export Tech leased 40,000 SF from Prologis at Prologis Park 121 building 5 • Zone Industries, LLC leased 12,800 SF from LaSalle at 820 W Sandy Lake Road

HLC Deal

VITAL STATS 2,500,000

10.0% 9.0%

2,000,000

8.0% 7.0%

1,500,000

6.0% 1,000,000

5.0% 4.0%

500,000

3.0% 2.0%

HLC Deal

NEW DEVELOPMENTS • Gateway Logistics Center – five (5) building spec development totaling 1,413,445 SF with Bandera Ventures/Long Wharf Capital. (the majority of the project has delivered with 517,877 SF under construction) • Passport Park-Buildings 1 – 4 (2600 Rental Car Drive) – four (4) building spec development totaling 2,019,015 SF with Trammell Crow/CBREI • Passport Park – three (3) building spec development totaling 1,231,316 SF with Dalfen

LARGE EXISTING VACANCIES • 2601 S Airfield Drive – 1,000,584 SF • 2828 W Airfield Drive – 498,800 SF • 2700 Market Street – 374,900 SF • 2800 Market Street – 309,240 SF • 2800 Valley View Lane – 294,795 SF • 611 S Royal Lane – 233,960 SF

0

1.0% 0.0%

(500,000) 4Q 15

1Q 16

2Q 16

Absorption

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Deliveries

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

Vacancy

Source: CoStar 4Q 2018 Industrial Report

9

SUBMARKET INTELLIGENCE NORTHEAST & EAST DALLAS

HLC OUTLOOK

11+ YEARS

The Northeast and East Dallas submarkets posted another consecutive quarter of positive absorption reaching a historical low vacancy rate of 5.6%. With favorable labor statistics as well as proximity to some of the densest neighborhoods in DFW we continue to see strong leasing activity and have seen rates push past historical levels. Coupled with approximately 4M SF of deals in the market, this has resulted in another wave of construction activity consisting of an additional 2.1M SF of spec warehouse being proposed as far north as McKinney to the eastern boundaries of Mesquite. New BTS activity including Ashley Furniture, Lollicup and Goodyear has also reached as far out as Rockwall and Terrel due to the availability of land and labor. We expect for rates to continue to increase due to rising construction costs and concessions to remain in check as new construction continues to be leased up at a steady pace.

CRE EXPERIENCE JOSH BARNES

Principal jbarnes@hldallas.com 972.280.8353

TOP LEASE TRANSACTIONS Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

23,093

1,496,872

1,331,496

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

5.6%

5.8%

6.3%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

HLC Deal

752,904

2,214,867

2,412,467

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

3,453,225

3,735,425

2,706,900

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

581,915

1,436,508

• Confidential Tenant leased 109,830 SF at 1330 S Jupiter Road with Langford Property Company.

• Dhaliwal subleased 79,200 SF in Mesquite Business Center with Stockbridge.

• Multipackaging Solutions Dallas leased 69,000 SF at 2755 Miller Park North with TA Realty • Barrett Distributing expanded by 49,868 SF at 3800 Leon Rd. with IDI Logisitcs • AYC leased 56,031 SF at 1036 S Jupiter Road with Exeter Property Company • Alliance Technologies leased 37,964 SF at 1036 S. Jupiter with Exeter Property Company • Nina Kelly Designs renewed their 37,472 SF lease at 24502462 Merritt Drive with Taurus.

779,500

HLC Deal

VITAL STATS

7.0%

2,000,000

1,500,000

1,000,000

6.0%

500,000

0

(500,000)

(1,000,000)

5.0% 4Q 15

1Q 16

2Q 16

Absorption

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Deliveries

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

DEALS ON THE MARKET • I-35 Portfolio being sold by Eastdil – consists of 2 flex/ industrial buildings in Plano and 1 industrial building in Garland; owned by GLP. • 3414 Herrmann Drive being sold by HLC – 124,800 SF flex/ industrial building; owned by Frontier Equity.

• Northgate Distribution Center is being marketed alongside Pioneer 360 by CBRE – Northgate consists of 2 fully leased industrial buildings totaling 269,350 SF; owned by LaSalle.

HLC Deal

HLC Deal

Vacancy Source: CoStar 4Q 2018 Industrial Report

NEW DEVELOPMENTS • 1601 & 1801 South Shiloh Road in Garland – Speculative Two building development totaling 248,825 SF by Huntington Industrial Partners; 32’ clear height, cross dock

HLC Deal

10

• Parc Northeast – Speculative Four building development totaling 434,640 SF by Jackson Shaw; 28’ clear height, 3 Rear Load buildings, 1 Front Load building • S Buckner Boulevard - Speculative two building project totaling 813,500 SF by Exeter; 32’ clear 583,200 SF cross dock and 32’ clear 230,300 SF front load • 1581 Corporate Drive – Speculative 115,176 SF building development by Dalfen; 32’ clear, Rear Load • Wilmeth @ I-75 – Speculative 202,270 SF building development by Hunt Southwest; 32’ clear, Read Load • The Rock at Frisco Park 25 – 15815 Executive Drive – 212,155 SF building development by Bandera Ventures • Core 5 Business Center – Speculative 2 building industrial/ flex development totaling 161,842 SF by Core 5, Rear Load.

• 4000 E Scyene - Ashley Furniture BTS – Single building development totaling 877,230 SF • ANNOUNCED: I-30/Hwy 80 in Mesquite – Speculative development totaling 237,473 SF by Prologis; 32’ clear height, cross dock • ANNOUNCED: Goodyear BTS in Forney – 1.2M SF BTS on Gateway Blvd. by HIllwood •

HLC Deal

HLC Deal

LARGE EXISTING VACANCIES

• 5151 Samuell Boulevard – 442,035 SF; being vacated by Ashley Furniture • 8901 Forney Road – 419,626 SF; being vacated by Shippers Warehouse • 1371 S Town East Boulevard – 400,000 SF; sublease by DSA • 3800 Leon Road – 329,091 SF • 3000 West Kingsley – 341,840 SF; sublease by Apex Tools • 1600 S Jupiter Road – 218,400 SF

SUBMARKET INTELLIGENCE NORTHWEST DALLAS

HLC OUTLOOK

7+ YEARS

Throughout 2018, Northwest Dallas continued to prove to be one of the strongest submarkets in the Dallas/Fort Worth Metroplex. The submarket posted a 4.9% vacancy rate at year end which is near the same rate as the end of 2Q and 3Q of 2018. Billingsley completed their four (4) building development at Mercer Business Park which they are now 100% occupied. Building Four at Prologis’ Valwood Corporate Park was completed just prior to the end of the third quarter which totals 235,900 SF and is currently vacant. Core5 recently broke ground on Valwood Crossroads at Belt Line and Luna for two (2) buildings totaling 620,000 SF and Panattoni began their 151,176 SF spec facility in July which is expected to be completed in 1Q 2019. Rents have continued to increase due to the market tightening as spaces between 50 – 150,000 SF are diminishing which is the primary size range in Valwood. All indicators point to the market remaining strong as we head into 2019.

CRE EXPERIENCE ANDREW GILBERT Market Director agilbert@hldallas.com 972.280.8312

Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

856,828

(355,596)

1,200,547

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

4.9%

5.1%

4.5%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

1,590,545

2,629,676

1,293,181

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,656,412

2,293,905

1,291,863

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

776,969

356,260

682,888

VITAL STATS

8.0%

2,000,000

7.0% 1,500,000

6.0% 5.0%

1,000,000

4.0% 500,000

3.0% 2.0%

0

1.0% 0.0%

(500,000) 4Q 15

1Q 16

2Q 16

Absorption

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Deliveries

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

Vacancy Source: CoStar 4Q 2018 Industrial Report

TOP TRANSACTIONS • Rudy’s Food Products renewed their lease of HLC Deal

298,653 SF at 2115 E Beltline Road with Lexington Realty Trust • Morrison Supply leased 50,400 SF at 1402 Dunn Drive in Carrollton with ML Realty Partners • Vivid Cosmos Granite leased 68,562 SF at 2244 Luna Road in Carrollton with Billingsle • Wine Retriever LLC leased 49,550 SF at 4531 Simonton Road with TA Realty • LeSaint Chemical Logistics signed a 54,500 SF lease at 4650 Simonton Road in Farmers Branch • Southern Glazer’s Wine and Spirits renewed its 96,617 SF lease at 13755 Diplomat Drive in Farmers Branch with ML Realty Partners

HLC Deal

DEALS ON THE MARKET • Josey Lane Distribution Center – 259,900 SF for HLC Deal

sale at 1900 N Josey Lane in Carrollton. Single building deal on the market occupied entirely by PPG who will be vacating at the end of April.

• Crosby 35 Business Park – Principal Financial Group is selling the two (2) building project at Crosby and I-35. The buildings are 100% and the total square footage of the project is equal to 141,735 SF.

• Dallas and Houston Infill Light Industrial Portfolio – 1.07M SF in twelve (12) buildings. One of the buildings is in Northwest Dallas at 2425 Carter Drive.

NEW DEVELOPMENTS • Valwood Logistics Center – Panattoni is underway on a 151,176 SF rear-load building set to be completed in 1Q 2019. The site is located at Valley View and Senlac.

• Valwood Crossroads – Core5 broke ground on their two (2) building development at Belt Line and Luna in totaling 620,000 SF. Estimated completion date is October 2019.

LARGE EXISTING VACANCIES • 1625 Hutton – 235,900 SF • 14325 Gillis Road – 175,300 SF • 2099 Valley View Lane – 150,000 SF • 2828 Trade Center – 125,916 SF • 13755 Benchmark Drive - 64,533 SF

11

SUBMARKET INTELLIGENCE SOUTH DALLAS

30+ YEARS

HLC OUTLOOK

CRE EXPERIENCE

South Dallas Industrial submarket as surveyed is 120M SF and is now 12.7% vacant which is 0.8% lower than reported in 3Q 2018. New construction continues outpacing absorption. According to CoStar, South Dallas reported net absorption of 1,405,676 SF in 4Q 2018. However, HLC real time tracking reports 784K SF of new leases signed in addition to 1.6M SF in Build-to-Suits (HD Supply & Ollies). In 4Q 2018 South Dallas delivered just one new bulk warehouse project from CalSTRS of 237,678 SF. South Dallas still has 3M SF remaining under construction (I-30 & I-20 corridors combined). The southern corridors along I-20, I-35, and I-45 continue to produce new opportunities for development. Unfortunately, the supply of new product by capital sources far exceeds the submarket demand and deal velocity causing South Dallas to lead the Dallas market as the only submarket with double digit vacancy of 12.7%.

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.

TOP LEASE TRANSACTIONS Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

1,405,676

1,545,711

2,313,526

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

13.0%

14.0%

10.4%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

499,910

2,290,904

647,448

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

2,640,319

2,339,143

8,679,353

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

499,678

3,295,785

1,104,866

• HD Supply build-to-suit with First Industrial Realty Trust for 1,021,440 SF at Mountain Creek Parkway & Interstate 20 • Ollies Bargain Outlet build-to-suit of 615,000 SF with Jones Development at Lancaster Hutchins and Wintergreen Road off Interstate 30 • American Standard leased 147,750 SF at 1709 Interstate 45 • Bay Valley leased 132,825 SF at 8757 Autobahn Drive from TA Realty Associates • Marley Spoon leased 128,525 SF at 8900 Old Hickory from TA Realty Associates

HLC Deal

HLC Deal

VITAL STATS

15.0%

4,000,000

13.0%

3,000,000

11.0% 2,000,000 9.0% 1,000,000 7.0% 0

5.0%

(1,000,000)

3.0% 4Q 15

1Q 16

2Q 16

Absorption

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Deliveries

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

Vacancy

Source: CoStar 4Q 2018 Industrial Report

12

DEALS IN THE MARKET • Barings Real Estate (seller) CrossPoint 20/30 at 3737 Duncanville Road – 510,400 SF leased to Owens Corning

NEW DEVELOPMENTS • Park 20/35 (CalSTRS) – 237,678 SF • 1,138,787 SF on E Cleveland Road with USAA and Seefried Development • 1401 & 1501 Chalk Hill Road – 672,775 SF & 608,939 SF

by Hillwood & Trammell Crow • Chalk Hill Road – 800,854 SF Build-to-Suit for Amazon

by Hillwood & Trammell Crow • 3130 N Longhorn Drive – 404,175 SF Build-to-Suit for Global Fulfillment

LARGE EXISTING VACANCIES • Southport Parkway, Building 1 – 1,075,260 SF spec SouthPort Logistics Park (Interstate 45) • SouthLink (Hines) – 1,044,647 SF at Bonnie View Road and Cleveland Road • Crossroadds Trade at 2119 N Interstate 35E – 948,392 SF with Hillwood/Clarion • Liberty Property Trust – 900,043 SF at 3535 N Houston School Road • 3300 Cedardale Road, Building 1 – 776,630 SF with Morgan Stanley • I-35 Logistics Crossing at 2801 N Houston School Road – 1,221,612 SF (two (2) buildings @ 610,086 SF each) with Crow Holdings • SouthPointe 20/35 – 660,312 SF spec (Building 2) with UBS • LogistiCenter at Dallas – 626,439 SF spec with Dermody • Properties at 9890 Bonnie View Road

SUBMARKET INTELLIGENCE SOUTH STEMMONS

HLC OUTLOOK

7+ YEARS

At the end of 4Q 2018, the South Stemmons industrial submarket posted a 3.7% vacancy rate and continues to be one of the strongest performing submarkets in Dallas. There is a strong amount of leasing activity throughout the submarket for tenants between 10 – 50,000 SF. Although absorption for 4Q totaled a negative 600,000 SF, this is due to tenants relocating from the Design District with rates continuing to rise quickly in that area. I expect the negative absorption number to reverse as we move into 2019 due to the lack of development sites in the submarket. Throughout 2019, rental rates are expected to increase as the submarket becomes tighter and tenants are relocating north on I-35 from the spike in rental rates in the Design District.

Since 2013, rents in the submarket have increased 30% 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 deals have increased into the low $4/SF range and rates for 10,000 SF are now reaching mid $5/SF start rates. 20-25,000 SF are creeping up into the mid $4’s. I expect this trend to continue through 2019.

CRE EXPERIENCE ANDREW GILBERT Market Director agilbert@hldallas.com 972.280.8312

Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

(33,384)

(663,515)

(399,306)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

3.7%

3.6%

3.4%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

1,271,831

873,838

1,155,295

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

1,305,464

1,305,464

1,078,933

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

-

-

15,000

VITAL STATS 8.0%

1,200,000 1,000,000

7.0%

800,000 600,000

6.0%

TOP TRANSACTIONS • ODES UTV signed a 97,806 SF lease at 2007 Royal Lane with DRA Advisors

• Imlach & Collins Brothers expanded into 81,357 SF HLC Deal

at 4653 Leston Street in Brookhollow

• Brunton International, Inc. renewed their lease of

LARGE EXISTING VACANCIES • 8801 Ambassador Row – 200,066 SF • 10155 E Technology Boulevard – 62,000 SF • 1111 Regal Row – 60,010 SF • 2682 Brenner – 50,580 SF

60,000 SF at 3306-3310 Quebec Street with TA Realty • Wilson Office Interiors renewed their 56,000 SF lease at 5017 Pulaski Street • AT&T renewed their lease if 43,504 SF at 2015 Royal Lane with DRA Advisors • Hickory Pointe purchased 3306 Royalty Row from Reece Supply Company. The building is 69,000 SF located in Brookhollow.

400,000 200,000

5.0%

0 (200,000)

4.0%

(400,000) (600,000)

3.0%

(800,000) 4Q 15

1Q 16

2Q 16

Absorption

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Deliveries

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

Vacancy

Source: CoStar 4Q 2018 Industrial Report

DEALS ON THE MARKET • 8888 Governors Row – This freestanding building is 60,706 SF and located in the heart of Brookhollow.

Currently for sale to a user.

• 2651 Manana – 67,000 SF located in East Hines North. The building is currently 85% leased with the average term remaining at 5 years with the current tenants.

• 4811 Lakawana – 50,000 SF building in West Brookhollow. The building is fully vacant.

13

SUBMARKET INTELLIGENCE NORTH FORT WORTH

HLC OUTLOOK

12+ YEARS

The North Fort Worth industrial submarket continues to stay healthy despite decreases in leasing activity for the 4th straight quarter. While overall vacancy increased among all building types, shallow bay continues to stand out due to strong activity and very little available inventory. New deliveries for the past quarter were 807,128 SF, and there was a slight decrease in overall vacancy from the previous quarter. Alliance/NE Tarrant Submarket continues to see the strongest development activity, although the deliveries in the submarket have outpaced absorption and leasing activity, vacancy rate ended up at 9.5% and could easily climb to 10% by end of 1Q 2019. Railhead/Mercantile/Fossil Creek ended the year with 5.1% vacancy which is a significant increase from the 2.8% posted 1Q 2018. Currently we are seeing good prospect activity among bulk warehouse users looking to expand and relocate into the market, therefore expect leasing activity throughout North Fort Worth to experience increases in 1Q of 2019.

CRE EXPERIENCE DONNIE ROHDE

Market Director drohde@hlfortworth.com 817.710.7058

TOP SALES TRANSACTIONS Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

906,344

37

1,224,196

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

5.9%

6.0%

4.9%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

483,324

577,963

1,756,788

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

2,139,494

2,553,315

4,607,390

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

807,128

2,185,824

TOP LEASE TRANSACTIONS

700,000

VITAL STATS

12.0%

• Harris Packaging Corporation purchased 101,896 SF at 1801 Riverbend West Drive from Stag Industrial

3,000,000

10.0% 2,000,000

• Xpressdocs leased the full 221,000 SF at 1301 NE Loop 820 from Scannell • Keane Group leased 78,376 SF at 15277 Heritage Parkway from Crow • Capellon, Inc. renewed their 143,600 SF lease at Riverbend Business Park • Global Packaging, Inc. renewed in 92,800 SF and expanded by 19,200 SF at Northern Crossing • GXI leased 51,600 SF at 7445 Pebble Drive at the Riverbend Tech Center

8.0%

1,000,000

6.0%

4.0% 0 2.0%

0.0%

(1,000,000) 4Q 15

1Q 16

2Q 16

Absorption

3Q 16

4Q 16

1Q 17

2Q 17

3Q 17

Deliveries

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

Vacancy Source: CoStar 4Q 2018 Industrial Report

14

DEALS ON THE MARKET • Fossil Creek – 564,458 SF being sold by Space Center • Park 820 – 491,000 SF being sold by Scannell Properties • 4901 N Beach Street – 124,658 SF being sold by G & W Ventures • 1701 Pharr Street – 109,884 SF being sold by G T Industrial Properties

NEW DEVELOPMENTS • Hillwood is also under construction on Alliance Northport 1, a 500,555 SF cross-dock facility in Northlake, Texas. Hillwood is also poised to break ground on Alliance Center North 3 a 782,000 SF crossdock facility.

• TCRG Properties is under construction on Building 1 of their Synergy Crossing project, a 403,000 SF facility. The building is to be delivered 3Q 2019.

• EastGroup Properties, Inc. is under construction on Parc North Building 5, a 100,036 SF shallow-bay facility fronting Loop 820.

• First Industrial Realty Trust, Inc. has started site work on a 198,589 SF, cross-dock facility in the NEQ of I-35 and Loop 820 in Fort Worth.

LARGE EXISTING VACANCIES • • • • • • •

14901 N Beach Street – 1,111,500 SF 15245 Heritage Parkway – 1,089,642 SF 2112 Eagle Parkway – 407,800 SF 4801 Westport Parkway – 400,000 SF 5180 N Railhead Road – 362,670 SF 16200 Three Wide Drive – 316,128 SF 5650 Alliance Gateway Freeway – 303,458 SF

SUBMARKET INTELLIGENCE SOUTH FORT WORTH

HLC OUTLOOK

16+ YEARS CRE EXPERIENCE

The South Fort Worth industrial submarket posted a fourth quarter vacancy of 3.7%. This is down from 5.8% vacancy rate that south Fort Worth had 4Q of 2017. As of the end 2018, there is upwards of 4,150,000 SF of proposed industrial development, with 757,745 SF currently under construction and 340,817 SF delivered. We don’t expect a flood of the 4,150,000 SF to hit at once as Majestic, Mereken Land, Carter Foundation, Hillwood and TCRG control most of the developable tracts, however this hasn’t deterred other developers and institutional property owners from trying to enter the submarket. Current lack of supply and increasing demand doesn’t appear to be slowing down. This is highlighted by south Fort Worth’s 4Q 2018 leasing activity of 2,788,000 SF.

MATT CARTHEY

Partner mcarthey@hlfortworth.com 817.710.1111

Absorption

vs. Prev. Qtr

vs. 12 Mths Ago

859,105

111,066

(767,005)

Vacancy

vs. Prev. Qtr

vs. 12 Mths Ago

3.7%

4.8%

4.8%

Leasing Act.

vs. Prev. Qtr

vs. 12 Mths Ago

396,193

1,213,835

843,458

U/C SF

vs. Prev. Qtr

vs. 12 Mths Ago

666,783

686,843

375,260

Delivered SF

vs. Prev. Qtr

vs. 12 Mths Ago

20,060

16,000

TOP LEASE TRANSACTIONS • Crawford Electric leased 44,639 SF at 630 North Freeway from Tindall Properties • TCRG leased 45,200 SF to AL Lighting at 301 E Risinger Road in a direct transaction

DEALS ON THE MARKET • Benbrook Corners, a four building 171,948 SF flex

751,164

portfolio is being marketed for sale by Peloton Commercial.

VITAL STATS

12.0%

The YTD net absorption in south Fort Worth posted a balance at the end of 3Q of 978,277 SF. A figure that has spiked drastically from the 2Q absorption number of 121,701 SF. The south Fort Worth bulk warehouse vacancy of 3.4% has the lowest vacancy in the submarket for the first time in over two years, edging out the historically low Shallow Bay product.

This is due to the fact that 1.1 million SF of bulk warehouse vacancy was absorbed between 2Q and 3Q YTD

3,000,000

10.0% 2,000,000 8.0%

1,000,000

6.0%

4.0% 0 2.0%

0.0%

(1,000,000) 4Q 15

1Q 16

2Q 16

3Q 16

Absorption

4Q 16

1Q 17

2Q 17

3Q 17

Deliveries

4Q 17

1Q 18

2Q 18

3Q 18

4Q 18

Vacancy

NEW DEVELOPMENTS • Frontier Equity and TA Realty are underway on Everman Trade Center, a four-building shallow bay development located at the northwest corner of Everman Parkway and I-35 in south Fort Worth. This project includes four (4) rear load buildings totaling 457,745 SF with buildings ranging from 56,353 SF to 217,537 SF. The project is slated to deliver February 2019.

• Hunt Southwest is underway on DFW Coldspot, which marks Hunt’s entry into the south Fort Worth submarket. The speculative 300,000 SF Food Processing building is set to deliver at the end of March 2019 and will be located at 8600 Will Rogers Boulevard.

LARGE EXISTING VACANCIES • 7550 Oak Grove Road – 498,475 SF • 425 W Everman Parkway – 287,261 SF • 5000 South Freeway – 241,607 SF • 6601 Oak Grove Road – 109,125 SF • 7471 Benbrook Parkway – 76,625 SF • 6633 Oak Grove Road – 67,860 SF • 4901 Esco Drive – 67,081 SF

Source: CoStar 4Q 2018 Industrial Report

15

DALLAS

5950 Berkshire Lane Suite 900 Dallas, Texas 75225 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

www.holtlunsford.com

HOUSTON

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