1 Q OVERALL OHIO RESEARCH RECOVERY STILL PROGRESSING EXECUTIVE SUMMARY The second quarter in Ohio kept a steady pace, as most markets and specialties saw good demand, positive absorption and a healthy amount of activity. Colliers Ohio now tracks data in the four largest Ohio markets - Cincinnati, Cleveland, Columbus and Dayton - and has witnessed a continued recovery in the commercial real estate market. Driving this recovery continues to be employment. The overall employment in Ohio sits 60 basis points lower than the national average, 7.0% compared to 7.6% across the country. Demand continues to push down vacancy rates. In Ohio, the office vacancy rate stands at 13.7%, the industrial vacancy rate is 8.7% and the retail vacancy rate is 8.8%. On the investment side, investor demand for commercial properties in Ohio continues to rise as investors are looking for a higher return in second tier cities across our state. At the close of the second quarter, investment sales have shown a 13% year-over-year increase, a positive sign capital is still flowing in the investment market and deals are being completed. NET Combined net absorption for all specialties remained positive again this quarter. The office market produced a total of 305,420 square feet of positive absorption and the retail market produced 1,195,777 square feet of positive absorption for all four markets we cover. In addition, like last quarter, the industrial market was the clear winner for the second quarter, as it almost passed 2.6 million square feet of positive absorption (2,592,341 square feet) for the second quarter. RENTAL RATES Rental rates were mixed throughout each market and each specialty, showing no clear direction in one way or the other. The average rental rate for the office market came in at per square foot (gross), the average rental rate for the industrial market was 3.36 per square foot (net) and the average rental rate for the retail market was per square foot. Brian T. Graham, CCIM Valuation & Advisory Services Director of Research Ohio DIR FORECAST The third and fourth quarters of 2013 should continue to see positive momentum in all markets and in all specialties. Employment levels should continue to get better, which, in turn, drives demand for commercial real estate. One area Colliers Ohio will continue to monitor is the investment market. While this market has seen a good run over the past 24 months, rising interest rates could affect investor demand as cap rate compression comes to an end and the yield spread for commercial investment properties tightens. Population (2010 CSA) 2.2 Million 3.5 Million 2.0 Million 1.1 Million Unemployment Rate 6.8% 6.9% 6.0% 7.3% Office Vacancy 17.8% 12.8% 11.4% 15.4% Industrial Vacancy 7.9% 8.7% 6.8% 13.8% Retail Vacancy 9.4% 8.5% 9.5% 8.5%
2 OFFICE MARKET SUMMARY THE KNOWLEDGE REPORT Q OFFICE OHIO TOTAL RENTABLE TOTAL VACANT VACANCY QUARTERLY NET YTD NET RENTAL OFFICE MARKET RATE RATE / Cincinnati 53,674,927 9,535, % 453, , Cleveland 144,270,012 18,448, % -489, , Columbus 62,688,656 7,158, % 229, , Dayton 41,835,897 6,443, % 111, , TOTAL 302,469,492 41,586, % 305, , OFFICE MARKET SUMMARY The second quarter of 2013 showed 305,420 square feet of positive absorption and a vacancy rate of 13.7% for all four markets we track. As office space is tied directly to our unemployment rate, the office market has reaped the rewards of employment increasing in most sectors of our economy. Cincinnati had 453,669 square feet of positive absorption, Cleveland had negative 489,000 square feet of absorption, Columbus had 229,080 square feet of positive absorption and Dayton had 111,671 square feet of positive absorption. As employment continues to improve in the education, healthcare and government sectors, demand should continue for office properties. SQUARE FOOTAGE DEMAND SQUARE FOOTAGE DEMAND Office - Other Office - Medical Office - Sales Office - Financial Services Office - Marketing/Branding Office - Law Firm Office - Data/IT Office - Education Office - R&D 20.0% 19.0% % % 16.0% 15.0% 14.0% 13.0% % % TOP 5 OFFICE TRANSACTIONS PROPERTY SUBMARKET TENANT/BUYER SIZE TYPE QUARTER 5900 Parkwood Place Columbus JP Morgan Chase 164,900 Lease Q2 Flats East Bank Cleveland Ernst & Young 150,000 Lease Q1 Flats East Bank Cleveland The Law Firm of Tucker Ellis 100,000 Lease Q Parkwood Place Columbus Cardinal Health (Expansion) 61,128 Lease Q1 Dolwick Business Center Cincinnati St. Elizabeth Health Care 55,799 Lease Q2
3 INDUSTRIAL MARKET SUMMARY THE KNOWLEDGE REPORT Q INDUSTRIAL OHIO TOTAL RENTABLE TOTAL VACANT VACANCY QUARTERLY NET YTD NET RENTAL INDUSTRIAL MARKET RATE RATE / Cincinnati 244,257,287 19,185, % 657,162 2,771, Cleveland 476,790,108 41,479, % 510,600 2,040, Columbus 212,366,316 14,474, % 1,444,523 1,204, Dayton 116,088,502 15,968, % -19,944 36, TOTAL 1,049,502,213 91,107, % SQUARE FOOTAGE 2,592,341 DEMAND6,053, INDUSTRIAL MARKET SUMMARY The second quarter of 2013 showed 2,592,341 square feet of positive absorption in the industrial market. The vacancy rate is 8.7% for all four markets we track, down 20 basis points from the first quarter. Cincinnati had 657,162 square feet of positive absorption, Cleveland had 510,600 square feet of positive absorption, Columbus had an impressive 1,444,523 square feet of positive absorption and Dayton had 19,944 square feet of negative absorption. As noted last quarter, industrial supply of Class A bulk product is limited, and developers should be ramping up plans for new speculative construction in the third and fourth quarters. Cincinnati and Columbus have some projects which have commenced to meet this demand. In Cincinnati, IDI has finally announced plans for a massive 630,000-square-foot building, the first speculative project of its kind since Columbus is watching Exxcel Project Management construct a 478,053-squarefoot building at the CenterPoint Business Park, north of Rickenbacker International Airport. More projects like this should come to life in the next two quarters, as other developers try to jump in the game and capitalize on the lack of supply in the market. SQUARE FOOTAGE DEMAND Industrial - Warehouse/Distribution Industrial - Manufacturing/Production Industrial - Other Industrial - Flex Industrial - Freestanding Industrial - Land 13.5% % 11.5% 10.5% 9.5% 8.5% 7.5% 6.5% TOP 5 INDUSTRIAL TRANSACTIONS PROPERTY SUBMARKET TENANT/BUYER SIZE TYPE QUARTER 6200 Commerce Center Drive Columbus HD Supply 437,256 Lease Q1 World Park Union Center 11 Cincinnati Netrada 400,000 Sublease Q1 Monroe Logistics Center Bldg B Cincinnati Blue Buffalo 390,800 Lease Q Rohr Road Columbus Exel Logistics 313,792 Lease Q2 Park West International - N2 Cincinnati Perfetti Van Melle 176,000 Lease Q2
4 RETAIL MARKET SUMMARY THE KNOWLEDGE REPORT Q RETAIL OHIO TOTAL RENTABLE TOTAL VACANT VACANCY QUARTERLY NET YTD NET RENTAL RETAIL MARKET RATE RATE / Cincinnati 58,900,385 5,533, % 564, , Cleveland 194,760,529 16,618, % 278, , Columbus 60,499,791 5,721, % 304, , Dayton 69,295,791 5,914, % 48, , TOTAL 383,456,496 33,787, % 1,195,777 1,894, SQUARE FOOTAGE DEMAND (TOP 10) RETAIL MARKET SUMMARY The second quarter of 2013 showed 1,195,777 square feet of positive absorption in the retail market. The vacancy rate sits at 8.8% for all four markets we track. Cincinnati had an impressive 564,495 square feet of positive absorption, Cleveland had 278,151 square feet of positive absorption, Columbus had 304,889 square feet of positive absorption and Dayton had 48,242 square feet of positive absorption. Consumer confidence continues to be high and discretionary income spending should remain consistent for the balance of the year into the holidays. SQUARE FOOTAGE DEMAND Retail - Building Materials Retail - Discount Retailer Retail - Gym/Fitness Retail - Grocery Retail - Restaurant (Full Service) Retail - Specialty Retail Retail - Restaurant (Fast) Retail - Other Retail - Automotive Retail - Special Services 12.5% 12.0% 11.5% 11.0% 10.5% 10.0% 9.5% 9.0% 8.5% 8.0% TOP 5 RETAIL TRANSACTIONS PROPERTY SUBMARKET TENANT/BUYER SIZE TYPE QUARTER Stringtown Road Columbus Dick s Sporting Goods 49,447 Lease Q Stringtown Road Columbus Best Buy 30,000 Lease Q1 Kings Mall II Cincinnati Best Buy Furniture 27,559 Lease Q1 Eastgate Crossing Shopping Center Cincinnati Ashley Furniture 24,314 Lease Q North High Street Columbus Lucky s Fresh Market 24,000 Lease Q1
5 INVESTMENT MARKET SUMMARY THE KNOWLEDGE REPORT Q INVESTMENT OHIO INVESTMENT MARKET SUMMARY The overall investment market has continued to recover, as year-over-year investment sales increased 13% in quarter two according to Real Capital Analytics. Investment sales across the U.S. totaled 71.0 billion in the second quarter. Office and hotel property types have led the charge, seeing the most transactional activity for the past three months. The multifamily/ apartment sector, which has been the most appealing property type over the past twenty-four months, has finally cooled off. Year-over-year sales have declined 7%, the first decline for this sector in the past 13 quarters. Multifamily demand has driven up prices as far as they can go, and little yield remains on the table for upside potential. Because of this, the office, industrial and retail sectors should be the benefactor of investors looking for an alternative property type. The recent rise in interest rates is an area of concern that Colliers Ohio will continue to monitor for the balance of the year. Rising interest rates will put an end to the cap rate INVESTMENT INDICATORS 3 compression we have witnessed during this economic recovery, and will affect investor assumptions and overall projections in their financial models. As this occurs and strategies are readjusted, we will still continue to see modest demand in most markets across the state of Ohio as capital is still sitting on the sidelines waiting to enter the game. AVERAGE CAP RATE 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% SALES billions VOLUME 180 Industrial Apartment Suburban Office Retail CBD Office '06 '07 '08 '09 '10 '11 '12 '13 Q2 Q * Sales Volume Sales Counts Cap Rates *Projected Change to the following Quarter. billions transaction volume '06 '07 '08 '09 '10 '11 '12 '13 FINANCING Loan to Value: 60-80% Interest Rate: 4.25% % Loan Term: 5-7 Fixed Amort Sch: Years Closing Costs: 50 BPS YEAR-OVER-YEAR CHANGE average cap rates by sector 200% 150% 100% 50% 0% -50% -100% '06 '07 '08 '09 '10 '11 '12 '13 *Investment charts from Real Capital Analytics TOP 5 INVESTMENT TRANSACTIONS PROPERTY SUBMARKET TENANT/BUYER SIZE TYPE QUARTER Hackman Portfolio Acquisition Ohio Hackman Capital 2,593,602 Sale Q Pontius Road/3051 Creekside Pkwy Columbus Welsh Property Trust 1,491,354 Sale Q1 Southfield Park Portfolio Columbus Garrison Southfield Park LLC 1,010,880 Sale Q2 180 E. Broad Street Columbus Terra Funding - Continental Plaza 568,000 Sale Q2 580 Building - CBD Cincinnati Anderson Birkla Investment Partners 478,160 Sale Q1
6 GOVERNMENT UPDATES THE KNOWLEDGE REPORT Q OHIO GOVERNMENT SUMMARY The following is a list of the state and national issues Colliers Ohio is tracking. These are governmental and legislative issues that directly affect commercial real estate. Please contact us for more information on each. State Sales Tax on Commercial Property Ohio Oil & Gas Tax HB59 Current Status - HB59 was recently signed into law but governor s office is continuing to push it forward as a does not include the governor s proposed plan to tax rents separate issue. and commissions on commercial property - great news for owners and users of commercial property. Marketplace Fairness Act S.743 Current Status - Passed through the Senate and working its way through the House. Ohio plans to cut income tax Current Status - Was excluded from HB59 but the Income Tax Credit - Vacant Industrial Site HB135 To authorize a nonrefundable credit against the income tax and certain business taxes for the rehabilitation of a vacant industrial site. rate if passed. Current Status Passed by House, referred to Committee Senate Ways and Means. UNEMPLOYMENT UPDATE 12.5% Ohio is performing very well coming out of the recession. At the end of 12.0% 2008, Ohio was 80 basis points higher than the national unemployment 11.0% rate. At the end of 2012, Ohio was 110 basis points lower than the 8.0% 6.8%, Cleveland at 6.9% and Dayton at 7.3%. Cleveland Unemployment Rate Columbus Unemployment Rate Dayton Unemployment Rate 9.5% shape compared to the rest of our country. As of May 1st, the U.S. Bureau of was the best performing market in Ohio at 6.0%, followed by Cincinnati at Cincinnati Unemployment Rate 10.0% 9.0% Ohio Unemployment Rate 10.5% national-average. Although we have inched up in 2013, we are still in good Labor Statistics is reporting Ohio s unemployment rate at 7.0%. Columbus US Unemployment Rate 11.5% 8.5% 7.5% 7.0% 6.5% 6.0% 5.5% E RV CORE S RV S CORE S E R ICES COLL S E IE ICES R Mar - May - Nov - Sep-12 May-12 July-12 Nov-11 Jan-12 Mar-12 Jul-11 Sep-11 May-11 Jan-11 Mar-11 Jul-10 Sep-10 Nov-10 May-10 Jan-10 Mar-10 Nov-09 Jul-09 Sep-09 May-09 Jan-09 Mar-09 Nov-08 Jul-08 Sep-08 Mar-08 Jan-08 S May % Jan % RV
7 WSJ SENTIMENT STUDY THE KNOWLEDGE REPORT Q OHIO has collected data from the Wall Street 10 YEAR TREASURY RATE 10 Year Treasury Rate Journal, one of our leading information 7.00% sources for market statistics. We have 6.00% Over the past six months, Colliers Ohio analyzed the Vital Signs on the front 5.00% page each day, snapshots of market 4.00% indicators, showing a positive or 3.00% negative trend. This daily data has 2.00% 2013 WSJ Sen m 2013 Wall StreetTOPICS Journal -Vital Signs O VITAL SIGNS POSITIVE Positive or Negative Topics 2.58% 38% 1.00% been collected and is extrapolated into market faired each day. 62% 01/01/13 12/01/11 11/01/10 10/01/09 09/01/08 08/01/07 07/01/06 06/01/05 04/01/03 Average (DJIA), to see how the stock 05/01/04 closing of the Dow Jones Industrial 03/01/02 01/01/00 addition, we have tracked the daily 02/01/ % the included charts and graphs. In Treasury Close DJIA DAILY CLOSE Dow Jones Industrial Average Daily Close 16,000 Positive 15,500 14, ,000 14,500 Negative 14,000 13,500 06/02/13 05/02/13 04/02/13 03/02/13 02/02/13 01/02/13 13,000 All in all, these are great signs for an economy that is continuing to improve. TOP 5 VITAL SIGNS TOPICS Combined, these two studies have shown a positive trend in our national economy over the past six months. The top 5 leading indicators moving us in this direction are: Job Growth (32%) Financial Market Movement (15%) Consumer Spending Increases (22%) Manufacturing Improvement (14%) Housing Recovery (17%) Disclaimer: All data represented in the included graphs and charts was taken directly from the front page of the Wall Street Journal. Colliers Ohio believes the data is accurate, but cannot guarantee it.
8 THE KNOWLEDGE REPORT Q OHIO Executive Team 482 offices in 62 countries on 6 continents United States: 147 Canada: 37 Latin America: 19 Asia: 36 ANZ: 165 EMEA: 118 Shenan P. Murphy, CCIM CEO & Principal Cincinnati Dayton Richard B. Schuen, CCIM, SIOR CEO & Principal Columbus billion in annual revenue 1.12 billion square feet under management Over 13,500 professionals Greater Cincinnati 425 Walnut Street, Suite 1200 Cincinnati, OH Cleveland 200 Public Square, Suite 2005 Cleveland, OH Greater Columbus Region 2 Miranova Place, Suite 900 Columbus, OH Brian A. Hurtuk Managing Director Cleveland James R. Garrett, Jr. MCR Chief Operating Officer Ohio Colliers Ohio Research Services Dayton 70 Birch Alley, Suite 240 Building B Beavercreek, OH Colliers International statistics are audited annually and may result in revisions to previously reported quarterly and final year-end figures COMPREHENSIVE SERVICES Quarterly Market Reports Brian T. Graham, CCIM Valuation & Advisory Services Director of Research Ohio Monthly Market Notes Proprietary Property Database Proprietary Sale & Lease Comp Database Geographic Information Systems Mapping Valuation/Appraisal Analysis Tenants in the Market Reports Jonathan Schuen Research Analyst Columbus Unemployment Monitoring Local State & National Trend Analysis