Inustrial Vacancy Rates at Record Lows Nationally

The growth of e-commerce and a steadily improving economy are driving demand for industrial space and helping push industrial vacancy to record-low levels, particularly near major population centers, according to the 2017 U.S. Industrial Midyear Outlook report.  “Vacancy rates on a national level have fallen to record lows while rent growth has accelerated to outpace all other commercial real estate property types, lifting performance metrics beyond expectations. While some port and intermodal hub markets will receive significant new supply that could dampen local performance, the e-commerce driven demand for urban last-mile warehouse space has sparked the need for more infill industrial space, particularly in major metropolitan areas,” Senior Vice President Alan Pontius, National Director, Specialty Divisions & John Chang, first vice president|Research Services, wrote in the report.

Closed Golf Course in Georgetown County sold

Wedgefield Plantation Country Club in Georgetown, which has been closed for more than a year, has been purchased and the golf course could reopen as early as next spring.  Harry Karetas, 74, the owner for the past 28 years of Terminal Storage in North Myrtle Beach, and his wife, Yvonne, closed on the purchase Thursday from Paramont Capital of Phoenix, Ariz., which foreclosed on the property late in 2016.  Karetas said Monday that his purchase includes about 175 acres and he hopes to lease out the golf course, Manor House restaurant and bar, and an Olympic-size swimming pool – possibly each through three separate agreements.  “I do have a gentleman interested in leasing the golf course already and have another party that’s interested in leasing the swimming pool,” Karetas said. “We’ll just take it step by step, patiently, and try to get all the moving parts working for the same goal, which is to make the place productive again and entertaining for the public.

Leland Self Storage Facility Sold

Leland, NC Self Storage Facility Sold

By MBD

Martin Self Storage has acquired a facility in Leland, N.C., from A Quality Self Storage Inc. for $2.5 million. The property at 7815 Ocean Highway E. comprises 57,300 square feet of indoor storage as well as adjoining boat and RV storage space, according to a press release issued by Cape Fear Commercial LLC, the real estate firm that brokered the sale.
The facility contains 204 units, though the 16.5-acre parcel includes room for expansion, according to a listing on real estate website LoopNet.com. The asset is on U.S. Route 17 in Brunswick County, near Wilmington, N.C.  Martin Self Storage is the operating brand of Martin Organization LLC. The company has seven locations in North Carolina, including five other assets in the Wilmington market. The operator is looking to expand in the state, as well as into Florida and South Carolina, the release stated.

Carolina Beach retail center acquired for 2.25M

Local investors purchased a retail center for $2.25 million located 1206 N. Lake Park Blvd in Carolina Beach on Sept. 18th of this year. The center is anchored by Michael’s Seafood Restaurant, and other tenants include Island Massage & Spa, Carolina Beach Jewelers, Unified Alerts, Island Beverage and Nails Image.  In a recent lease, The Southerly Biscuit & Pie is expected to open in the spot at the center that’s currently occupied by Big Apple Bakery, potentially by December. The center is fully leased.

Brunswick County construction permits reach highest level since 2007

The number of construction permits issued in Brunswick County in fiscal year 2016 was the highest since fiscal year 2007, and year-to-date numbers for the current year are on track to be even higher.
In fiscal year 2015-16, there were 318 commercial construction and 2,077 residential construction permits, for a total of 2,395 construction permits, issued in Brunswick County. The number is the highest since fiscal year 2006-07, when there were 516 commercial and 2,841 residential permits issued, for a total of 3,357 construction permits. These numbers include permits issued by Brunswick County and by municipalities within Brunswick County.

And the number of permits issued in the current fiscal year is on track to be even higher. There were 740 construction permits issued July – October 2015; in the same time period in 2016, 786 permits have been issued. The value of the construction being permitted is also increasing. In fiscal year 2015-16, the total value of construction permitted was $713,916,000, the highest it has been since fiscal year 2006. And the current fiscal year is set to outpace this measure as well; the value of construction permitted in July – October 2015 was $216,965,000, while the value of construction permitted during the same time in 2016 was $278,216,000.

New Hanover County Shopping Center Sold

A New York-based real estate investment and property management company recently bought The Village at Myrtle Grove on Carolina Beach Road for $9.5 million, according to a news release and a New Hanover County deed. The Staples-anchored shopping center was one of three purchased by a limited liability company from Mount Pleasant, South Carolina.  The Village at Myrtle Grove, a 74,370-square-foot center in the 5500 and 5600 blocks of Carolina Beach Road, includes local businesses in addition to national tenants. The center was about 87 percent occupied at the time of the sale. Home Depot owns its portion of the property, a more than 100,000-square-foot building and about 10 acres, according to property tax records.

Franchise Motel Sold in North Myrtle Beach, SC

The 60-Unit, two-story Comfort Inn North Myrtle Beach is very well located within a short distance of major area attractions and had several re-branding opportunities. The motel sold for the $2,750,000 asking price. The new ownership group has plans to re-position the property to a Country Inn & Suites in the fall of this year.

Walmart Ground Lease Sold in Myrtle Beach, SC

 

Myrtle Beach, SC - The sale of a Walmart Neighborhood Market Ground Lease for $7.86MM. Located at 3650 Walton Heath Drive, the site had 20 years remaining on the lease at time of sale. The asking cap rate was 4.5%.

Carolinas communities among the nation's fastest-growing

 

Charlotteobserver.com -- Four communities in the Carolinas, including three on South Carolina's 190-mile coast, remain among the 20 fastest-growing in the United States, according to new numbers released Thursday by the U.S. Census Bureau.  The Myrtle Beach-Conway-North Myrtle Beach metropolitan area, which includes Brunswick County in North Carolina, was the second-fastest growing metro area in the nation for the second year in a row.  "The warm climate, the beautiful scenery, the quality of life and the low taxes and cost of living — when we went out and surveyed people those were the reasons we found that people were attracted to the area," said Brad Dean, the president and CEO of the Myrtle Beach Area Chamber of Commerce.  From July of 2014 through July 1 of last year the population of the area increased 3.5 percent to just over 430,000.

The Villages, Florida, was the nation's fastest-growing metro area.  Myrtle Beach is the heart of South Carolina's booming $19 billion tourism industry, which has helped fuel the growth of the area's permanent population.  "Tourism is a first date for relocation, retirement and economic development," Dean said. "Most of the individuals and businesses relocating here were first introduced to the area as a visitor."  The Beaufort-Hilton Head metro area was the 11th-fastest growing in the nation, posting 2.6 percent growth while the Raleigh area in North Carolina grew about 2.5 percent during the period and was No. 16 on the list. The Charleston-North Charleston metro area grew at about 2.4 percent and was 19th on the list.  It was the second straight year that all four areas made the list of the fastest growing metro areas in the United States.  

The Charlotte metro area, which includes parts of South Carolina, made the list of the top twenty metro areas, posting the largest numerical population gains. The area added more than 47,000 residents during the period.  Wake County in North Carolina, where the population grew by almost 25,000 and now is more than 1 million, was on the list of the top 20 counties nationwide with the largest numerical population gains.  In North Carolina, Mecklenburg County now has 1.03 million residents, about 10,000 more than Wake County.  Greenville County remains the largest county in South Carolina with about 492,000 residents, followed by Richland County with 407,000 and Charleston County with almost 390,000.

Read more here: http://www.charlotteobserver.com/news/state/north-carolina/article67950252.html#storylink=cpy

Lowes Foods Grocery Anchored Center Sold

Slate Retail REIT has acquired a grocery anchored center known as the Little River Pavilion in the Little River area of South Carolina (within the Myrtle Beach-Conway-North Myrtle Beach Metropolitan Statistical Area). It is located just south of the NC/SC state line between Little River and Calabash, NC. The 72,520 square foot center was 91% occupied at time of sale and is anchored by a Lowes Foods grocery store and Dollar Tree. It was acquired for $10.1 million or $158 per square foot in November of 2015.

Clemson Economist Predicts Slight Increase in Interest Rate

www.gsabusiness.com --  Bruce Yandle, Clemson University alumni distinguished professor emeritus of economics, expects the Federal Reserve to “nudge up the interest rate just a bit at its December meeting.” He said that between now and 2018, the nation will see real gross domestic product growth between 2.2% and 3.0% followed by “a slowing economy, an old-fashioned credit crunch,” in late 2018. Yandle anticipates the interest rate will increase slightly because of a strong employment report in the Southeastern region, specifically in what he called Charlanta, the area between Charlotte and Atlanta. Yandle gave his remarks at the fourth annual Dixon Hughes Goodman Greenville Executive Briefing Series at the Marriott on Tuesday. “If the Fed raises the federal funds rate, over which they have some control, they will, in a sense, be endorsing what the market already has done,” Yandle said. “But of course intervening events, such as the Paris tragedy, could affect what the market sees in the way of interest rates, but I’m sort of betting that this time we will see that move up for the first time since the great recession.” Yandle expects real GDP growth of 2.2% to 3% in 2016.

“I still think we will see a slowing of the economy, an old fashioned credit crunch, not a 2008 recession … long about 2018, maybe 2019 when the Fed becomes worried about inflation,” Yandle said. :ast year there were five GDP forecasts for 2015, according to Yandle. The lowest forecast was 2.6% from the International Monetary Fund, and the second lowest was from Wells Fargo at 2.9%. The other forecasts were around 3.0%. “Today we will be lucky if we hit 2.4% this year,” Yandle said, “and that immediately raises the questions ‘Why?’ ‘What happened?’ ”Yandle attributes the slowdown to the European Central Bank printing more money and the slowing Chinese economy. “Europe began to run their printing presses at high speed and started printing money faster than we print money, which led to a strong U.S. dollar,” he said. “When our dollar is stronger relative to other countries, we can buy more of their goods, but they buy less of ours. So our imports go up and exports go down, and down goes GDP growth.” China is the largest buyer of all raw materials and minerals, other than oil, Yandle said. So when an economy as large as China slows down, it slows down production and purchases and brought a sharp reduction in prices.

3rd Quarter 2015 Quarterly Market Trends released by CCIM

The Quarterly Market Trends produced by CCIM Institute (affiliate of NAR) provides timely insight into major real estate indicators for core income-producing properties. It is produced by the National Association of Realtors® for members of the CCIM Institute, the commercial real estate industry’s global standard for professional achievement. The report is a free benefit of CCIM membership and features respected narrative from Lawrence Yun, PhD, NAR chief economist, and George Ratiu, manager of NAR’s quantitative and commercial research. 

 
 http://www.ccim.com/workarea/downloadasset.aspx?id=30718

Higher-priced home sales surge in the Myrtle Beach area

Sun News (Myrtle Beach, SC) -- The Grand Strand’s real estate year has started just the way you’d want in a healthy market, with a modest rebound in numbers of sales – up 2.6 percent in January over December for single-family homes – and a median price up 8.2 percent to more than $196,000, according to a monthly report from SiteTech Systems, which tracks the local real estate market. Condo sales were down 3.9 percent during the month after a year of modest growth, the report said, but the median price rose 18.6 percent to $116,500 in January.  While homes priced between $121,000 and $500,000 all hit historic peaks for numbers of sales in 2015, at least some of the area’s real estate watchers are watching as well the strength of sales for homes priced at more than $500,000.  The numbers of upper-end homes sold are modest compared with lower-priced homes, but the annual percentage increase for sales of homes at $500,000 and above harkens back to the Wild West days of the last decade.

Read more here: http://www.myrtlebeachonline.com/news/business/real-estate-news/article61176647.html#storylink=cpy

SiteTech figured that the $1 million-plus market grew by 105 percent in 2015 over what it had been in 2014. The increase in numbers of homes was just 20 sales, but the percent jump eclipses the previous high mark set during the boom days of 2005. “I was a little bit surprised to see it up that much,” said Todd Woodard, SiteTech president. “It’s been gaining strength, obviously, but that’s a little bit more than I would expect.” The trend continued in January, at least for homes selling from $500,000 to $1 million, which were up 23 percent from January 2015. Homes priced at more than $1 million declined from six sales a year ago to four sales in January 2016, a minor blip that represented a 33 percent drop in monthly sales for the price range from January 2015. A local broker for Berkshire Hathaway Homes Services, said he began to notice increased activity at the high end during 2015, a trend that he said picked up speed last month. “In December,” he said, “the whole spigot got turned on.”  He attributed at least some of the upper-end growth to banks easing off on the interest rate for what’s known as jumbo loans, homes priced at $417,450 and up. While conventional home loans now see interest rates of about 3.38 percent, broker said, the jumbo loan rate has dropped below 4 percent.  “Anytime you come down, that’s quite a saving (for buyers of high-priced homes),” he said. “Anything below 4 percent will stimulate sales.”  Broker said the people who can afford the upper end had been buying $300,000 to $400,000 homes until recently, opting for square feet over high-end finishes. Now they’re back to wanting stone countertops, custom cabinets and better windows in their new homes.

Woodard said the increase sales at the upper end likely reflect increased confidence and a stabilized stock market.He isn’t sure how many of the high-priced buyers are locals and how many are out-of-towners, but his guess is that most are coming from outside the area. He talked recently with a local builder who told him that 80 percent of the company’s buyers are coming from outside the market. While the high-end market is surging, sales of homes priced at $120,000 and less are sinking. Such home sales sustained Grand Strand Realtors during the Great Recession, but in 2015 it was the only price segment that declined in number of sales. The segment reached a historic high with more than 900 sales as recently as 2012, but last year the number dropped to 673, a 15.2 percent drop from 2014. “For such a long time, everybody was pushing $150,000 (homes),” the local broker said.

Now, the real activity is for homes $300,000 and above. The local broker said his company’s sales this month are better than last and he sees good days for the area’s real estate during 2016. Woodard is expecting modest growth in both price and numbers, just what you’d expect from a healthy, mature real estate market.

Read more here: http://www.myrtlebeachonline.com/news/business/real-estate-news/article61176647.html#storylink=cpy

Read more here: http://www.myrtlebeachonline.com/news/business/real-estate-news/article61176647.html#storylink=cpy

*Sales of homes between $500,000 and $1 million up 23 percent in January compared to January 2015
*Sales of homes priced at $120,000 and less are sinking
*Overall market off to solid start in 2016

http://www.myrtlebeachonline.com/news/business/real-estate-news/article61176647.html

Read more here: http://www.myrtlebeachonline.com/news/business/real-estate-news/article61176647.html#storylink=cpy

Coastal Grand Restaurant Sold

The 6,411 square foot Sticky Fingers Restaurant in Myrtle Beach, SC, at the Coastal Grand Mall, recently sold to a 1031 Buyer.  The sales price was $3,241,000 with the NOI reported at $235,000 indicating a cap rate of 7.25%. There are 10.25 years remaining on this absolute NNN lease. The area is experiencing tremendous growth and the MSA is one of the fastest growing in the nation.

State, developers concerned about new EPA rule

starnewsonline.com -- WILMINGTON, NC -- Local developers are holding their breath as courts examine a controversial federal Environmental Protection Agency (EPA) rule aimed at cleaning up the nation's drinking water. The Clean Water Rule, which went into effect Aug. 28, aims to clarify Environmental Protection Agency authority over certain bodies of water. In addition to navigable waterways, the rule states that the EPA has jurisdiction over streams, ditches, wetlands and other bodies of water that connect to those waterways or are within certain distances. An appeals court decision stayed the rule Oct. 9 after several states sued to stop its implementation.

The Clean Water Rule, which went into effect Aug. 28 but was stayed by a court decision Oct. 9, clarifies what bodies of water are under EPA jurisdiction. Millions of acres of wetlands and 60 percent of the nation's streams had been in regulatory limbo for the last decade -- the rule reinforces federal authority over these areas that feed drinking water systems for nearly a third of the nation. But the rule could mean more permitting and paperwork is required when building near these bodies of water. At a presentation Wednesday in Wilmington, developers from Southeastern North Carolina learned about how the stalled rule could impact them; representatives from Wilmington and Jacksonville city governments and Rep. David Rouzer's office also attended.

Wednesday's event was hosted by the Wilmington Chamber of Commerce and Business Alliance for a Sound Economy. Among the presenters was David Syster of Southern Environmental Group Inc., a Wilmington-based consulting group. Syster explained that the rule was proposed to reduce red tape by clarifying the EPA's authority. But he said it may have the opposite effect in low-lying areas: streams and wetlands within 4,000 feet of the tide line, within 100 feet of the high water mark of navigable waters and within 1,500 feet of that mark in the 100-year floodplain are now under EPA jurisdiction.

Myrtle Beach to talk Performing Arts Center options at budget retreat

sunnews.com -- Myrtle Beach will consider a new idea next week for construction of a performing arts center after progress on the project slowed as city officials worked toward improving safety during Memorial Day weekend. The new proposal would combine the indoor performing arts center with an amphitheater. Project architect Steve Usry of Usry, Wolfe, Peterson, Doyle said the city has discussed the idea of having an amphitheater for years so he and convention center director Paul Edwards looked into the possibility of tying that desire with the performing arts center. Usry said his recommendation is that the indoor performing arts center would have no more than 700 seats and a 2,600-square-foot stage. The back of that stage would have some type of divider that would open to a 6,000 to 8,000 seat amphitheater.

“It would be the same stage, same rigging, same light systems,” he said. “It marries up what Myrtle Beach is about from a visitor standpoint but doesn’t take away from what the local [arts community] has been working for.” City Manager John Pedersen said the city will present the option to council members during the retreat in Pinopolis, being held Sunday through Tuesday.The city has been pursing the option of constructing a 650-seat performing arts center that would connect with the Myrtle Beach Convention Center. Almost 54 percent of city residents who voted on a November 2013 referendum approved the purchase of $10 million in bonds to build the center. The referendum passed 1,915 to 1,641.

Pedersen said council also will consider a plan next week that includes constructing a free-standing building near the Myrtle Beach Sports Center with an amphitheater component. “We have another concept that is still consistent with the referendum,” he said. “We’re going to talk to council and see if they’d be open to this concept.” Myrtle Beach approved a resolution 4-3 last June that gives supporters of the performing arts center the ability to update architectural plans for the facility that were completed in 2010.Penny Boling, who is on the Myrtle Beach Performing Arts Center board, said she thinks combining the facility with the amphitheater will delay the project another year – with construction possibly beginning toward the end of next year.Usry said the performing arts center still would cost about $10 million, but there would be more money needed to construct the amphitheater. City Council will talk about the funding for it next week.

“The combination would cost more, but not as much as two separate operations,” he said.Councilmen Wayne Gray, Mike Lowder and Philip Render voted against the resolution last year, which expressed the city’s intent to repay itself the $200,000 it is expected to cost to update the plans through the $10 million in bonds that would be used to pay for construction of the center. That $200,000 has not yet been spent, Pedersen said. Gray said Tuesday that law enforcement expenses during May and the rest of the year took priority over moving forward with the arts center, which is why he voted against the resolution last year.Three people died and seven were injured in eight shootings on Ocean Boulevard last year during Memorial Day weekend. Myrtle Beach is spending millions of dollars in equipment and assisting personnel to try to ensure a safe weekend this year.

“I think there were matters in front of us then that are still in front of us now that are expensive,” Gray said. “Until there’s some settling of those issues, you just have to evaluate the cost of those [other] projects and the merit they have to the community. ... My position hasn’t changed.” He said he appreciates the “out-of-the-box thinking” of combining the performing arts center with an amphitheater. “The expansion of the whole convention center area – which would be driving economic activity to Myrtle Beach – is a good thing,” he said. “The amphitheater is something I’m more open to. ... It gives the community greater options for economic vitality. From that perspective, I’m more encouraged.” For more than 15 years, arts supporters have tried to establish a performance venue in Myrtle Beach. After being unable to raise about $2.5 million to partially fund building the center with help from the city, board members asked City Council in 2012 to completely pay for construction. “I feel like its Groundhog Day again,” Boling said. “But I still have very strong faith that the city will move forward with it.”

Read more here: http://www.myrtlebeachonline.com/news/local/article17779937.html#storylink=cpy

Why The Apartment Cycle Is Good For Five More Years

globest.com -- WASHINGTON, DC—Fundamentals in the multifamily space should continue their golden trajectory for several more years, based on the latest numbers about US homeownership from the US Census Bureau. Indeed, coupled with other recent reports on multifamily dynamics, it is safe to call the asset class bullet proof, at least for the medium term. US home ownership, of course, has been steadily falling since the Great Recession. On Tuesday, though, it hit a low that gives one pause -- to say nothing of putting it within spitting distance of awe-inspiring benchmark. US homeownership is now at 63.4%, which is the lowest level of home ownership in this country since 1967. There is little to suggest it won’t stop falling: in Q1 it was at 63.7%. In 1965, when the government started tracking home ownership the level was 63% -- a percentage that seems like it is but a few quarters away again.

At the same time rental vacancies are also, not surprisingly, dropping to new lows. The Census Bureau also reported that rental vacancy rates were 6.8% in Q2, a 30-year low. You don’t have to have the resources of the US government at your disposal to predict how this will play out: multifamily rents will rise and supply will continue to enter the pipeline. Reis, for example, reports that it is expecting "a flurry of new buildings to come online in the second and third quarters of 2015, as developers schedule openings to take advantage of the strongest leasing periods of the year." That number, actually, is 100,000 units and updated project numbers suggest that this alone will see 230,000 units having come online all together. This may result in relatively minimal increases in vacancies for the rest of the year, it said, but overall the national vacancy rate -- which Reis puts at 4.2% right now -- will remain very tight, rising to 4.8%, a figure that "does not seem like cause for much worry."  

A Five-Year Run
In mid-month Reis predicted at least another five years remained in the current apartment cycle and the latest Census Bureau's numbers support that. "We do not believe that Millennials will continue to rent for the rest of their lives, but postponing the decision to have children and to buy homes will imply another good five to ten year run for apartment landlords, during which only the oldest of the Millennials will become homeowners," it said in its Q2 report.

5 Secondary Ports to Watch

With less than 10 months to go until the $5.2 billion Panama Canal expansion opens in April 2016, U.S. ports are implementing almost $30 billion in dredging and infrastructure improvements to handle Post-Panamax ships—massive 400-yard-long vessels that can carry about 14,000 product containers. Shipping experts estimate that the two main U.S. ports, Los Angeles/Long Beach and New York/New Jersey, will continue to grow at a steady pace after the expansion. However, secondary markets that are spending some of those billions mentioned above are poised to gain more market share. Up to 10 percent of container traffic from East Asia could shift to East Coast ports by 2020, according to a recently released study by C.H. Robinson and the Boston Consulting Group. West Coast ports will still grow their shipping, but more cargo will head east, especially as companies look to diversify their routes to avoid another labor strike like the one that hit California ports earlier this year.

According to the C.H. Robinson/Boston Consulting Group report, as well as new port studies released this week by CBRE and JLL, there are five East Coast ports to watch once the expansion opens:
 

The Port of Savannah Savannah is investing more than $1.4 billion to improve its port for the Post-Panamax ships, including $266 million in state money to dredge Savannah Harbor. The port’s container traffic has grown almost 30 percent since 2007, and was up 12.5 percent from 2013 to 2014, according to JLL’s Seaports Outlook Report and Index.
However, David Egan, CBRE’s head of industrial research in the Americas, says that while Savannah may gain in the short term, the port is limited to about 45 feet of dredging depth, which could hinder any future ship growth. “It’s a river port, and there’s a limit to the geology of the riverbank,” he says.

The Port of Charleston Charleston’s container traffic improved by almost 41 percent from 2011 to 2014, according to JLL, boosted by double-stacking rail lines that go through Greer, S.C., where a new intermodal port has been operating for about two years. While the port also serves Atlanta along with Savannah, Charleston has benefited from Volvo’s decision to build a $500 million factory nearby.


The Port of Virginia
The Port of Virginia has benefited from its Norfolk Southern rail link that goes direct to the Midwest, a region shippers want to hit hard in the next decade. Industrial space is scarce in this market, as warehouses in Hampton Roads are almost full, with about 9 percent vacancy, according to CBRE. But the port is adding warehouse space in neighboring cities. The Port of Virginia is also the only port on the East Coast that has federal authorization to dredge to 55 feet. More build-to-suit construction is expected.

 

 

Port of Miami

The Florida Ports (Miami/Jacksonville/Ft. Lauderdale/Everglades) CBRE’s Egan says the Florida ports should benefit due to relaxed storage times for perishable items. Traditionally, perishables had to be stored on ships for a certain amount of time, so the ships in transit would head to ports such as Philadelphia because the vessels would have to remain out at sea to meet the time requirements. “The time period allowed them to ensure [no] negative insects or bacteria were present,” he says. “Now that timeframe has been compressed, and the ships will likely pull into Florida ports to offload when they can.”
Jacksonville is deepening the St. John’s River to 47 feet, and Miami is spending $2 billion on its capital investments to be ready for the expansion.

The Port of Baltimore Experts agree that Baltimore won’t see too much increased traffic—unless city leaders can come up with funding to allow for double-stacking capabilities. “Baltimore gets too bottle-necked, they can’t unload and get freight out,” Egan says. Leaders in the region are also having trouble getting resident approval to expand century-old tunnels that can’t handle the double-stack trains. However, there are signs of growth, as shipping giant Maersk has started to call on Baltimore after a two-decade snub, according to JLL.

Need Big-Box Space? Good Luck, Industrial Experts Say

nreionline.com -- Net industrial absorption has outweighed new space completions for five straight years following the recession, particularly in the big-box segment, resulting in a significant drought of available space in many major markets at mid-year 2015.  Craig Meyer says the expected 171 million sq. ft. of industrial space scheduled to be completed this year will not meet the 219 million sq. ft. of anticipated absorption. The supply imbalance will likely continue into 2016, he says.  “Construction deliveries have been minimal this cycle, and are under the historic norm,” Meyer says. “New deliveries as a percentage of the nation’s existing stock averaged 0.7 percent per year over the last seven years. This compares to the 20-year average, since 1996, of 1.4 percent per year.”

The big-box market has been especially hard hit by the supply imbalance, as the driving force behind the leasing and construction has been e-commerce, typically looking to occupy large new warehouses. For example, Chicago, one of the nation’s top industrial markets, has no vacant contiguous space available over 750,000 sq. ft., according to a second quarter market report from a real estate services firm. Amazon took occupancy of the most recent opening, a 1.1-million-sq.-ft. build-to-suit warehouse in the Kenosha, Wis. sub-market, during the second quarter.  Dwight Hotchkiss says extremely strong second quarter occupier demand drove down available big-box supply in the Chicago market, lowering the vacancy 66 basis points to 9.31 percent.

“Development just isn’t keeping up, there’s five million sq. ft. leased and only four million sq. ft. delivered in the quarter,” he says.  Jason Tolliver says the demand curve for big-box space is unprecedented. “The big-box market is as tight as a drum. We’re seeing at least a two-to-one ratio of tenant requirements to available space options on average nationally. There’s just more demand than there is available space.”  Part of the challenge for developers, he says, is how quickly properties become obsolete today, particularly when it comes to technology tenants. E-commerce tenants want much higher ceilings, such as 42-foot clear, more room for employee parking, space for racks, electricity for robotics, etc., that many older buildings just don’t have.

“It used to be that industrial needs changed over a long period of time, such as with manufacturing,” Tolliver says. “Now, as a developer, you have to think not only about what the tenant needs today, but what they’ll need tomorrow.”  Meyer says the dwindling big-box supply has pushed users into secondary markets within a reasonable drive time and/or strong connectivity to a primary market, such as in Chicago, Philadelphia and the Inland Empire. Indianapolis, a city about a fifth the size of Chicago, now has a construction pipeline of 3.3 million sq. ft., only a third smaller than Chicago’s pipeline. Philadelphia’s Lehigh Valley is now the largest market in the region, containing 30 percent of Greater Philadelphia’s 14.6 million-sq.-ft. construction pipeline.

Construction activity in the Inland Empire totals 24.4 million sq. ft., with the sub-market slowly expanding away from the Los Angeles port, east toward the Coachella Valey and north up Interstate 15.  “As the big-box logistics sector in primary and secondary markets continues to tighten, we continue to see some spillover into demand and pricing for quality class-B product—as long as speculative completions remain measured we expect this dynamic to increase, and—based on current tenant requirements—this will likely be the case for most markets through the remainder of the year,” Meyer says.

U.S. Hotel Industry is Approaching a Construction Boom

nai.hotelmanagement.net -- The hotel industry in the United States is back into a construction mode. According to Lodging Econometrics, the U.S. development pipeline included 4,038 hotels with 507,221 rooms at the end of the second quarter. That’s an increase of more than 20 percent in both properties and rooms over the second quarter of 2014.  Nearly 70 percent of rooms in the development pipeline are either under construction (146,743 rooms) or will start construction within the next 12 months (198,506).  “There’s no question there’s more construction going on,” said Chris Nassetta, president and CEO of Hilton Worldwide Holdings, during a second-quarter earnings call with analysts. “Not just in hotels, but across the board there’s more infrastructure spending going on.

You’re also seeing construction in other areas of real estate and home building is picking up.” During the second quarter, Hilton approved 24,000 new rooms for development, and the company’s development pipeline included 1,510 hotels with more than 250,000 rooms. A little bit less than half the rooms in the Hilton pipeline are in the U.S.  Other major brand companies have been building their development pipelines. At the end of the second quarter, Marriott International had more than 250,000 under development, while InterContinental Hotels Group’s pipeline included nearly 1,300 hotels. Marriott boasts that it is the first company with more than 1 million hotel rooms open or under development.   

Increasing numbers
In 2015, according to Lodging Econometrics, 754 hotels with 78,808 rooms will open, representing a 1.6 percent increase in existing supply. The number of new hotel openings will continue to build during the next three years, and during 2017, 992 properties with 113,968 rooms are expected to open.  Hotels in the upscale and upper-midscale segments dominate the current development pipeline. More than 2,500 hotels with nearly 285,000 rooms are under development in these two segments. That’s 63 percent of hotels and 56 percent of rooms under development.  The pipeline for luxury hotels is less robust and includes just 42 hotels with 11,785 rooms.

Where to build
Steve Rushmore Jr., president and CEO of HVS, said the increase in new hotel construction should create equilibrium between supply and demand in the U.S. by the end of 2016 or early 2017. He also outlined the U.S. markets with what he calls “the highest entrepreneurial incentive for new construction.” Topping the list are Manhattan, followed by Austin, Texas; Brooklyn, New York; Denver; and New Orleans. Major markets lowest on the list of places to build, according to Rushmore, are Atlanta; Dallas; Ft. Worth, Texas; and Houston.

Costs on the rise
A rebounding U.S. and world economy, combined with a rise in residential construction activity in 2013, put pressure on costs of commercial construction, including hotels. However, according to the HVS U.S. Hotel Development Cost Survey, residential construction declined in 2014, which helped to ease construction cost increases.  In some top-tier markets, such as New York, San Francisco and Miami, hotel construction costs have risen considerably in the past three years. According to HVS, full-service and luxury hotel developers in Miami report cost increases of 25 percent to 30 percent in that time.

Cost increases are more manageable in most other areas of the country. In 2014, costs were up nationwide by about 3 percent. Cost increases for building materials varied from above 5 percent for lumber and cement to around 2 percent for steel.  Not surprisingly, the recent low point for hotel construction costs was during the last recession in 2010. Today, the average per-room cost of hotel development—including land; building; furniture, fixtures and equipment; soft costs and preopening costs—range from $86,900 for economy and budget properties to $335,000 for full-service hotels and more than $700,000 for luxury hotels.