Research & Forecast Report Shenandoah Valley Industrial Market Second Quarter 2016 MARKET OVERVIEW As a heat wave blanketed the east coast to at the end of the first half of 2016, the activity along the I-81 Corridor has heated up as well. In Martinsburg, work continues day and night to deliver the first phase of Procter & Gamble s multimillion square foot manufacturing facility off Tabler Station Road. Procter & Gamble is not the only large tenant looking to establish a foothold in the market; an ecommerce titan is rumored to be working to secure multiple sites in and around the Winchester area for separate distribution requirements of 600,000 and 1.0 million square feet with the hope of operating in the market by late 2017. The Apple Valley Business Park in Winchester remains a hot spot of activity as Trex completed its occupancy of its build-to-suits developed by Shockey Companies. This quarter saw Shockey wrap up construction on Trex s 350,000-square-foot building off Apple Valley Road, while immediately leasing 111,000 square feet of future expansion space to Rubbermaid. Also in Apple Valley, local manufacturer American Woodmark has secured 17 acres to construct a new 70,000 square foot headquarters near the Artillery Business Park. Market Indicators Q2 2016 Relative to prior period 2017* VACANCY NET ABSORPTION CONSTRUCTION Note: Construction is the change in under development. *Projected Summary Statistics Q2 2016 Regional Office Market Vacancy Rate Change from Q2 2016 Industrial Total Warehouse Flex 8.8% 8.7% 10.1% 63 67-23 -116,061-125,827 9,766 497,875 497,875-1.8 1.8 - (Basis Points) Absorption (Square Feet) New Construction (Square Feet) Further north in the Stonewall Industrial Park, Equus Capital Partners continues construction on a 400,000 square foot build-to-suit parts distribution facility for Fiat-Chrysler that should be operational by November of this year. Equus, a Philadelphia-based private equity firm, is also developing a speculative 330,000 square foot sister building adjacent to the Fiat-Chrysler facility that will be delivering this summer and which will provide one of the few available blocks of institutional quality space in the region that exceeds a quarter million square feet. Under Construction (Million Square Feet) Asking Rates Per Square Foot/Year Direct Asking Rate Change from Q1 2016 $4.52 $4.48 $5.30 1.8% 1.5% 4.7%
In Warren County, the Harrisonburg-based development firm Interchange Group is working to finish their new 100,000 square foot distribution facility off Toray Drive which will play host to Nature s Touch, a Canadian beverage company. Demand Demand for industrial space shrank overall within the Shenandoah Valley market. During the quarter, negative 116,061 square feet of net absorption was generated, bringing the year-to-date total down to 223,374 square feet. This compares to all of 2015 when a total of 1.6 million square feet of space was absorbed, averaging 399,122 square feet per quarter. In total, four blocks of space over 50,000 square feet were returned to the market during the quarter, which resulted in 886,546 square feet being added to the market. Most of these occurred in the southern end of the market. The largest of these move-outs were the exodus of the Home Shopping Network from their 387,558-square-foot facility at 1 Avery Row in the Botetourt County submarket, and Kraft Foods giving back 240,988 square feet at 255 Fort Collier Road in the Frederick, VA submarket. The Kraft Foods space, however, was immediately released by Home Depot. Negative absorption was offset by a number of large blocks of space that were occupied. During the quarter, there were six move-in over 50,000 square feet that generated 773,247 square feet of net absorption. The largest of these was the Trex occupancy of 240,000 square feet at 331 Apple Valley Road in the Frederick, VA submarket. Under Construction Source: Colliers International, CoStar Group Supply During the quarter, three buildings totaling 497,875 square feet delivered to the market. Of this space, one was constructed on a speculative basis. Located in Frederick County, VA, the 100,000-square-foot building, located at 311 Independence Drive in Frederick County Virginia, delivered 76.0 percent leased to Virginia Apple Storage. The largest of the two build-to-suit buildings that delivered was Trex s second building at Apply Valley Business Center. Trex took 240,000 square feet of the 351,000-square-foot warehouse building, and Rubber Maid occupied the remaining 111,000 square feet. The final delivery was the 46,875-square-foot expansion at Dynex s building at 568 Eastpark Drive in Botetourt County. With these deliveries, only one pure speculative development was being constructed in the Shenandoah Valley industrial market at the end of the second quarter of 2016. Located at 50 Tyson Drive in the Stonewall Industrial Park, Equus Capital is building a 330,050-square-foot distribution facility. The speculative project will deliver during the third quarter of 2016 in the Frederick, VA submarket, and as of the end of the second quarter, no leases were executed, but activity was brisk. The largest of the other two totals 1.07 million square feet and is being constructed for Procter & Gamble at 5293 Tabler Station Road in the 2 Shenandoah Valley Industrial Research & Forecast Report Second Quarter 2016 Colliers International
Market Statistics Shenandoah Valley Industrial Market Q2 2016 MARKET EXISTING INVENTORY (SF) NEW SUPPLY (SF)) YTD 2016 NEW SUPPLY (SF) UNDER CONSTRUCTION (SF) YTD 2016 OVERALL VACANCY RATE DIRECT ASKING Maryland Washington/Hagerstown 18,341,732-48,000 - -179,900 71,923 5.3% $5.08 Maryland Total 18,341,732-48,000 - -179,900 71,923 5.3% $5.08 West Virginia Berkeley 9,740,311 - - 2,148,546 62,847 62,847 6.6% $8.13 Jefferson 1,739,612 - - - - - 20.3% $3.76 West Virginia Total 11,479,923 - - 2,148,546 62,847 62,847 8.6% $6.51 Virginia Augusta 4,598,567 - - - -3,890-3,890 9.1% $3.71 Botetourt 2,913,170 46,875 46,875-188,875 322,827 6.6% $4.10 Buena Vista 738,409 - - - - - 0.0% $2.00 Frederick 10,285,571 451,000 451,000 1,511,500 112,590 212,448 6.0% $4.30 Harrisonburg 1,667,721 - - - - - 6.7% $4.27 Lexington - - - - - - n/a n/a Page 488,872 - - - 1,250 1,250 0.0% n/a Roanoke 5,359,432 - - - -432,643-432,643 8.7% $4.16 Roanoke City 12,186,853 - - - -26,639-164,737 10.6% $2.61 Rockbridge 1,816,600 - - - 76,000 76,000 8.9% $3.31 Rockingham 3,656,377 - - - - - 5.2% $5.33 Salem 5,280,252 - - - 19,049 14,249 8.7% $3.17 Shenandoah 2,232,641 - - - - - 7.4% $3.83 Staunton 1,500,785 - - - - - 16.5% $3.63 Warren 3,517,647 - - 100,000 - - 0.0% n/a Waynesboro 1,609,988 - - - 86,400 86,400 51.7% $4.34 Winchester 3,341,621 - - - -20,000-23,300 18.3% $8.80 Virginia Total 61,194,506 497,875 497,875 1,611,500 992 88,604 9.8% $4.02 Shenandoah Valley Total 91,016,161 497,875 545,875 3,760,046-116,061 223,374 8.8% $4.52 3 Shenandoah Valley Industrial Research & Forecast Report Second Quarter 2016 Colliers International
Market Statistics Shenandoah Valley Industrial Market Warehouse Product Q2 2016 MARKET EXISTING INVENTORY (SF) NEW SUPPLY (SF)) YTD 2016 NEW SUPPLY (SF) UNDER CONSTRUCTION (SF) YTD 2016 OVERALL VACANCY RATE DIRECT ASKING Maryland Washington/Hagerstown 17,200,887-48,000 - -185,150 63,773 5.1% $5.06 Maryland Total 17,200,887-48,000 - -185,150 63,773 5.1% $5.06 West Virginia Berkeley 9,622,311 - - 2,148,546 62,847 62,847 6.0% $8.13 Jefferson 1,666,788 - - - - - 21.2% $3.76 West Virginia Total 11,289,099 - - 2,148,546 62,847 62,847 8.2% $6.51 Virginia Augusta 4,598,567 - - - -3,890-3,890 9.1% $3.71 Botetourt 2,879,265 46,875 46,875-188,875 322,827 6.7% $4.10 Buena Vista 738,409 - - - - - 0.0% $2.00 Frederick 9,218,237 451,000 451,000 1,511,500 103,762 203,620 6.0% $3.62 Harrisonburg 1,602,755 - - - - - 6.9% $4.27 Lexington - - - - - - n/a n/a Page 338,872 - - - - - 47.1% $2.95 Roanoke 5,213,432 - - - -432,643-432,643 8.9% $4.16 Roanoke City 11,954,037 - - - -24,628-164,676 10.5% $2.57 Rockbridge 1,816,600 - - - 76,000 76,000 8.9% $3.31 Rockingham 3,566,377 - - - - - 5.4% $5.33 Salem 4,888,445 - - - 22,600 17,800 7.8% $3.10 Shenandoah 2,232,641 - - - - - 7.4% $3.83 Staunton 1,500,785 - - - - - 16.5% $3.63 Warren 3,517,647 - - 100,000 - - 0.0% n/a Waynesboro 1,609,988 - - - 86,400 86,400 51.7% $4.34 Winchester 2,636,317 - - - -20,000-23,300 23.2% $8.80 Virginia Total 58,312,374 497,875 497,875 1,611,500-3,524 82,138 9.9% $3.97 Shenandoah Valley Total 86,802,360 497,875 545,875 3,760,046-125,827 208,758 17.7% $4.48 4 Shenandoah Valley Industrial Research & Forecast Report Second Quarter 2016 Colliers International
Market Statistics Shenandoah Valley Industrial Market Flex Product Q2 2016 MARKET EXISTING INVENTORY (SF) NEW SUPPLY (SF)) YTD 2016 NEW SUPPLY (SF) UNDER CONSTRUCTION (SF) YTD 2016 OVERALL VACANCY RATE DIRECT ASKING Maryland Washington/Hagerstown 1,140,845 - - - 5,250 8,150 7.9% $5.14 Maryland Total 1,140,845 - - - 5,250 8,150 7.9% $5.14 West Virginia Berkeley 118,000 - - - - - 53.5% n/a Jefferson 72,824 - - - - - 0.0% n/a West Virginia Total 190,824 - - - - - 33.1% n/a Virginia Augusta - - - - - - n/a n/a Botetourt 33,905 - - - - - 0.0% n/a Buena Vista - - - - - - n/a n/a Frederick 1,067,334 - - - 8,828 8,828 6.0% $8.12 Harrisonburg 64,966 - - - - - 0.0% n/a Lexington - - - - - - n/a n/a Page 150,000 - - - 1,250 1,250 64.6% $3.75 Roanoke 146,000 - - - - - 0.0% n/a Roanoke City 232,816 - - - -2,011-61 13.9% $12.50 Rockbridge - - - - - - n/a n/a Rockingham 90,000 - - - - - 0.0% n/a Salem 391,807 - - - -3,551-3,551 19.6% $6.00 Shenandoah - - - - - - n/a n/a Staunton - - - - - - n/a n/a Warren - - - - - - n/a n/a Waynesboro - - - - - - n/a n/a Winchester 705,304 - - - - - 0.0% n/a Virginia Total 2,882,132 - - - 4,516 6,466 9.4% $5.55 Shenandoah Valley Total 4,213,801 - - - 9,766 14,616 17.7% $5.30 5 Shenandoah Valley Industrial Research & Forecast Report Second Quarter 2016 Colliers International
Tyson Drive, and the 400,400 -square-foot buildings is being constructed for Fiat- Chrysler. Construction of the 100,000 - square-foot warehouse being constructed at Toray Drive has been halted as Nature s Touch and The InterChange Group square a few issues. Nature s Touch has committed to 45.0 percent of the building. Rental Rates Despite negative absorption during the quarter, the velocity of new tenants leasing space, has lead to landlords to increase their rent expectations along the corridor. During the second quarter, the direct average asking rate increased from $4.45 to $4.52 per square foot. The greatest increase occurred in the flex sector, where the rate increased from $5.06 to $5.30 per below the low-$7.00 per square foot level seen during 2013 and 2014. Likewise, the direct average asking rental rate increased for industrial space rising from $4.42 to $4.48 per square foot, which is the highest level recorded by Colliers International in this market. Rental Rates Vacancy Rates With falling demand and the addition of new supply, the overall vacancy rate increased from 8.1 to 8.8 percent. The increase, the vacancy rate increased from 8.0 to 8.7 percent. With no new supply, the flex vacancy actually fell from 10.3 to 10.1 percent. Vacancy rates are expected to fall from here on out. There have been no announcements indicating that any new large blocks of space will be returned, and with the 81.7 percent of the space under construction leased to either expanding tenants or companies new to the market, demand for warehouse should quickly replace the loses that occurred during the second quarter. Source: Colliers International, CoStar Group FOR MORE INFORMATION J ohn Lesinski Senior Vice President Shenandoah Valley Industrial +1 703 394 4846 john.lesinski@colliers.com Ben Luke Assistant Vice President Shenandoah Valley Industrial +1 703 394 4810 ben.luke@colliers.com David Parker Regional Managing Director Greater Washington, DC +1 202 728 3541 david.w.parker@colliers.com Robert Hartley Director of Research Greater Washington, DC +1 703 394 4852 robert.hartley@colliers.com Copyright 2016 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its a ccuracy, we cannot guarantee it. No responsibilityis a ssumed for any inaccuracies. Readers a re encouraged to consult their professional advisors prior to acting on any of the material contained inthis report. Colliers International Greater Washington, DC 8045 Leesburg Pike Suite 401 Vienna, VA 22182 +1 703 394 4800 colliers.com/washingtondc