RESEARCH & FORECAST REPORT SHENANDOAH VALLEY INDUSTRIAL Second Quarter 2017 Market Dynamics Remain Strong Market Indicators Q2 2017 2017 (Projected) The Shenandoah Valley market continued its upward trend during the second quarter of the year, with the asking rate for warehouse product averaging above $4.00 per square foot for the first time ever and with over 650,000 more square feet under construction compared to this time last year. Absorption remained positive, albeit far less than the 840,000 square feet that was occupied last quarter by groups such as Fiat Chrysler and Sealy, and vacancy remained flat at 6.8% with many users staying put and frantically searching the market for expansion space. In total, there exists more than 3.7 million square feet of active requirements in need of build-to-suit warehouse up and down the corridor. NET RENTAL Industrial construction along the Valley continued to increase, particularly in Martinsburg and the neighboring submarkets of Hagerstown and Winchester. Danish insulation company Roxul just announced plans to construct a $150 million dollar plant in Ranson, WV that should see 463,000 square feet break ground in October and eventually bring 150 jobs to the surrounding community. In nearby Hagerstown, Bowman Development is planning a 350,000 squarefoot expansion to their 360,000 square-foot Newgate building at 11710 Hopewell Road that should deliver July 2018. Further south in Frederick County, VA Equus Capital Partners has secured a 17- acre site off Tasker Road with the intent of constructing 252,000 square feet on a speculative basis. This comes as Equus readies to break ground on 287,000 square feet that represents Phase III of their Stonewall Industrial Project in Winchester. With respect to relocation and large tenant movement, publishing group Dex Media vacated 109,000 square feet in 621 Mid-Atlantic Parkway in Martinsburg thus balancing out some of the positive absorption resulting from Procter & Gamble s short-term requirements surrounding their new manufacturing plant. The town of Buena Vista took a heavy hit last quarter, lead by Ohio-based HDT Global shutting down operations in their 172,000 square-foot Shenandoah Valley Industrial Facility as a result of government defense cuts. HDT will be relocating a portion of their shelter-building manufacturing to new facilities in Fredericksburg. Despite these move-outs, absorption remains positive on average and across most counties along the Valley, most notably in Waynesboro, VA where third party logistics group REO Logistics expanded their 1 million square foot footprint by another 463,000 square feet by purchasing Concepts West and their building at 901 Delphine Avenue. Page County also saw multiple smaller users take occupancy during the second quarter, bringing their quarterly absorption to over 100,000 square feet. Summary Statistics Q2 2017 Industrial Market Industrial Total Warehouse Flex Vacancy Rate 6.8% 6.7% 7.9% Change From Q1 2017 (basis points) Absorption (Square Feet) New Construction (Square Feet) Under Construction (Million Square Feet) Asking Rents Per Square Foot Per Year -6 2-165 120,053 52,201 67,852 100,000 100,000-2.5 2.5 - Direct Asking Rates $4.10 $4.01 $5.44 Change From Q1 2017 $0.12 $0.15 -$0.03
Leasing overall was relatively flat compared to the start of 2017, but this is due to the majority of larger requirements (200,000+ SF) finding no immediately available product for expansion or relocation. The roughly 2.5 million square feet under construction, a mixture of both speculative and build-to-suit developments, will be mostly committed prior to delivery of the buildings. In short, the Shenandoah Valley market continues to see both robust absorption and growth in industrial construction as more and more existing users and newcomers look to find quality space. construction in the Frederick County submarket, which is anticipated to be ready for the holiday season later this year. 500 International Parkway, a 250,000 square-foot build-to-suit is underway in the Botetourt submarket also with an expected to delivery at the end of 2017. Vacancy Demand Demand for industrial space in the Shenandoah Valley market grew during the second quarter of 2017. The market had 120,053 square feet of positive net absorption during the quarter, bring the yearto-date total to 969,901 square feet. This compares to the first half of 2016 when 283,374 square feet was taken off the market. This marks the fourth straight quarter of overall positive absorption and the eighth straight quarter of positive absorption for Flex product in the Shenandoah Valley Industrial market. The market s overall vacancy rate remained flat to end the quarter at 6.8 percent. The warehouse sector mirrored the overall vacancy rate, staying even at 6.7 percent. The flex sector decreased from 9.5 to 7.9 percent during the quarter. Rental Rates Supply During the second quarter, one building delivered, 60 W Center Drive, a 100,000-square-foot speculative building in the Botetourt submarket. No new buildings broke ground during the quarter. There were four buildings under construction totaling 2.46 million square feet of space. The largest building under construction, 5293 Tabler Station Road, a 1.07 million square-foot build-to-suit for Procter & Gamble in Berkeley County, is expected to deliver at the end of 2017. Amazon s 1 million square foot distribution facility is under With the continued demand for industrial space, landlord s rent expectations in the market have continued to increase. During the first quarter, the overall direct average asking rate rose from $3.98 to $4.10 per square foot. Warehouse average asking rates increased, rising from $3.86 to $4.01 per square foot. Flex asking rates decreased, falling $0.03 to end the quarter at $5.44 per square foot.
Shenandoah Valley Warehouse Product Q2 2017 INVENTORY NEW SUPPLY Washington/Hagerstown 17,000,887 - - - 11,230 436,040 5.8% $4.25 Maryland Total 17,000,887 - - - 11,230 436,040 5.8% $4.25 WEST Berkeley 9,222,311 - - 1,074,273-58,000-58,000 2.5% $4.83 Jefferson 1,666,788 - - - - 10,000 13.8% $4.07 West Virginia Total 10,889,099 - - 1,074,273-58,000-48,000 4.3% $4.51 Augusta 4,598,567 - - - 3,000-10,000 8.0% $4.15 Botetourt 2,896,272 100,000 100,000 250,000-18,000 6.9% $2.00 Buena Vista 738,409 - - - -338,231-338,231 45.8% $2.89 Frederick 9,748,687-400,400 1,038,000-42,829 479,208 1.7% $4.16 Harrisonburg 1,602,755 - - - - 21,221 1.9% $4.60 Page 338,872 - - - 48,394 48,394 5.4% n/a Roanoke 5,213,432 - - - 33,000 33,000 8.9% $4.04 Roanoke City 11,954,037 - - - -92,828-62,411 9.6% $2.67 Rockbridge 1,816,600 - - - 32,000 32,000 2.2% $3.67 Rockingham 3,566,377 - - - 10,800 35,000 3.0% $4.93 Salem 4,888,445 - - - 4,800 35,003 3.5% $2.81 Shenandoah 2,232,641 - - - - - 3.6% $3.82 Staunton 1,500,785 - - - - -189,075 27.1% $3.23 Warren 3,517,647 - - 100,000 - - 0.0% n/a Waynesboro 1,609,988 - - - 437,473 437,473 32.3% $6.55 Winchester 2,348,317 - - - 3,392-69,900 12.4% $5.25 Virginia Total 58,571,831 100,000 500,400 1,388,000 98,971 469,682 7.4% $3.89 SHENANDOAH VALLEY TOTAL 86,461,817 100,000 500,400 2,462,273 52,201 857,722 6.7% $4.01
Shenandoah Valley Flex Product Q2 2017 INVENTORY NEW SUPPLY Washington/Hagerstown 1,040,845 - - - 1,500-1,500 6.7% $5.05 Maryland Total 1,040,845 - - - 1,500-1,500 6.7% $5.05 WEST Berkeley 118,000 - - - - - 53.5% n/a Jefferson 72,824 - - - - - 0.0% n/a West Virginia Total 190,824 - - - - - 33.1% n/a Augusta - - - - - - n/a n/a Botetourt 33,905 - - - - - 0.0% n/a Buena Vista - - - - - - n/a n/a Frederick 1,067,334 - - - -12,240-21,967 5.7% $7.06 Harrisonburg 64,966 - - - - - 0.0% n/a Page 150,000 - - - 61,550 101,550 32.3% $3.75 Roanoke 146,000 - - - - - 0.0% n/a Roanoke City 232,816 - - - - 17,054 10.3% $7.68 Rockbridge - - - - - - n/a n/a Rockingham 90,000 - - - - - 0.0% n/a Salem 391,807 - - - 17,042 17,042 14.9% $6.50 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 - - - 66,352 113,679 6.6% $6.13 SHENANDOAH VALLEY TOTAL 4,113,801 - - - 67,852 112,179 7.9% $5.44
Shenandoah Valley Industrial Market Q2 2017 INVENTORY NEW SUPPLY Washington/Hagerstown 18,041,732 - - - 12,730 434,540 5.9% $4.39 Maryland Total 18,041,732 - - - 12,730 434,540 5.9% $4.39 WEST Berkeley 9,340,311 - - 1,074,273-58,000-58,000 3.2% $4.83 Jefferson 1,739,612 - - - - 10,000 13.2% $4.07 West Virginia Total 11,079,923 - - 1,074,273-58,000-48,000 4.7% $4.51 Augusta 4,598,567 - - - 3,000-10,000 8.0% $4.15 Botetourt 2,930,177 100,000 100,000 250,000-18,000 6.8% $2.00 Buena Vista 738,409 - - - -338,231-338,231 45.8% $2.89 Frederick 10,816,021-400,400 1,038,000-55,069 457,241 2.1% $4.79 Harrisonburg 1,667,721 - - - - 21,221 1.8% $4.60 Page 488,872 - - - 109,944 149,944 13.6% $3.75 Roanoke 5,359,432 - - - 33,000 33,000 8.7% $4.04 Roanoke City 12,186,853 - - - -92,828-45,357 9.6% $2.80 Rockbridge 1,816,600 - - - 32,000 32,000 2.2% $3.67 Rockingham 3,656,377 - - - 10,800 35,000 2.9% $4.93 Salem 5,280,252 - - - 21,842 52,045 4.3% $3.08 Shenandoah 2,232,641 - - - - - 3.6% $3.82 Staunton 1,500,785 - - - - -189,075 27.1% $3.23 Warren 3,517,647 - - 100,000 - - 0.0% n/a Waynesboro 1,609,988 - - - 437,473 437,473 32.3% $6.55 Winchester 3,053,621 - - - 3,392-69,900 9.5% $5.25 Virginia Total 61,453,963 100,000 500,400 1,388,000 165,323 583,361 7.4% $3.96 SHENANDOAH VALLEY TOTAL 90,575,618 100,000 500,400 2,462,273 120,053 969,901 6.8% $4.10 FOR MORE INFORMATION John Lesinski Senior Vice President +1 703 394 4846 john.lesinski@colliers.com Ben Luke Assistant Vice President +1 703 394 4810 ben.luke@colliers.com Robert Hartley Director of Marketing +1 703 394 4852 robert.hartley@colliers.com Miles Rodnan Research Analyst +1 703 394 4811 miles.rodnan@colliers.com Copyright 2017 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. Colliers International 7900 Tysons One Place Vienna, VA 22102 +1 703 394 4800 colliers.com/washingtondc 5 North American Research & Forecast Report Q4 2014 Office Market Outlook Colliers International