2020 north american industrial outlook - cushman & … · cushman & wakefield | 2020 north...

CUSHMAN & WAKEFIELD | 2020 NORTH AMERICAN INDUSTRIAL OUTLOOK 1

2020 NORTH AMERICAN INDUSTRIAL OUTLOOK

WEBCAST

Rebecca RockeyGlobal Head of Forecasting

David BitnerAmericas Head of Capital Markets Research

Carolyn SalzerAmericas Head of Logistics & Industrial Research

Tray AndersonLogistics & Industrial Services Lead, Americas


262.1 336.4ABSORPTION

(MSF)DELIVERIES

(MSF)

4.6% $6.51VACANCY

(%)RENTS(PSF)

North American Industrial 2019 Recap


NEW SUPPLY SURPASSED DEMAND IN 2019, WILL CONTINUE INTO 2021

RECORD RUN FOR INDUSTRIAL, WILL IT CONTINUE?

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

0

50

100

150

200

250

300

350

400

New Supply (MSF) Net Absorption (MSF) Vacancy Rate (%)

262.1

218.0

336.4

272.2ABSORPTION

(MSF)DELIVERIES

(MSF)

2021 Forecast

2019 Actual

Key Takeaways

ABSORPTION(MSF)

DELIVERIES(MSF)

Source: Cushman & Wakefield Research

Milli

ons


DEMAND PROFILE OVER 20-YEAR PERIOD

INDUSTRIAL DEMAND’S RECORD RUN

(200,000,000)

(100,000,000)

0

100,000,000

200,000,000

300,000,000

400,000,000

Strongest Five-Year Periods of Net Absorption from 2000Net Absorption (MSF)

#1#3 #4 #2



SUPPLY VS DEMAND

MARKET COMPARISON

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

0

5

10

15

20

25

30

35

40

45

50

Deliveries (MSF) Net Absorption (MSF) 2021 Vacancy (%)

Supply vs. Demand: 2020-2021


CONDITIONS WILL REMAIN HISTORICALLY TIGHT

LOCAL MARKETS FEELING THE PRESSURE

0%

2%

4%

6%

8%

10%

12%

Q4 2021 Vacancy Prior Cycle Lows (2002-2007)



PIPELINE VS ABSORPTION

NEW SUPPLY WILL OUTPACE DEMAND IN 2021

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

0

50

100

150

200

250

300

350

400

Construction Pipeline (MSF) Absorption % of UC


Milli

ons


BROAD BASED LEASING DEMAND TO CONTINUE

0

100

200

300

400

500

60010,000-50,000 50,001-100,000 100,001-300,000 300,001-500,000 500,001+


NET ABSORPTION/ASKING RENT

4Q TRAILING AVERAGE

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

(200,000,000)

(100,000,000)

-

100,000,000

200,000,000

300,000,000

400,000,000

Net Absorption, MSF Weighted Asking Rent, $ PSF

Forecast


459.9 573.4ABSORPTION (MSF) DELIVERIES (MSF)

5.2% $6.95VACANCY (%) RENTS (PSF)

North American Industrial 2020-2021 Outlook


EconomicOutlook


THEME #1: GROWTH DECELERATING

Note: *In local currency units.Source: U.S. Bureau of Economic Analysis, Statistics Canada, Instituto Nacional de Estadística Geografía e Informática, Moody’s Analytics, Oxford Economics, International Monetary Fund, Cushman & Wakefield Research

2.9%

3.0%

3.1%

3.2%

3.3%

3.4%

3.5%

3.6%

3.7%

3.8%

3.9%

2010-2018Average

2018 2019 2020

Global Real GDP Growth

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

2009Q3-2019Q3 2018 2019 2020F

Real GDP Growth*Canada Mexico U.S.


THEME #2: PRODUCTION ECONOMY SOFT

Note: *Canada does not have an ISM-equivalent although alternative PMI indices are available for the country (using different methodologies).Source: Oxford Econoomics, Statistics Canada, Board of Governors of the Federal Reserve, Instituto Nacional de Estadística Geografía e Informática,Cushman & Wakefield Research

-2,500

-2,000

-1,500

-1,000

-500

0

500

1,000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

F

Manufacturing JobsCanada Mexico U.S.

-10

-5

0

5

10

15

20

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Output is FallingCanadian Industrial Production Mexican Industrial ProductionU.S. Industrial Production Cass Shipments Index (3-mma)

-34k jobs-333k jobs-22k jobs


THEME #3: TRADE UNCERTAINTY TO PERSIST

Source: U.S. Department of Treasury, U.S. Congressional Budget Office, Moody’s Analytics, U.S. Bureau of Economic Analysis, Statistics Canada, Instituto Nacional de Estadística Geografía e Informática, PolicyUncertainty.com, Cushman & Wakefield Research

$0

$20

$40

$60

$80

$100

$120

$140

Corporate Tax CutSavings (TCJA)

Individual IncomeTax Savings (TJCA)

Cost of Tariffs

Billio

ns

Tariffs Offsetting Other Tailwinds

2018 2019-40

-30

-20

-10

0

10

20

30

40

50

60

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2018

2019

Business Confidence is DownGlobal Business Confidence North American Business Confidence

U.S.-China trade war begins

Great Recession


THEME #3: INVESTMENT PULLBACK BROAD-BASED

Source: CPB World Trade Monitor, International Monetary Fund, Cushman & Wakefield Research

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Canada Mexico U.S. NAFTA World

Bilateral Gross Trade Flows with China(Jan-Oct Total, Yr/Yr %Change)

2016 2017 2018 2019

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Investment Pulling BackCanada Mexico U.S.



Source: U.S. Bureau of Economic Analysis, Cushman & Wakefield Research

-60%

-40%

-20%

0%

20%

40%

60%

Total FixedInvestment in

Structures

Office Retail (exrestaurants)

Restaurants Warehousing Manufacturing Oil/mining MedicalBuildings

Hotels Single-family Multi-family

U.S. Real Non-residential Fixed Investment

16Q2 vs 15Q2 19Q4 vs 18Q4




-60%

-40%

-20%

0%

20%

40%

60%


Structures





16Q2 vs 15Q2 19Q4 vs 18Q4


WITH EXCEPTIONS…

THEME #4: LOW INFLATION, LOW INTEREST RATES

Note: *Core PCE inflation, **Private Consumption Deflator, ***Consumer Price IndexSource: U.S. Bureau of Economic Analysis, Statistics Canada, Cabinet Office of Japan, Statistical Office of the European Communities, Oxford Economics, Federal Reserve Bank of Philadelphia Survey of Professional Forecasters, Cushman & Wakefield Research

1.8% 1.8%

1.2%

0.6%

1.5%

0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%1.8%2.0%

U.S.* Canada** Eurozone** Japan** AdvancedEconomies***

Advanced Economy Inflation2010-2019 2018 2019 2020F

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

U.S. 10-year Treasury YieldU.S. Actual 2011Q4 2012Q4 2013Q42014Q4 2015Q4 2016Q4 2017Q42018Q4 2019Q2 2019Q4


THEME #5: ALL ABOUT THE CONSUMER IN 2020

Source: U.S. Bureau of Labor Statistics, Statistics Canada, Moody’s Analytics, Oxford Economics, Cushman & Wakefield Research

Unemployment Rate (%)

2

4

6

8

10

12

14

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

F

Canada Mexico U.S.

U.S. “Churn” Healthy

Share of Economy Tied to Consumer

Canada

Real Disposable Incomes Rising

Mexico

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

F

Real Spending by Gov't Real Spending by Priv. Sector

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

F

Canada Mexico U.S.

0

1

2

3

4

5

6

7

8

2.0

4.0

6.0

8.0

Jan-

01

Jan-

03

Jan-

05

Jan-

07

Jan-

09

Jan-

11

Jan-

13

Jan-

15

Jan-

17

Jan-

19

Job Openings (millions, LHS)Unemployed Persons per Opening (RHS)

-2-101234567

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

F

Overall Wage Growth Transport/Warehousing Wage Growth

40%

45%

50%

55%

60%

65%

70%

2000

2005

2010

2015

2020

Canada Mexico U.S.


DOWNSIDE RISKS ARE NOT INSIGNIFICANT


PROTESTS

Protests in Hong Kong, Catalonia, Latin America creating political and business uncertainty.

NAIRU

The U.S. Economy has gone beyond the non-accelerating inflation rate of unemployment (NAIRU).

YIELD CURVE

The yield curve inverted at different points in 2019. Historically, an inverted yield curve has been a solid predictor of recessions.

U.S. ELECTIONS

Stark policy differences between candidates is likely to create uncertainty & cause a slowdown.

TRADE

The Phase 1 Deal between the U.S. & China does not address the thornier issues. This could easily flare up again and tariffs could ramp back up.

BUSINESS DEBT

Lending to highly leveraged non-financial businesses and bond issuance by such firms is a risk as is the shadow banking system.

STOCK VALUES

Stock values and housing values are at record highs – can’t go up forever & affordability issues.

BREXIT SCENARIOS

Could fracture the Eurozone and ultimately reverberate back to the U.S.


Capital Markets


OUTSTRIPPING GROWTH IN OTHER PRODUCT TYPES

RISING DEMAND FOR INDUSTRIAL ASSETS…

Rolling 4-Quarter Transaction ActivityDollars in billions

0

50

100

150

200

250

2000

Q4

2001

Q2

2001

Q4

2002

Q2

2002

Q4

2003

Q2

2003

Q4

2004

Q2

2004

Q4

2005

Q2

2005

Q4

2006

Q2

2006

Q4

2007

Q2

2007

Q4

2008

Q2

2008

Q4

2009

Q2

2009

Q4

2010

Q2

2010

Q4

2011

Q2

2011

Q4

2012

Q2

2012

Q4

2013

Q2

2013

Q4

2014

Q2

2014

Q4

2015

Q2

2015

Q4

2016

Q2

2016

Q4

2017

Q2

2017

Q4

2018

Q2

2018

Q4

2019

Q2

2019

Q4

Apartment Industrial Office Retail

171B / +1.7% YoY

132B / +1.6% YoY

101B / +17.4% YoY

51B / -33.8% YoY

Source: RCA, Cushman & Wakefield Research



…ACROSS MARKET TIERS…

Rolling 4-Quarter Industrial Transaction ActivityDollars in billions

36B / +15.6% YoY

14B / +2.9% YoY

41B / +2.5% YoY

0

5

10

15

20

25

30

35

40

45

50

2000

Q4

2001

Q2

2001

Q4

2002

Q2

2002

Q4

2003

Q2

2003

Q4

2004

Q2

2004

Q4

2005

Q2

2005

Q4

2006

Q2

2006

Q4

2007

Q2

2007

Q4

2008

Q2

2008

Q4

2009

Q2

2009

Q4

2010

Q2

2010

Q4

2011

Q2

2011

Q4

2012

Q2

2012

Q4

2013

Q2

2013

Q4

2014

Q2

2014

Q4

2015

Q2

2015

Q4

2016

Q2

2016

Q4

2017

Q2

2017

Q4

2018

Q2

2018

Q4

2019

Q2

2019

Q4

Major Secondary Tertiary




…PRODUCT TYPES…

Industrial Transaction ActivityDollars in billions, Year-over-year percent change (labels)

+23%+15%

+9%

+7%

+16%+36%

0

5

10

15

20

25

30

2014

2015

2016

2017

2018

2019

2014

2015

2016

2017

2018

2019

2014

2015

2016

2017

2018

2019

2014

2015

2016

2017

2018

2019

2014

2015

2016

2017

2018

2019

2014

2015

2016

2017

2018

2019

Under 50K 50 to 100K 100 to 300K 300 to 500K Over 500K

Warehouse FlexSource: RCA, Cushman & Wakefield Research


PARTICULARLY FROM MORE DEFENSIVE CAPITAL GROUPS

…INVESTOR GROUPS…

11%9%

14%11% 12%

30%

9%7%

19%

5% 5%

14%11%

10%

19%

2008 2014 2019 2008 2014 2019 2008 2014 2019 2008 2014 2019 2008 2014 2019

Private Institutional Public Foreign Overall

Industrial Share of Acquisition ActivityPercent of total (%)



BANK AND CMBS EXECUTIONS PARTICULARLY ROBUST IN 2019

…AND LENDERS

Industrial Loan Origination VolumeDollars in billions, Year-over-year percent change (labels)

+89%

+119%+38%

+79%+46%

0

10

20

30

40

50

60

2014

2015

2016

2017

2018

2019

2014

2015

2016

2017

2018

2019

2014

2015

2016

2017

2018

2019

2014

2015

2016

2017

2018

2019

2014

2015

2016

2017

2018

2019

Bank CMBS Insurance Debt Fund Other



CONTINUED COMPRESSION IN SECONDARY MARKETS AS CAPITAL SEEKS YIELD

CAP RATES NEAR ALL-TIME LOWS

Industrial Average Transaction Cap RatesPercent (%)

5.5%5.9%

6.2%6.0%

6.6%

7.0%

4%

5%

5%

6%

6%

7%

7%

8%

8%

9%

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Major Secondary TertiaryClass A Class B



RECORD LOW CAP RATES ACROSS TOP MARKETS

Warehouse Average Transaction Cap RatesPercent (%)

0%

1%

2%

3%

4%

5%

6%

7%

8%

2019 Previous Cycle LowSource: RCA, Cushman & Wakefield Research


THE FALL IN RATES HAS REWOUND INDUSTRIAL VALUATION TO 2014 LEVELS

BUT VALUATIONS ARE STILL ATTRACTIVE

Industrial Risk PremiaBasis points (bps)

0

100

200

300

400

500

600

700

800

900

2007

Q3

2007

Q4

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

2015

Q3

2015

Q4

2016

Q1

2016

Q2

2016

Q3

2017

Q1

2017

Q2

2017

Q3

2017

Q4

2018

Q1

2018

Q2

2018

Q3

2018

Q4

2019

Q1

2019

Q2

2019

Q3

10Y Tsy Debt Premium Equity Premium

170 bps / -1.1 SD

265 bps / 1.0 SD

Long-term avg:182 bps


Source: RCA, Federal Reserve, Cushman & Wakefield Research


INDUSTRIAL OFFERS INVESTORS “HEADS I WIN, TAILS I WIN” OPPORTUNITY

EXTENDED PERIOD OF INDUSTRIAL OUTPERFORMANCE

NCREIF National Property Index Quarterly Annualized Total ReturnPercent (%)

170 bps / -1.1 SD

265 bps / 1.0 SD



-5%

0%

5%

10%

15%

20%

25%

30%

Mar

-10

Jun-

10Se

p-10

Dec

-10

Mar

-11

Jun-

11Se

p-11

Dec

-11

Mar

-12

Jun-

12Se

p-12

Dec

-12

Mar

-13

Jun-

13Se

p-13

Dec

-13

Mar

-14

Jun-

14Se

p-14

Dec

-14

Mar

-15

Jun-

15Se

p-15

Dec

-15

Mar

-16

Jun-

16Se

p-16

Dec

-16

Mar

-17

Jun-

17Se

p-17

Dec

-17

Mar

-18

Jun-

18Se

p-18

Dec

-18

Mar

-19

Jun-

19Se

p-19

Dec

-19

Apartment Industrial Office Retail Overall

14.4%

6.2%

-0.4%

5.8%

6.8%

Source: NCREIF, Cushman & Wakefield Research


Q&A


Thank YouTray AndersonLogistics & Industrial Services Lead, [email protected]

Carolyn SalzerAmericas Head of Logistics & Industrial [email protected]

Rebecca RockeyGlobal Head of [email protected]

David BitnerAmericas Head of Capital Markets [email protected]

©2020 Cushman & Wakefield. The material in this presentation has been prepared solely for information purposes, and is strictly confidential. Any disclosure, use, copying or circulation of this presentation (or the information contained within it) is strictly prohibited, unless you have obtained Cushman & Wakefield’s prior written consent. The views expressed in this presentation are the views of the author and do not necessarily reflect the views of Cushman & Wakefield. Neither this presentation nor any part of it shall form the basis of, or be relied upon in connection with any offer, or act as an inducement to enter into any contract or commitment whatsoever. No representation or warranty is given, express or implied, as to the accuracy of the information contained within THIS PRESENTATION, and Cushman & Wakefield is under no obligation to subsequently correct it in the event of errors.

2020 north american industrial outlook - cushman & … · cushman & wakefield | 2020 north...

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