How the current industrial boom is changing the market forever

“RADICAL RE-DESIGN”

Steve Kapp, SIOR

Executive Managing Director

skapp@newmarkccarey.com

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o Slides are numbered for reference.

WELCOME

- 1 -

Key Points

o New industrial development in the San Francisco East Bay is

at its highest levels since the 1990s

o This cycle - 58 new buildings totaling over 16MM SF in the

greater East Bay, with 41 buildings and 8.5MM in the I-880

corridor.

o Features and design of these new “Class A” buildings are

significantly different than last cycle.

o Will existing “Class A” buildings be downgraded to “Class B”

as new construction comes on-line?

- 2 -

I-880 Corridor Warehouse Inventory

- 3 -

Class A

Class B/C

Total I-880 Warehouse Inventory

72,687,952 SF

Class A

40,593,488

Class B/C

32,094,464

“Class A” Warehouse Inventory

- 4 -

I-880 Corridor Totals // Total SF: 49,053,979

40,593,488

8,460,380

-

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

City# of Bldgs

TotalInventory (SF)

# of Bldgs

Planned/U/C

Total SF

Planned/U/C

Oakland : 13 2,838,947 2 630,725

San Leandro: 49 5,809,807 3 685,974

Hayward : 113 13,320,807 8 1,090,146

Union City: 43 5,643,564 5 931,670

Newark: 21 3,777,620 3 717,028

Fremont: 33 9,202,854 20 4,404,837

I-880 Totals: 272 40,593,599 41 8,460,380

I-880 New/Planned/Under Construction 8.5MM; 17.25%

Existing Inventory40.6MM; 82.7%

Warehouse-Breakdown by City

- 5 -

“Class A” Warehouse Inventory

9,202,854

2,838,947

5,809,807

13,320,807

5,643,564

3,777,620

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

Fremont Oakland San Leandro Hayward Union City Newark

Existing Inventory: 40,593,599 Total SF

New Construction: 8,460,380 Total SF

4,404,837

630,725 685,9741,090,146 931,670 717,028

Fremont Oakland San Leandro Hayward Union City Newark0

1000000

2000000

3000000

4000000

5000000

New Construction Timeline

- 6 -

Development Status1

49

,75

87

00

,00

0

57

4,6

40

37

4,7

25

24

7,0

00

33

4,0

00

20

0,0

00

17

4,0

00

30

2,5

64

51

7,8

95

30

0,6

20

16

1,4

83

35

0,0

00

62

3,9

20

29

7,0

50

26

6,1

49

14

2,3

88

27

4,9

98

60

0,0

00

25

6,0

00

49

,00

9

15

0,0

00

27

7,4

91

40

0,0

00

30

0,0

00

0

150,000

300,000

450,000

600,000

750,000

900,000

Completed Under Construction Planned Availables

2014 2015 2016 2017 2018 - Beyond

Planned Industrial Development

- 7 -

Late 2017 and Beyond

Site Developer CityPotential

Development Size

Point Eden IPT Hayward 150,000 SF

KraftTrammell

CrowSan Leandro 450,000 SF

W. Winton TBD Hayward 400,000 SF

Eden Shores Steelwave Hayward 93,000 SF

Georgia Pacific OMP San Leandro 280,000 SF

LDK Harvest Richmond 700,000 SF

Pacific Commons ARA Fremont 816,000 SF

Pacific Commons OMP Fremont 1,780,000 SF

Port of Oakland Prologis Oakland 500,000 SF

The Oaks Balch Livermore 142,000 SF

TOTAL 5,311,000 SF

Who Are the New Users of Space?

- 8 -

o E-Commerce/ Order Fulfillment

o Advanced Manufacturing

o Food Distribution/ Food Processing

o Tech

o Automotive (Tesla)

Warehouse Demand by Sector

- 9 -

Last 24 Months

TECH2,809,000

3PL4,482,000

Food1,743,000

General WH4,396,000

Moving/Storage850,732

Business Services1,634,386

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

Warehouse Users By Leased Square Feet

18%

28%

11%

28%

5%

10%

- 10 -

Feature Then (1980s-1990s)

Average Building Size 100,000 SF

Clear Height 24’

Staging 90’ -105’

Sprinklers .33/3,000

Trailer Parking Minimal

Security Open Park

Communication Phone Line

Landscaping After Thought

Restrooms Small Single Fixture

Now (2014 -2016)

250,000 SF

32’ -36’

120’ -135’

ESFR

Designated

Securable Perimeter

High Speed Internet

Featured, Drought

Tolerant

“Office” Quality

Why

Higher cubic volume.

Bettermaterial handling

equipment.

53’ trailers and

containerized shipping.

High throughput operations.

Product needs to be rapidly

transferred.

Security is important to both

value of product and

employees.

Attracting female workforce.

Workforce demographics

changing.

More effective, better able to

spread cost of material handling

& infrastructure costs.

Changing fire codes and higher

cubic volumes of product.

Real time exchange of

Information, Big Data Analytics.

“Green” Building image.

Lower maintenance costs.

Industrial Building Comparison

Rental Rates Rise but Returns Stable

- 11 -

2014 2015 2016

Rent/PSF $0.50 $0.60 $0.70

Construction Costs/PSF

Land (under building)

@ 42% coverage$43.00 $59.50 $76.20

Shell & Site $52.00 $55.00 $58.00

TI (from shell) $3.50 $5.00 $8.00

Soft Costs

@(25% (Shell, TI)$13.888 $15.00 $16.00

Totals $112.38 $134.50 $158.70

Return on Cost 5.34% 5.35% 5.29%

Conclusion

- 12 -

o New construction in this cycle has increased

inventory by almost 20.6%.

o Features designed into buildings dramatically

different than last cycle.

o Tenant demand for warehouse and typical tenant

profile has shifted.

o 1980’s vintage “Class A” product –still strong

appeal to small to mid-size users.