Vacancy remains tightest in the Commerce submarket at. 0.7% and higher .... California. Los Angeles County. 3. $0. $20.
Research & Forecast Report
CENTRAL LOS ANGELES | INDUSTRIAL Q3 2016
Accelerating success.
>> Asking Rents And Vacancy Flat Key Takeaways > The overall vacancy rate recorded 1.3%, unchanged over the previous quarter. > Asking rental rates held steady at $0.65 PSF NNN. Asking rents are at their highest point as landlords remain bullish on rents. > Sales and leasing activity totaled 3,065,100 SF, broken out into 27 sales (808,900 SF) and 65 leases (2,256,200 SF).
Market Indicators | Relative to prior period Q3 2016
Forecast
Vacancy Net Absorption Construction Rental Rate
Summary Statistics | Central Los Angeles, Q3 2016
> Net absorption totaled 140,100 SF for the quarter, pushing absorption to 632,200 SF year to date.
Vacancy Rate
> Only 118,700 SF of space remains under construction, a very low amount for a 251.8 million SF market.
Net Absorption
140,100 SF
Construction Completions
113,600 SF
Under Construction
118,700 SF
Central Los Angeles Industrial Market
1.3%
Asking Rents | Central Los Angeles, Q3 2016 Central Los Angeles Industrial Market Average Asking Rent
The Central Los Angeles market remains at a post recession peak with low vacancy rates despite the condition of much of the functionally obsolete and older buildings. Many of these lower clear buildings located in the Central Los Angeles submarket and near the downtown Los Angeles core have been converted to residential, retail or office product. Industrial demand is heavily concentrated in the Vernon and Commerce submarkets with food production and apparel manufacturing remaining to be the top industries.
00 BPS
Change from Q2 ‘16 (Basis Points)
$0.65 PSF NNN
Change from Q3 ‘15
+$0.04
($)
Y.O.Y. Change (%)
+6.6%
Labor Force | Central Los Angeles, Q3 2016 Construction
Manufacturing
Transportation, Trade & Utilities
12-mo Employment Growth (%)
-0.3%
-1.8%
1.0%
12-mo Actual Employment Change
-400
-6,400
+8,100
CENTRAL LOS ANGELES | INDUSTRIAL
Historical Vacancy v. Rents | Central Los Angeles |
Q3 ‘12-’16
> The vacancy rate has held steady at 1.3% while the availability rate remains low at 3.7%.
RENTS
>Forecast: Vacancy will remain tight as there is little construction on the horizon and industrial demand remains positive.
Absorption and Leasing Activity
$ PER SF PER MONTH (NNN)
> Vacancy remains tightest in the Commerce submarket at 0.7% and higher in the Vernon submarket at 1.9%.
7%
$0.65
6%
$0.60
5%
$0.55
4%
$0.50
3%
$0.45
2%
$0.40
> Industrial demand remained positive at 140,100 SF of positive net absorption, the 22nd consecutive quarter of growing industrial demand. > Sales and leasing activity totaled 3,065,100 SF this quarter. This was broken out into 27 sales (808,900 SF) and 65 leases (2,256,200 SF).
VACANCY
$0.70
% VACANT (TOTAL)
Vacancy
Q3 2016
1% 3Q12
3Q13
3Q14
3Q15
3Q16
Net Absorption by Submarket | Central Los Angeles | Q3 2016
> Forecast: Absorption is likely to remain near zero in future quarters as the lack of available space limits the expansion options of firms in the area.
400,000
219,700
Rental Rates
SF
200,000
26,800
> Average asking rents held steady at $0.65 PSF NNN. Asking average rents are at their highest point ever recorded. > Sales prices and asking rents continue to be driven up by non-traditional industrial users moving into industrial space in desirable areas. This is especially noticeable in the Central Los Angeles submarket, with asking rates 20% higher for comparable industrial space in the Commerce and Vernon submarkets. > Forecast: Rents will continue to rise in future quarters and tenants can expect to pay a premium for all types of industrial space. Tenants who signed leases 5 years ago can expect to their rent to increase roughly 30-40% upon renewal.
0
(106,400) (200,000) CENTRAL LOS ANGELES
VERNON
COMMERCE
Historical Gross Absorption | Central Los Angeles | Q3 ‘12-’16
5,000,000 4,500,000 4,000,000 3,500,000
SF
3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 3Q12
2
3Q13
3Q14
3Q15
3Q16
CENTRAL LOS ANGELES | INDUSTRIAL
Construction
Q3 2016
Historical Net Absorption & Construction Completions Central Los Angeles | Q3 ‘12-’16
> There was a single 113,600 SF fully leased project that finished construction this quarter. There remains 118,700 SF of space still under construction which will be finishing in the next 12 months.
1,200,000 1,000,000 800,000 600,000 400,000
> Forecast: Construction will remain subdued for the foreseeable future, limited to build to suit projects or creative rehabilitation of under performing space.
Investment Trends
CONSTRUCTION COMPLETIONS
SF
> There are only a few small number of planned projects currently on the market and land prices have continued to increase to over 2 million per acre. Development is exceedingly difficult in the Central Los Angeles industrial market due to the encroachment of residential, retail and especially creative office development.
NET ABSORPTION
1,400,000
200,000 0 3Q12
3Q13
3Q14
3Q15
3Q16
Investment Trends Chart
Los Angeles County | Q3 ‘12-’16
> Cap rates have continued to remain tight in Los Angeles County, averaging 5.8% in Q3 2016, significantly lower then the US average of 6.8%. > Forecast: There has been increased investor focus on fully leased industrial assets in prime infill locations. As such, we expect more investment sales to occur in future quarters driving up sales prices and further compressing cap rates.
Average Price Per sf
Average Cap Rate
8.0%
$180
7.0%
$160 $140
6.0%
$120
5.0%
$100
4.0%
Outlook
$80
3.0%
$60
2.0%
$40
1.0%
> Tight market conditions are expected to persist in the Central Los Angeles industrial marketplace. This is especially true given the amount of space being taken off the market near downtown Los Angeles. Many older and obsolete industrial buildings have been torn down or re-purposed to residential, retail or creative office uses. Many of these displaced tenants end up in the neighboring areas of Vernon or Commerce.
$20
0.0%
$0 3Q12
3Q13
3Q14
3Q15
3Q16
Unemployment Rate | Los Angeles County | August 2016 5.6%
5.5%
5.4% 5.2% 5.0%
4.9%
4.9%
4.8% 4.6% 4.4% United States
3
California
Los Angeles County
CENTRAL LOS ANGELES | INDUSTRIAL
Market Description
Q3 2016
Submarket Map
Central Los Angeles is the largest industrial market in Los Angeles County. Comprised of 251.8 million square feet of space, it represents 21 percent of the total industrial space in the Los Angeles Basin for buildings 10,000 square feet and greater. It is the oldest market, with 74 percent of its space built before 1980. It has a mix of property types, with 43 percent in big box space (100,000+ SF) and the balance in small and medium sized buildings. Firms in this market include a large number of manufacturing companies and machine shops as well as will-call centers and operations that need a central location.
RECENT TRANSACTIONS & MAJOR DEVELOPMENTS Central Los Angeles Industrial Market Q3 2016
SALES ACTIVITY PROPERTY ADDRESS
SIZE SF
SALE PRICE
PRICE PSF
BUYER
SELLER
2750 Casitas, Los Angeles
100,200 SF
$22 Million
$220 PSF
2800 Casitas, LLC
Casitas Investment
5205 Downey, Vernon
47,600 SF
$7.6 Million
$159 PSF
Rainfield Logistics, LLC
JCJ Family, LP
2460 28th, Vernon
48,000 SF
$7.3 Million
$152 PSF
Construction Materials Iports
JDW Association, LLC
6500 Stanford, Los Angeles
48,900 SF
$6.9 Million
$140 PSF
United Pacific Waste
Tri-Gents Investments
PROPERTY ADDRESS
LEASED SF
LEASE TYPE
BLDG TYPE
LESSEE
LESSOR
2652 Long Beach, Los Angeles
149,700 SF
Direct-New
Freezer / Cold Storage
World Produce
CREF LA FOOD, LLC
3359 50th, Vernon
137,400 SF
Direct-New
Light
A & A Global Imports, Inc.
Leonis Property, LLC
5636 E 61st, Commerce
90,300 SF
Direct-New
Distribution
Bunzl Utah, LLC
ProLogis
1345 Herbert, Commerce
70,900 SF
Direct-New
Freezer / Cold Storage
H & T Seafood
Los Angeles L & S Realty
PROJECT
DEVELOPER
SIZE SF
SUBMARKET
STATUS
ESTIMATED COMPLETION
901 Union, Montebello
Lincoln Property Group
113,600 SF
Commerce
Completed
Q3 2016
5001 Soto, Vernon
Bel Air Soto
118,700 SF
Vernon
Under Construction
Q1 2017
LEASING ACTIVITY
MAJOR DEVELOPMENTS
4
CENTRAL LOS ANGELES | INDUSTRIAL
Q3 2016
INDUSTRIAL OVERVIEW Central Los Angeles Q3 2016
EXISTING PROPERTIES Submarket/ Building Size
Bldgs
Total Inventory SF
CONSTRUCTION
VACANCY
Completions Under Vacancy Current Qtr Construction Vacancy Prior Qtr SF SF
AVAILABILITY
Availability
ACTIVITY
ABSORPTION
Total Gross Total Gross Net Sales Number of Lease Number Absorption Activity Current Activity Activity SF Sales Activity SF of Leases Qtr SF YTD SF Current Qtr SF
RENTS
Net Absorption YTD SF
Weighted Avg Asking Lease Rates
CENTRAL LOS ANGELES 10,000 - 19,999
1176
16,257,800
0
0
1.1%
1.0%
3.0%
53,900
4
55,000
4
108,900
409,800
-14,300
7,300
$0.83
20,000 - 39,999
664
18,172,700
0
0
2.1%
1.7%
4.5%
147,900
3
95,400
5
243,300
481,800
-72,200
-186,800
$0.85
40,000 - 69,999
301
15,573,900
0
0
0.6%
0.5%
2.2%
56,400
1
54,300
3
110,700
240,400
-19,900
-145,100
$0.81
70,000 - 99,999
81
6,603,500
0
0
2.3%
2.3%
7.4%
0
0
28,500
1
28,500
28,500
0
-22,100
$0.79 $0.69
100,000- 249,999
78
10,187,400
0
0
1.5%
1.5%
1.5%
0
0
53,100
3
53,100
70,500
0
-117,400
250,000 - 499,999
19
6,144,900
0
0
0.0%
0.0%
0.0%
0
0
0
0
0
0
0
0
N/A
500,000+
5
4,898,100
0
0
0.0%
0.0%
0.0%
0
0
0
0
0
0
0
0
N/A
2324
77,838,300
0
0
1.2%
1.1%
2.9%
258,200
8
286,300
16
544,500
1,231,000
-106400
-464,100
$0.79
Subtotal COMMERCE 10,000 - 19,999
402
5,654,300
0
0
0.5%
0.8%
2.7%
33,700
2
41,900
3
75,600
177,300
16,300
39,700
$0.71
20,000 - 39,999
422
11,598,100
0
0
1.1%
0.7%
2.4%
77,300
3
89,000
4
166,300
322,800
-39,900
-53,900
$0.64
40,000 - 69,999
252
12,888,500
0
0
0.8%
1.0%
1.4%
40,000
1
124,400
5
164,400
766,500
30,900
99,700
$0.61
70,000 - 99,999
95
7,709,700
0
0
1.0%
1.5%
3.2%
0
0
151,000
2
151,000
266,600
43,500
-34,200
$0.63
100,000- 249,999
178
28,289,900
113,600
0
0.6%
0.9%
3.0%
0
0
355,800
7
355,800
1,132,700
179,800
369,400
$0.62
250,000 - 499,999
40
13,375,100
0
0
0.0%
0.3%
0.0%
0
0
40,300
1
40,300
200,000
40,300
40,300
N/A
7
4,840,600
0
0
1.1%
0.0%
13.9%
0
0
0
0
0
497,900
-51,200
41,300
$0.43
1396
84,356,200
113,600
0
0.7%
0.8%
2.8%
151,000
6
802,400
22
953,400
3,363,800
219700
502,300
$0.59
500,000+
Subtotal VERNON 10,000 - 19,999
541
7,457,100
0
0
0.8%
1.1%
6.2%
90,000
7
97,100
6
187,100
347,700
21,200
67,300
$0.65
20,000 - 39,999
514
14,443,200
0
0
1.5%
2.4%
5.5%
52,200
1
177,600
8
229,800
751,200
133,700
188,700
$0.64
40,000 - 69,999
334
17,077,600
0
0
1.4%
1.5%
3.3%
187,500
4
124,000
3
311,500
853,200
18,200
265,900
$0.69
70,000 - 99,999
128
10,513,200
0
0
0.9%
0.5%
4.3%
70,000
1
114,400
2
184,400
391,900
-47,700
400
$0.65
100,000- 249,999
158
22,631,700
0
118,700
2.5%
2.0%
6.1%
0
0
467,200
6
467,200
1,434,600
-99,800
260,900
$0.60
250,000 - 499,999
37
11,470,600
0
0
4.8%
4.8%
4.8%
0
0
187,200
2
187,200
510,600
1,200
-189,200
$0.59
500,000+
6
6,066,900
0
0
0.0%
0.0%
6.9%
0
0
0
0
0
0
0
0
$0.53
1718
89,660,300
0
118,700
1.9%
1.9%
5.2%
399,700
13
1,167,500
27
1,567,200
4,289,200
26,800
594,000
$0.62
10,000 - 19,999
2119
29,369,200
0
0
0.9%
1.0%
3.8%
177,600
13
194,000
13
371,600
934,800
23,200
114,300
$0.71
20,000 - 39,999
1600
44,214,000
0
0
1.6%
1.7%
4.3%
277,400
7
362,000
17
639,400
1,555,800
21,600
-52,000
$0.69
40,000 - 69,999
887
45,540,000
0
0
1.0%
1.0%
2.4%
283,900
6
302,700
11
586,600
1,860,100
29,200
220,500
$0.69
70,000 - 99,999
304
24,826,400
0
0
1.3%
1.3%
4.8%
70,000
1
293,900
5
363,900
687,000
-4,200
-55,900
$0.72
100,000- 249,999
414
61,109,000
113,600
118,700
1.5%
1.4%
3.9%
0
0
876,100
16
876,100
2,637,800
80,000
512,900
$0.62
250,000 - 499,999
96
30,990,600
0
0
1.8%
1.9%
1.8%
0
0
227,500
3
227,500
710,600
41,500
-148,900
$0.57
500,000+
18
15,805,600
0
0
0.3%
0.0%
6.9%
0
0
0
0
0
497,900
-51,200
41,300
$0.45
113,600
118,700
1.3%
1.3%
3.7%
808,900
27
2,256,200
65
3,065,100
8,884,000
140,100
632,200
$0.65
Subtotal MARKET TOTAL
Total
5
5438 251,854,800
CENTRAL LOS ANGELES | INDUSTRIAL
Q3 2016
Definitions of key terms in this report Total Rentable Square Feet: Industrial space in buildings with 10,000 SF or more of industrial space. Includes speculative as well as owner-occupied buildings. Excludes Research & Development (R&D) buildings (industrial buildings with at least 30% office build-out, 3/1000 parking ratio and a high level of finish). Excludes space that is under-construction or renovation. Vacancy: Space in existing buildings that is vacant and immediately available during the quarter for direct lease, for sublease or for sale, plus space that is vacant but not available for direct lease or sublease. Availability: All space that is being currently marketed for occupancy, includes space which may be currently occupied or which may be under construction or renovation. Net Absorption: Net change in occupied square feet from one period to the next (includes the impact of change in vacant space available for sublease). Gross Activity: Square feet sold and leased for all known transactions completed during the quarter. Excludes lease renewals. Excludes investment sale transactions. Weighted Average Asking Rental Rates: Weighted by square feet available for direct lease. Data is based on triple net rents, and excludes expenses such as taxes, insurance, maintenance, janitorial service and utilities. Reported on a monthly, per SF basis. Construction Completions: Total square feet added during the quarter via construction completions, including renovated space returned to market, less total square feet taken off-market due to demolitions or conversions. Under Construction: Includes buildings that are in some phase of construction, beginning with foundation work and ending with the issuance of a Certificate of Occupancy.
6
Technical Note Colliers International is continuously refining its database. The data shown in the historical tables and graphics in this report have been adjusted to take into account these changes in the database. This report has been prepared by Colliers International for general information only. Information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof. Colliers International does not guarantee, warrant or represent that the information contained in this document is correct. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This report and other research materials may be found on our website at www. colliers.com/greaterlosangeles.
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