maintenance, janitorial service and utilities. Reported on a monthly, per SF basis. Construction ... License No. 0190823
Research & Forecast Report
CENTRAL LOS ANGELES | INDUSTRIAL Q4 2016
Accelerating success.
>> Asking Rents Stable And Vacancy Declines Key Takeaways
Market Indicators | Relative to prior period Q4 2016
Forecast
> The overall vacancy rate recorded 1.2%, down 10 basis points from the previous quarter. Vacancy rates have declined 20 basis points over the past 12 months.
Vacancy Construction
> Asking rental rates held steady at $0.65 PSF NNN. Asking rents are at their highest recorded point.
Rental Rate
> Sales and leasing activity totaled 2,480,300 SF, broken out into 19 sales (591,900 SF) and 47 leases (1,888,400 SF). > Net absorption totaled 33,700 SF for the quarter, pushing absorption to 665,900 SF for 2016. > Only 578,200 SF of space remains under construction, a very low amount for a 251.8 million SF market.
Net Absorption
Summary Statistics | Central Los Angeles, Q4 2016 Vacancy Rate
1.2% -10 BPS
Change from Q2 ‘16 (Basis Points) Net Absorption
33,700 SF
Construction Completions
0 SF
Under Construction
Central Los Angeles Industrial Market
673,200 SF
Asking Rents | Central Los Angeles, Q4 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.
$0.65 PSF NNN
Change from Q4 ‘15($)
+$0.03
Y.O.Y. Change (%)
+4.6%
Labor Force | Central Los Angeles, Q4 2016 Construction
Manufacturing
Transportation, Trade & Utilities
12-mo Employment Growth (%)
-3.4%
-1.2%
0.6%
12-mo Actual Employment Change
-4,400
-4,200
+4,700
CENTRAL LOS ANGELES | INDUSTRIAL
Historical Vacancy v. Rents | Central Los Angeles |
Q4 ‘12-’16
> The vacancy rate has held steady at 1.2% while the availability rate increased to 3.9%.
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 1.8%.
7%
$0.65
6%
$0.60
5%
$0.55
4%
$0.50
3%
$0.45
2%
$0.40
> Industrial demand remained positive at 33,700 SF of positive net absorption, the 23rd consecutive quarter of growing industrial demand. > Sales and leasing activity totaled 2,480,300 SF this quarter. This was broken out into 19 sales (591,900 SF) and 47 leases (1,888,400 SF).
VACANCY
$0.70
% VACANT (TOTAL)
Vacancy
Q4 2016
1% 4Q12
4Q13
4Q14
4Q15
4Q16
Net Absorption by Submarket | Central Los Angeles | Q4 2016
> Forecast: Absorption is likely to remain near zero or even negative in future quarters as the lack of available space limits the expansion options of firms in the area.
200,000
86,300 53,000
> Average asking rents held steady at $0.65 PSF NNN. Asking average rents are at their highest recorded point. > 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 30% 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
SF
Rental Rates
(105,600)
(200,000) CENTRAL LOS ANGELES
COMMERCE
VERNON
Historical Gross Absorption | Central Los Angeles | Q4 ‘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 4Q12
2
4Q13
4Q14
4Q15
4Q16
CENTRAL LOS ANGELES | INDUSTRIAL
Construction
Q4 2016
Historical Net Absorption & Construction Completions Central Los Angeles | Q4 ‘12-’16
> There were no construction completions this quarter and there remains 673,200 SF of space still under construction which will be finishing in the next 12 months.
CONSTRUCTION COMPLETIONS
1,200,000 1,000,000 800,000 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
600,000
> Forecast: Construction will remain subdued for the foreseeable future, limited to build to suit projects or creative rehabilitation of under performing space.
400,000 200,000 0 4Q12
4Q13
4Q14
4Q15
4Q16
Investment Trends > Cap rates continue to remain tight in Los Angeles County, averaging 5.4% in Q4 2016.
Investment Trends Chart
Los Angeles County | Q4 ‘12-’16 Average Price Per sf
> Forecast: There has been increased investor focus on fully leased industrial assets in prime infill locations. Consequently, we expect more investment sales to occur in future quarters, driving up sales prices and further compressing cap rates.
Average Cap Rate
8.0%
$180
7.0%
$160 $140
6.0%
$120
5.0%
$100
4.0%
$80
3.0%
Outlook
$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 4Q12
4Q13
4Q14
4Q15
4Q16
Unemployment Rate | Los Angeles County | November 2016 5.1%
5.1%
5.1% 5.0%
5.0% 5.0% 4.9%
4.9%
4.9% 4.8% United States
3
California
Los Angeles County
CENTRAL LOS ANGELES | INDUSTRIAL
Market Description
Q4 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 Q4 2016
SALES ACTIVITY PROPERTY ADDRESS
SIZE SF
SALE PRICE
PRICE PSF
BUYER
SELLER
3388 Fruitland, Vernon
40,000 SF
$5.2 Million
$130 PSF
3366 Fruitland, LLC
Uslan Trust
2516 49th, Vernon
25,000 SF
$5.17 Million
$207 PSF
Jordana Cosmetics
East 49th Street LLC
3653 Sierra Pine, Vernon
25,000 SF
$4.56 Million
$183 PSF
Bella Fashion
Reflex, Inc.
4320 Santa Fe, Vernon
22,000 SF
$4.2 Million
$191 PSF
Dagan Textile, Inc.
Wolfingher Family Trust
PROPERTY ADDRESS
LEASED SF
LEASE TYPE
BLDG TYPE
LESSEE
LESSOR
2601 S Malt, City of Commerce
180,500 SF
Sublease
Distribution
Hollar, Inc.
ProLogis
800 Union, Montebello
179,700 SF
Direct - New
Distribution
Source Logistics
ProLogis
4380 Ayers, Vernon
113,200 SF
Direct - New
Light
Romeo Systems, Inc.
Centerpoint Properties
6100 Peachtree, City of Commerce
105,300 SF
Direct - New
Distribution
Justman Packagining and Display
6118 Peachtree, LLC
PROJECT
DEVELOPER
SIZE SF
SUBMARKET
STATUS
ESTIMATED COMPLETION
4375 Bandini, Vernon
Pacific Industrial
256,000 SF
Vernon
Under Construction
Q3 2017
5001 Soto, Vernon
Bel Air Soto
118,700 SF
Vernon
Under Construction
Q1 2017
LEASING ACTIVITY
MAJOR DEVELOPMENTS
4
CENTRAL LOS ANGELES | INDUSTRIAL
Q4 2016
INDUSTRIAL OVERVIEW Central Los Angeles Q4 2016
EXISTING PROPERTIES Submarket/ Building Size
Total Inventory SF
Bldgs
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
1.0%
0.8%
3.3%
34,100
3
47,800
4
81,900
491,700
-47,000
-39,700
$0.79
20,000 - 39,999
664
18,172,700
0
0
1.7%
1.9%
4.7%
66,300
2
87,600
5
153,900
635,700
22,400
-164,400
$0.78
40,000 - 69,999
301
15,573,900
0
0
0.7%
0.5%
2.5%
0
0
82,000
2
82,000
322,400
-21,700
-166,800
$0.82
70,000 - 99,999
81
6,603,500
0
0
2.3%
2.3%
9.7%
0
0
11,000
1
11,000
39,500
0
-22,100
$0.85
100,000- 249,999
78
10,187,400
0
0
0.6%
0.0%
0.6%
0
0
0
0
0
70,500
-59,300
-176,700
$0.77
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
1.0%
0.9%
3.2%
100,400
5
228,400
12
328,800
1,559,800
-105600
-569,700
$0.78
10,000 - 19,999
402
5,654,300
0
0
0.5%
0.5%
4.2%
27,700
2
29,300
2
57,000
234,300
-700
39,000
$0.67
20,000 - 39,999
422
11,598,100
0
0
1.1%
1.1%
2.1%
0
0
130,000
6
130,000
452,800
41,300
-12,600
$0.64
40,000 - 69,999
252
12,888,500
0
0
0.9%
0.8%
2.4%
0
0
59,700
3
59,700
826,200
-8,300
91,400
$0.64
Subtotal COMMERCE
70,000 - 99,999
95
7,709,700
0
0
1.4%
1.0%
4.2%
96,900
1
168,500
4
265,400
532,000
-36,100
-70,300
$0.63
100,000- 249,999
178
28,289,900
0
0
0.4%
0.6%
1.5%
0
0
534,500
5
534,500
1,667,200
56,800
426,200
$0.64
250,000 - 499,999
40
13,375,100
0
0
0.0%
0.0%
1.5%
0
0
0
0
0
200,000
0
40,300
N/A
7
4,840,600
0
0
1.1%
1.1%
13.9%
0
0
0
0
0
497,900
0
41,300
$0.52
1396
84,356,200
0
0
0.7%
0.7%
2.9%
124,600
3
922,000
20
1,046,600
4,410,400
53000
555,300
$0.62
500,000+
Subtotal VERNON 10,000 - 19,999
541
7,457,100
0
0
0.5%
0.6%
6.6%
28,600
2
65,400
4
94,000
441,700
3,300
70,600
$0.76
20,000 - 39,999
514
14,443,200
0
0
1.4%
1.5%
4.4%
163,100
6
85,200
3
248,300
999,500
20,200
208,900
$0.67
40,000 - 69,999
334
17,077,600
0
95,000
1.1%
1.1%
3.3%
88,300
2
77,200
3
165,500
1,018,700
-26,100
239,800
$0.66 $0.60
70,000 - 99,999
128
10,513,200
0
0
2.2%
1.7%
5.4%
86,900
1
12,200
1
99,100
491,000
-48,200
-47,800
100,000- 249,999
159
22,513,400
0
578,200
2.9%
2.5%
8.8%
0
0
265,200
2
265,200
1,699,800
-95,700
165,200
$0.61
250,000 - 499,999
37
11,470,600
0
0
2.7%
4.8%
2.7%
0
0
232,800
2
232,800
743,400
232,800
43,600
$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
1719
89,542,000
0
673,200
1.8%
1.9%
5.5%
366,900
11
738,000
15
1,104,900
5,394,100
86,300
680,300
$0.63
10,000 - 19,999
2119
29,369,200
0
0
0.8%
0.7%
4.3%
90,400
7
142,500
10
232,900
1,167,700
-44,400
69,900
$0.73
20,000 - 39,999
1600
44,214,000
0
0
1.5%
1.5%
3.9%
229,400
8
302,800
14
532,200
2,088,000
83,900
31,900
$0.69
40,000 - 69,999
887
45,540,000
0
95,000
0.9%
0.8%
2.8%
88,300
2
218,900
8
307,200
2,167,300
-56,100
164,400
$0.68
70,000 - 99,999
304
24,826,400
0
0
2.0%
1.6%
6.2%
183,800
2
191,700
6
375,500
1,062,500
-84,300
-140,200
$0.66
100,000- 249,999
415
60,990,700
0
578,200
1.4%
1.2%
4.1%
0
0
799,700
7
799,700
3,437,500
-98,200
414,700
$0.63
250,000 - 499,999
96
30,990,600
0
0
1.0%
1.8%
1.7%
0
0
232,800
2
232,800
943,400
232,800
83,900
$0.57
500,000+
18
15,805,600
0
0
0.3%
0.3%
6.9%
0
0
0
0
0
497,900
0
41,300
$0.53
5439
251,736,500
0
673,200
1.2%
1.3%
3.9%
591,900
19
1,888,400
47
2,480,300
11,364,300
33,700
665,900
$0.65
Subtotal MARKET TOTAL
Total
5
CENTRAL LOS ANGELES | INDUSTRIAL
Q4 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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> $2.5 billion in annual revenue > 2.0 billion square feet under management > Over 16,100 professionals
UNITED STATES: Commerce Office License No. 01908231 5100 S. Eastern, Suite 100 Commerce, CA 90040
JOHN HOLLINGSWORTH Executive Managing Director THOMAS GALVIN Research Analyst Research Services
TEL: +1 323 726 1200 FAX: +1 323 278 3000
