Industrial Rents Continue Upward - Colliers International

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/C. O. M. P. T. ON. /RD. SF. Historical Leasing Activity | South Bay |. Q1 '13 - '17. 0. 1000000. 2000000. 3000000. 4000
Research & Forecast Report

South Bay | INDUSTRIAL Q1 2017

Accelerating success.

>> Industrial Rents Continue Upward Key Takeaways

Market Indicators | Relative to prior period

> Industrial rents increased $0.03 PSF NNN over the quarter to $0.78 PSF NNN. Rents have increased 13% over the last 12 months and are at their highest ever point.

Vacancy

> Net absorption was 457,500 SF this quarter as the seond portion of the recently completed Brickyard project was leased.

Rental Rate

> Sales and leasing activity totaled 3,038,200 SF broken out into 10 sales (312,400 SF) and 53 leases (2,725,800 SF). > There is 1,505,400 SF of new space currently under construction which will finish in the next 12 months. > Vacancy has decreased 20 basis points to 0.8% the lowest recorded vacancy rate ever for the region.

South Bay Industrial Market

Q1 2017

Forecast

   

   

Net Absorption Construction

Summary Statistics | South Bay, Q1 2017 Vacancy Rate

0.8% -20 BPS

Change from Q2 ‘16 (Basis Points) Net Absorption

457,500 SF

Construction Completions

15,200 SF

Asking Rents | South Bay, Q1 2017 South Bay Industrial Market Average Asking Rent

South Bay remains the premier market for distribution companies and sea and air cargo centered industrial users. It is nearly fully developed so land is incredibly scarce. Tight market conditions and a lack of larger modern space continue to be deterrents that drive tenants to neighboring markets, primarily to the east.

$0.78 PSF NNN

Change from Q1 ‘16

+$0.09 PSF NNN

Y.O.Y. Change (%)

+13.0%

Labor Force | South Bay, Q1 2017

12-mo Employment Growth (%) 12-mo Actual Employment Change

Construction

Manufacturing

Transportation, Trade & Utilities

0.9%

-2.4%

1.1%

+1,200

-8,700

+8,700

South Bay | INDUSTRIAL

Historical Vacancy v. Rents | South Bay | Q1 ‘13-’17

5%

0.75

4%

0.7 3%

0.65 0.6

2%

0.55 1%

0.5

Absorption and Leasing Activity

0.45

0% 1Q13

Q1 ’17

600,000

529,000

500,000 400,000

SF

300,000 200,000

46,000

100,000

95,400

0 (23,600)

(100,000) (200,000)

(189,300)

(300,000)

GARDENA/HARBOR FWY

> Average asking rents increased $0.03 PSF NNN over the quarter to end at $0.78 PSF NNN. Asking rents are at their highest levels ever and will continue to rise. > Even marginal space in the South Bay is getting multiple offers and tenants are having to expand their search criteria in order to find suitable space. > 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 45% upon renewal.

1Q17

Net Absorption by Submarket | South Bay |

> Forecast: Absorption is likely to be flat for 2017 as there is little new supply hitting the market and further gains will be hard to achieve.

Rental Rates

1Q16

CARSON/COMPTON/RD

> Sales and leasing activity totaled 3,038,200 SF this quarter. This was broken out into 10 sales (312,400 SF) and 53 leases (2,725,800 SF).

1Q15

TORRANCE

> Industrial demand reported 457,500 SF of positive net absorption this quarter.

1Q14

LAX/ES/HAWTHORNE

> Forecast: New supply may bring some relief in vacancy rates, but with only 1.5 million SF of supply on the horizon we may be see sub 1% vacancy in the South Bay for much of 2017.

VACANCY

0.8

$PSF PER MONTH (NNN)

> Vacancy is tightest in the LAX / ES / Hawthorne submarket at 0.5% followed by the Torrance submarket at 0.6%.

RENTS

% VACANT (TOTAL)

> The vacancy rate declined this quarter by 20 basis points to 0.8%. The vacancy rate is currently at its lowest level ever recorded.

LB/HARBOR CITIES

Vacancy

Q1 2017

Historical Leasing Activity | South Bay | Q1 ‘13 - ‘17

5000000

4000000

SF

3000000

2000000

1000000

0 1Q13

2

1Q14

1Q15

1Q16

1Q17

South Bay | INDUSTRIAL

Construction

Q1 2017

Historical Net Absorption & Construction Completions South Bay | Q1 ‘13-’17

> There was 15,200 SF of new supply in a single project.

NET ABSORPTION

> There remains 1,505,400 SF of space currently under construction; an incredibly small amount for a 213.3 million SF industrial market.

2500000

> Development is exceedingly difficult in the South Bay as raw land, if available, will sell for a premium.

2000000

SF

> Forecast: We are on the tail end of a construction boom and new supply will trickle in for the rest of 2017. Development will remain limited to build to suit projects or creative rehabilitation of under performing space.

1500000 1000000 500000 0

Investment Trends > Cap rates continue to remain tight in Los Angeles County, averaging 5.9% in Q1 2017.

CONSTRUCTION COMPLETIONS

3000000

1Q13

1Q14

1Q15

1Q16

1Q17

Investment Trends Chart

Los Angeles County | Q1 ‘13-’17 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%

Outlook

$80

3.0%

$60

2.0%

> Tight market conditions are expected to persist in the South Bay industrial marketplace with vacancy rates below single digits expected in future quarters. Rents are at their highest ever levels, prompting many users to consider buying their properties, however the available inventory is insufficient to meet demand. > Land is incredibly scarce and many industrial users are having to get creative or face paying a premium to secure land for truck, car or trailer storage.

$40

1.0%

$20

0.0%

$0 1Q13

1Q14

1Q15

1Q16

1Q17

Unemployment Rate | Los Angeles County | February 2017 5.1%

5.0%

5.0% 5.0% 4.9% 4.9%

4.8%

4.8% 4.8% 4.7%

4.7%

4.7% 4.6% 4.6% United States

3

California

Los Angeles County

South Bay | INDUSTRIAL

Q1 2017

Market Description

Submarket Map

The South Bay industrial market includes 213.3 million square feet, representing 16 percent of the total space in the Los Angeles Basin for buildings 10,000 square feet and greater. The market has a high concentration of firms oriented toward international trade at the Ports of Los Angeles and Long Beach, respectively, and/or with LAX airport. The South Bay is a relatively mature market, with 63 percent of its space built prior to 1980. There is a good mix of product types, with nearly half of the space (45%) in big-box space (100,000 SF+) and the balance (55%) in small and medium sized buildings.

RECENT TRANSACTIONS & MAJOR DEVELOPMENTS South Bay Industrial Market Q1 2017

SALES ACTIVITY PROPERTY ADDRESS

SIZE SF

SALE PRICE

PRICE PSF

BUYER

SELLER

18554 Susana, Rancho Dominguez

104,300 SF

$12 Million

$115 PSF

IPT South Bay

Ahmadinia MT Trust

1920 Acacia, Compton

45,300 SF

$7.1 Million

$157 PSF

Terreno Acacia, LLC

Appliance Recycling Centers

21640 Wilmington, Carson

50,000 SF

$7.0 Million

$140 PSF

Progressive Realty Partners

Artemis Pet Food, Inc.

245 157th, Gardena

70,600 SF

$6.6 Million

$94 PSF

157th RE Management, LLC

Alcoa Vernon, LLC

PROPERTY ADDRESS

LEASED SF

LEASE TYPE

BLDG TYPE

LESSEE

LESSOR

1701 Central, Compton

479,300 SF

Direct-New

Distribution

Best Bey

Clarion

2211 Carson, Carson

270,800 SF

Direct-New

Distribution

Yusen Logistics

ProLogis

20943 Maciel, Carson

176,000 SF

Direct-New

Distribution

Capitol Logistics

Robert Curry

2626 Vista Industrial, Compton

163,500 SF

Direct-New

Distribution

CNR International

ProLogis

PROJECT

DEVELOPER

SIZE SF

SUBMARKET

STATUS

ESTIMATED COMPLETION

20333 Normandie, Torrance

Bridge Development

512,500 SF

Torrance

Under Construction

Q2 2018

4800 Conant, Long Beach

Sares Regis

219,300 SF

Long Beach

Under Construction

Q2 2017

4350 Conant, Long Beach

Sares Regis

140,400 SF

Long Beach

Under Construction

Q2 2017

LEASING ACTIVITY

MAJOR DEVELOPMENTS

4

South Bay | INDUSTRIAL

Q1 2017

INDUSTRIAL OVERVIEW South Bay Industrial Market Q1 2017

EXISTING PROPERTIES Submarket/ Building Size

Bldgs

CONSTRUCTION

Total Inventory SF

VACANCY

Completions Under Current Qtr Construction Vacancy SF SF

Vacancy Prior Qtr

AVAILABILITY

Availability

ACTIVITY Sales Activity SF

ABSORPTION

RENTS

Total Gross Total Gross Net Net Number of Lease Activity Number Activity Current Activity YTD Absorption Absorption Sales SF of Leases Qtr SF SF Current Qtr SF YTD SF

Weighted Avg Asking Lease Rates

LAX/ES/HAWTHORNE 10,000 - 19,999

385

5,280,400

0

0

1.0%

0.8%

1.5%

0

0

0

0

0

0

-12,600

-12,600

20,000 - 39,999

283

7,815,000

0

0

1.5%

1.3%

3.2%

0

0

93,900

4

93,900

93,900

-11,600

-11,600

$1.20 $1.12

40,000 - 69,999

93

4,824,300

0

0

0.0%

0.4%

2.3%

0

0

20,100

1

20,100

20,100

20,100

20,100

$0.99

70,000 - 99,999

38

3,032,200

0

0

0.7%

0.0%

2.8%

0

0

0

0

0

0

-21,100

-21,100

$1.09

100,000- 249,999

37

5,542,800

0

149,000

0.0%

0.0%

0.0%

0

0

61,300

2

61,300

61,300

0

0

N/A

250,000 - 499,999

8

2,664,000

0

0

0.0%

2.7%

0.0%

0

0

71,200

1

71,200

71,200

71,200

71,200

N/A

500,000+

7

7,048,600

0

0

0.0%

0.0%

0.0%

0

0

0

0

0

0

0

0

N/A

Subtotal

851

36,207,300

0

149,000

0.5%

0.6%

1.4%

0

0

246,500

8

246,500

246,500

46,000

46,000

$1.11

GARDENA/HARBOR FWY 10,000 - 19,999

511

7,115,900

0

0

0.2%

0.5%

1.2%

14,800

1

61,400

4

76,200

76,200

18,000

18,000

$0.76

20,000 - 39,999

310

8,247,800

0

0

0.8%

0.8%

1.7%

0

0

0

0

0

0

0

0

$0.80 $0.82

40,000 - 69,999

169

8,582,900

0

0

1.5%

0.6%

2.4%

0

0

10,000

1

10,000

10,000

-77,800

-77,800

70,000 - 99,999

47

3,860,100

0

41,100

0.0%

0.0%

0.0%

0

0

29,900

2

29,900

29,900

0

0

N/A

100,000- 249,999

41

5,397,720

0

100,600

2.7%

0.3%

2.7%

0

0

0

0

0

0

-129,500

-129,500

$0.59

250,000 - 499,999

1

256,000

0

0

0.0%

0.0%

0.0%

0

0

0

0

0

0

0

0

N/A

500,000+

0

0

0

0

0.0%

0.0%

0.0%

0

0

0

0

0

0

0

0

N/A

Subtotal

1079

33,460,420

0

141,700

1.1%

0.5%

1.7%

14,800

1

101,300

7

116,100

116,100

-189,300

-189,300

$0.70

TORRANCE 10,000 - 19,999

202

2,739,000

0

0

0.4%

0.0%

1.2%

0

0

0

0

0

0

-11,200

-11,200

$0.85

20,000 - 39,999

175

4,890,000

0

30,500

2.9%

3.6%

5.9%

0

0

73,800

3

73,800

73,800

36,700

36,700

$0.69

40,000 - 69,999

77

3,883,900

0

0

0.6%

0.6%

0.6%

0

0

0

0

0

0

0

0

$0.72

70,000 - 99,999

34

2,778,000

0

0

0.0%

1.1%

1.0%

0

0

36,300

2

36,300

36,300

31,500

31,500

$0.84

100,000- 249,999

47

6,420,400

0

0

0.0%

0.6%

1.7%

0

0

161,700

3

161,700

161,700

38,400

38,400

$0.85

250,000 - 499,999

13

4,454,300

0

0

0.0%

0.0%

3.5%

0

0

0

0

0

0

0

0

$0.63

500,000+

5

2,599,100

0

512,500

0.0%

0.0%

0.0%

0

0

0

0

0

0

0

0

N/A

Subtotal

553

27,764,700

0

543,000

0.6%

1.0%

2.6%

0

0

271,800

8

271,800

271,800

95,400

95,400

$0.76

$0.83

CARSON/COMPTON/RD 10,000 - 19,999

256

3,585,200

15,200

0

0.4%

0.4%

0.4%

15,200

1

37,000

2

52,200

52,200

0

0

20,000 - 39,999

331

9,372,100

0

0

0.3%

0.8%

1.7%

153,400

5

78,200

2

231,600

231,600

48,000

48,000

$0.78

40,000 - 69,999

235

12,245,300

0

0

0.7%

0.9%

2.5%

96,000

2

231,700

6

327,700

327,700

25,400

25,400

$0.69 $0.74

70,000 - 99,999

133

10,960,900

0

0

1.0%

1.4%

3.1%

0

0

168,800

5

168,800

168,800

40,900

40,900

100,000- 249,999

223

33,747,500

0

201,000

1.0%

0.8%

3.7%

0

0

747,000

6

747,000

747,000

-49,600

-49,600

$0.75

250,000 - 499,999

33

10,455,400

0

0

1.2%

5.7%

1.2%

0

0

750,100

2

750,100

750,100

464,300

464,300

$0.82

500,000+

2

1,047,300

0

0

0.0%

0.0%

0.0%

0

0

0

0

0

0

0

0

N/A

Subtotal

1213

81,413,700

15,200

201,000

0.9%

1.5%

2.7%

264,600

8

2,012,800

23

2,277,400

2,277,400

529,000

529,000

$0.79

LB/HARBOR CITIES 10,000 - 19,999

567

7,822,100

0

0

1.2%

0.8%

2.0%

0

0

40,500

3

40,500

40,500

-26,100

-26,100

$0.76

20,000 - 39,999

317

8,362,900

0

0

0.6%

0.4%

2.5%

33,000

1

32,900

3

65,900

65,900

-17,400

-17,400

$0.82

40,000 - 69,999

93

4,609,100

0

0

0.0%

0.4%

1.0%

0

0

20,000

1

20,000

20,000

20,000

20,000

$0.66

70,000 - 99,999

28

2,287,300

0

0

4.7%

4.7%

11.4%

0

0

0

0

0

0

-100

-100

$0.65

100,000- 249,999

37

4,995,700

0

470,700

0.9%

0.9%

0.9%

0

0

0

0

0

0

0

0

$0.85

250,000 - 499,999

8

2,460,400

0

0

0.0%

0.0%

0.0%

0

0

0

0

0

0

0

0

N/A

500,000+

5

3,905,800

0

0

0.0%

0.0%

0.0%

0

0

0

0

0

0

0

0

N/A

Subtotal

1055

34,443,300

0

470,700

0.8%

0.8%

2.1%

33,000

1

93,400

7

126,400

126,400

-23,600

-23,600

$0.81

10,000 - 19,999

1921

26,542,600

15,200

0

0.7%

0.6%

1.4%

30,000

2

138,900

9

168,900

168,900

-31,900

-31,900

$0.95

20,000 - 39,999

1416

38,687,800

0

30,500

1.0%

1.2%

2.7%

186,400

6

278,800

12

465,200

465,200

55,700

55,700

$0.90 $0.79

MARKET TOTAL

40,000 - 69,999

667

34,145,500

0

0

0.7%

0.7%

2.0%

96,000

2

281,800

9

377,800

377,800

-12,300

-12,300

70,000 - 99,999

280

22,918,500

0

41,100

1.1%

1.3%

3.1%

0

0

235,000

9

235,000

235,000

51,200

51,200

$0.79

100,000- 249,999

385

56,104,120

0

921,300

0.9%

0.7%

2.8%

0

0

970,000

11

970,000

970,000

-140,700

-140,700

$0.79

250,000 - 499,999

63

20,290,100

0

0

0.6%

3.3%

1.4%

0

0

821,300

3

821,300

821,300

535,500

535,500

$0.78

500,000+

19

14,600,800

0

512,500

0.0%

0.0%

0.0%

0

0

0

0

0

0

0

0

N/A

4751

213,289,400

15,200

1,505,400

0.8%

1.0%

2.2%

312,400

10

2,725,800

53

3,038,200

3,038,200

457,500

457,500

$0.78

Total

5

South Bay | INDUSTRIAL

Q1 2017

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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