/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.
396 offices in 68 countries on 6 continents United States: 153 Canada: 29 Latin America: 24 Asia Pacific: 79 EMEA: 111
> $2.6 billion in annual revenue > 2.0 billion square feet under management > Over 15,000 professionals
UNITED STATES: South Bay Office License No. 01908231 2121 Rosecrans Ave, Suite 3301 El Segundo, CA 90245
JOHN HOLLINGSWORTH Executive Managing Director THOMAS GALVIN Research Analyst Research Services
TEL: +1 310 787 1000 FAX: +1 310 381 2500