Chris Shepard. LeaSING actIVIty. PRoPeRty aDDReSS. LeaSeD SF ..... Greater Los Angeles. THOMAS GALVIN. Research Analyst.
Research & Forecast Report
South Bay | INDUSTRIAL Q3 2017
Accelerating success.
>> Industrial Rents Continue Upward Key Takeaways
Market Indicators | Relative to prior period
> Industrial rents increased $0.02 per square foot (PSF) triple net (NNN) over the quarter to $0.81. Rents increased 9.4% over the last 12 months and are at their highest point ever.
Vacancy
> Net absorption was 11,300 square foot (SF) this quarter, essentially flat. Future quarters will likely see positive absorption as new buildings are leased.
Rental Rate
> Sales and leasing activity totaled 1,741,500 SF, which breaks down into eight sales (196,700 SF) and 43 leases (1,544,800 SF). > New space totaling 776,500 SF is currently under construction and will finish in the next 12 months. > Vacancy increased 20 basis points on vacant construction completions this quarter but still remained near historic lows.
South Bay Industrial Market
Q3 2017
Forecast
Net Absorption Construction
Summary Statistics | South Bay, Q3 2017 Vacancy Rate
1.0% 20 BPS
Change from Q2 ‘17 (Basis Points) Net Absorption
11,300 SF
Construction Completions
478,100 SF
Asking Rents | South Bay, Q3 2017 South Bay Industrial Market Average Asking Rent
South Bay remains the premier market for distribution companies and cargo-centered sea-and-air 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.
$0.81 PSF NNN
Change from Q2 ‘16
+$0.07 PSF NNN
Y.O.Y. Change (%)
+9.4%
Labor Force | South Bay, Q3 2017
12-mo Employment Growth (%) 12-mo Actual Employment Change
Construction
Manufacturing
Transportation, Trade & Utilities
8.1%
-0.8%
-0.7%
+11,000
-2,800
-6,200
South Bay | INDUSTRIAL
Historical Vacancy v. Rents | South Bay | Q3 ‘13-’17
> The vacancy rate rose 20 basis points to 1.0% and remains near historic lows.
RENTS
0.85
> Vacancy was tightest in the LAX/El Segundo/Hawthorne submarket at 0.4% and highest in the Torrance market at 1.3%
Absorption and Leasing Activity
4%
0.8
$PSF PER MONTH (NNN)
> Forecast: New supply may bring some relief for vacancy rates. Vacancy may increase as 977,500 SF of space under construction is brought to market.
VACANCY
0.75
3%
0.7 0.65
2%
0.6 0.55
% VACANT (TOTAL)
Vacancy
Q3 2017
1%
0.5
> Industrial demand reported 11,300 SF of positive net absorption this quarter and 890,700 SF for the year to date.
3Q14
3Q15
3Q17
Net Absorption by Submarket | South Bay | Q3 ’17
150,000
124,400
100,000 50,000
9,900
26,800
0
SF
Rental Rates
3Q16
LB/HARBOR CITIES
> 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.
0% 3Q13
GARDENA/HARBOR FWY
> Sales and leasing activity totaled 1,741,500 SF this quarter. This was broke down into eight sales (196,700 SF) and 43 leases (1,544,800 SF).
0.45
(12,700)
(50,000) (100,000) (150,000)
(137,100)
> 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 five years ago can expect to their rents to increase roughly 45% upon renewal.
CARSON/COMPTON/RD
> 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.
LAX/ES/HAWTHORNE
(200,000)
TORRANCE
> Average asking rents increased $0.02 PSF NNN over the quarter to end at $0.81. Asking rents reached their highest levels ever and will continue to rise.
Historical Leasing Activity | South Bay | Q3 ‘13 - ‘17
5000000
4000000
SF
3000000
2000000
1000000
0 3Q13
2
3Q14
3Q15
3Q16
3Q17
South Bay | INDUSTRIAL
Construction
Q3 2017
Historical Net Absorption & Construction Completions South Bay | Q3 ‘13-’17
> New supply this quarter totaled 277,100 SF across multiple projects.
NET ABSORPTION
> Only 977,500 SF of space remains under construction, an incredibly small amount for a 212.5 million SF industrial market.
> Forecast: We are at the tail end of a construction boom, and new supply will trickle in for the rest of 2017. Development will continue to be limited to build-to-suit projects or creative rehabilitation of underperforming space.
2500000 2000000
SF
> Development is exceedingly difficult in the South Bay, where raw land, if available, sells for a premium.
CONSTRUCTION COMPLETIONS
3000000
1500000 1000000 500000 0 3Q13
Investment Trends > Capitalization rates remained tight in Los Angeles County, averaging 5% in the third quarter of 2017.
3Q14
3Q15
3Q16
3Q17
Investment Trends Chart
Los Angeles County | Q3 ‘13-’17
> Class A product in the South Bay traded at a lower cap rate than the Los Angeles County average near 4%, while Class B product was in the low 5% range.
Average Price Per sf
Average Cap Rate
7.0%
$180 $160
6.0%
> Forecast: Investor focus on fully leased industrial assets has increased in prime infill locations.. Consequently, we expect further demand to drive up sales prices, further compressing cap rates.
$140 5.0%
$120
4.0%
$100
3.0%
$80 $60
2.0%
Outlook
$40 1.0%
$20
0.0%
> Tight market conditions are expected to persist in the South Bay industrial market 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.
$0 3Q13
3Q14
3Q15
3Q16
3Q17
Unemployment Rate | Los Angeles County | August 2017 4.8%
4.7%
4.7% 4.6% 4.5%
4.4%
4.4% 4.3% 4.2% 4.1%
4.1%
4.0% 3.9% 3.8%
3
United States
California
Los Angeles County
South Bay | INDUSTRIAL
Q3 2017
Market Description
Submarket Map
The South Bay industrial market includes 212.3 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, as well as 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 buildings (100,000 SF+) and the balance (55%) in small- and medium-sized buildings.
RECENT TRANSACTIONS & MAJOR DEVELOPMENTS South Bay Industrial Market Q3 2017
SALES ACTIVITY PROPERTY ADDRESS
SIZE SF
SALE PRICE
PRICE PSF
BUYER
SELLER
2301 Pacifica, Rancho Dominguez
1,170,800 SF
$210.5 Million
$180 PSF
Rexford Industrial
CBRE Global Investors
1700 El Segundo, Gardena
42,100 SF
$10.2 Million
$245 PSF
Thunderbird Valley LTD
Garbo Holdings LLC
17171 Western, Gardena
12,500 SF
$2.2 Million
$180 PSF
Natalie Kwon
South Bay Appliance
1208 Gaviota, Long Beach
20,000 SF
$2.2 Million
$112 PSF
James Kao
Chris Shepard
PROPERTY ADDRESS
LEASED SF
LEASE TYPE
BLDG TYPE
LESSEE
LESSOR
20100 Alameda, Compton
222,000 SF
Sublease
Distribution
Simmons Mattress
Ronald Bloom
2130 Del Amo, Carson
54,000 SF
Direct New
Light
Shoes West
IDI Gazeley
15902 Main, Gardena
53,000 SF
Direct New
Light
Marmoa Group
Fontana Sierra Corp.
40000 Redondo Beach, Redondo Beach
41,300 SF
Sublease
Distribution
Doe and Go
AEW Capital Management
PROJECT
DEVELOPER
SIZE SF
SUBMARKET
STATUS
ESTIMATED COMPLETION
20333 Normandie, Torrance
Bridge Development
512,500 SF
Torrance
Under Construction
Q2 2018
11600 Alameda, Lynwood
Duke Realty
201,000 SF
Carson / Compton / RD
Under Construction
Q4 2017
1420 McKinley, Compton
Prism Realty
136,700 SF
Carson / Compton / RD
Completed
Q3 2017
LEASING ACTIVITY
MAJOR DEVELOPMENTS
4
South Bay | INDUSTRIAL
Q3 2017
INDUSTRIAL OVERVIEW South Bay Industrial Market Q3 2017
EXISTING PROPERTIES Submarket/ Building Size
Bldgs
CONSTRUCTION
Total Inventory SF
VACANCY
Completions Under Current Qtr Construction Vacancy SF SF
AVAILABILITY
Vacancy Prior Qtr
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
383
5,250,700
0
0
0.2%
0.3%
0.8%
0
0
44,600
3
44,600
96,300
700
27,000
20,000 - 39,999
281
7,746,500
0
0
1.9%
0.9%
4.1%
0
0
54,600
3
54,600
231,900
-75,800
-53,800
$1.20 $1.15
40,000 - 69,999
93
4,824,300
0
0
0.0%
0.0%
3.6%
0
0
11,900
1
11,900
79,100
0
20,100
$1.10
70,000 - 99,999
38
3,032,200
0
0
0.0%
0.7%
2.1%
0
0
21,100
1
21,100
21,100
21,100
0
$1.10
100,000- 249,999
35
5,431,600
0
0
0.0%
0.0%
0.0%
0
0
0
0
0
210,300
0
149,000
N/A
250,000 - 499,999
8
2,664,000
0
0
0.0%
1.5%
0.0%
0
0
63,200
2
63,200
134,400
41,300
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
845
35,997,900
0
0
0.4%
0.4%
1.6%
0
0
195,400
10
195,400
773,100
-12,700
213,500
$1.17
$0.80
GARDENA/HARBOR FWY 10,000 - 19,999
511
7,115,900
0
0
0.3%
0.2%
2.1%
72,300
5
13,100
1
85,400
186,900
-10,200
22,900
20,000 - 39,999
308
8,166,000
0
147,100
0.9%
0.6%
4.1%
0
0
70,000
4
70,000
124,800
-22,000
-5,500
$0.79
40,000 - 69,999
167
8,492,900
0
0
0.5%
1.0%
4.1%
40,000
1
40,700
1
80,700
228,800
42,100
42,100
$0.80
70,000 - 99,999
46
3,760,400
0
41,100
0.0%
0.0%
2.5%
0
0
20,200
1
20,200
50,100
0
0
N/A
100,000- 249,999
41
5,498,300
0
0
2.4%
2.4%
3.3%
0
0
272,600
2
272,600
473,800
0
-28,900
$0.63 N/A
250,000 - 499,999
1
256,000
0
0
0.0%
0.0%
0.0%
0
0
0
0
0
0
0
0
500,000+
0
0
0
0
0.0%
0.0%
0.0%
0
0
0
0
0
0
0
0
N/A
Subtotal
1074
33,289,500
0
188,200
0.8%
0.8%
3.3%
112,300
6
416,600
9
528,900
1,064,400
9,900
30,600
$0.69
TORRANCE 10,000 - 19,999
202
2,739,000
0
0
0.4%
0.4%
1.2%
0
0
0
0
0
0
0
-11,200
$0.85
20,000 - 39,999
173
4,854,800
0
0
4.2%
4.2%
4.5%
26,700
1
59,900
2
86,600
223,400
0
3,400
$0.76
40,000 - 69,999
76
3,837,800
0
0
3.6%
0.0%
3.6%
0
0
0
0
0
24,700
-137,100
-112,400
$0.75
70,000 - 99,999
34
2,778,000
0
0
0.0%
0.0%
3.0%
0
0
0
0
0
36,300
0
31,500
$0.75
100,000- 249,999
47
6,420,400
0
0
0.0%
0.0%
1.8%
0
0
12,600
1
12,600
283,800
0
38,400
$0.91
250,000 - 499,999
14
4,883,300
0
0
0.0%
0.0%
8.0%
0
0
0
0
0
156,800
0
0
$0.72
500,000+
4
1,914,200
0
512,500
0.0%
0.0%
0.0%
0
0
0
0
0
0
0
0
N/A
Subtotal
550
27,427,500
0
512,500
1.3%
0.8%
3.6%
26,700
1
72,500
3
99,200
725,000
-137,100
-50,300
$0.80
$0.89
CARSON/COMPTON/RD 10,000 - 19,999
256
3,585,200
0
0
0.3%
0.0%
1.9%
0
0
17,900
1
17,900
83,500
-10,600
2,800
20,000 - 39,999
330
9,349,200
0
0
0.3%
0.0%
2.3%
0
0
75,900
4
75,900
399,300
-30,000
32,000
$0.75
40,000 - 69,999
235
12,245,300
0
0
0.5%
1.2%
2.7%
57,700
1
32,800
1
90,500
545,800
90,500
48,300
$0.76
70,000 - 99,999
132
10,876,500
0
0
1.7%
1.7%
3.5%
0
0
71,800
1
71,800
405,200
0
-34,500
$0.65
100,000- 249,999
222
33,745,400
136,700
201,000
1.5%
1.3%
4.2%
0
0
319,500
3
319,500
1,716,500
74,500
42,500
$0.82
250,000 - 499,999
32
10,196,700
0
0
0.0%
0.0%
0.6%
0
0
130,000
1
130,000
880,100
0
464,300
$0.78
500,000+
2
1,047,300
0
0
13.9%
1.4%
13.9%
0
0
0
0
0
0
0
-145,200
$0.69
Subtotal
1209
81,045,600
136,700
201,000
1.2%
1.1%
3.2%
57,700
1
647,900
11
705,600
4,030,400
124,400
410,200
$0.75
LB/HARBOR CITIES 10,000 - 19,999
563
7,764,700
0
0
0.6%
0.9%
2.3%
0
0
41,400
3
41,400
148,700
17,600
16,600
$0.81
20,000 - 39,999
316
8,302,400
0
32,000
0.5%
0.9%
3.7%
0
0
92,000
5
92,000
209,600
36,300
-10,900
$0.76
40,000 - 69,999
93
4,567,500
0
43,800
1.2%
0.9%
2.3%
0
0
0
0
0
20,000
-15,000
-37,000
$0.65
70,000 - 99,999
28
2,287,300
0
0
0.5%
0.0%
2.5%
0
0
54,000
1
54,000
152,500
-12,100
-12,200
$0.83
100,000- 249,999
37
5,466,400
140,400
0
3.4%
0.8%
3.4%
0
0
25,000
1
25,000
355,200
0
330,200
$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
1050
34,754,500
140,400
75,800
1.0%
0.7%
2.4%
0
0
212,400
10
212,400
886,000
26,800
286,700
$0.83
10,000 - 19,999
1915
26,455,500
0
0
0.4%
0.4%
1.8%
72,300
5
117,000
8
189,300
515,400
-2,500
58,100
$0.92
20,000 - 39,999
1408
38,418,900
0
179,100
1.3%
1.0%
3.6%
26,700
1
352,400
18
379,100
1,189,000
-91,500
-34,800
$0.88
MARKET TOTAL
40,000 - 69,999
664
33,967,800
0
43,800
0.9%
0.8%
3.2%
97,700
2
85,400
3
183,100
898,400
-19,500
-38,900
$0.85
70,000 - 99,999
278
22,734,400
0
41,100
0.9%
0.9%
3.0%
0
0
167,100
4
167,100
665,200
9,000
-15,200
$0.80
100,000- 249,999
382
56,562,100
277,100
201,000
1.4%
1.1%
3.3%
0
0
629,700
7
629,700
3,039,600
74,500
531,200
$0.81
250,000 - 499,999
63
20,460,400
0
0
0.0%
0.2%
2.2%
0
0
193,200
3
193,200
1,171,300
41,300
535,500
$0.79
13,915,900
0
500,000+ Total
5
18 4728
212,515,000 277,100
512,500
1.0%
1.0%
1.0%
0
0
0
0
0
0
0
-145,200
$0.69
977,500
1.0%
0.8%
2.9%
196,700
8
1,544,800
43
1,741,500
7,478,900
11,300
890,700
$0.81
South Bay | INDUSTRIAL
Q3 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.
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
> Over 15,000 professionals
UNITED STATES: South Bay Office License No. 01908231 2121 Rosecrans Ave, Suite 3301 El Segundo, CA 90245
HANS MUMPER
Executive Managing Director Greater Los Angeles
THOMAS GALVIN Research Analyst Research Services 6
> $2.6 billion in annual revenue > 2.0 billion square feet under management
TEL: +1 310 787 1000 FAX: +1 310 381 2500
