Average asking lease rates increased $0.02 Per Square. Foot (PSF) Triple Net (NNN) to end at $0.70 PSF NNN, the highest
Research & Forecast Report
San Gabriel VALLEY | INDUSTRIAL Q3 2017
Accelerating success.
>> Rents Increase to Historic High Key Takeaways > Average asking lease rates increased $0.02 Per Square Foot (PSF) Triple Net (NNN) to end at $0.70 PSF NNN, the highest for the San Gabriel Valley. Rents have steadily increased as vacancy rates hit historic lows. > Vacancy rates decreased 40 basis points to 1.5% as new buildings finished construction. > Sales and leasing activity totaled 2,079,700 square feet (SF), which breaks down into 14 sales (733,600 SF) and 45 leases (1,346,100 SF). > Net absorption totaled 369,800 SF for the quarter, the 28th concecutive quarter of growing industrial demand. > A total of 1,772,300 SF remains under construction. The San Gabriel Valley is a tight infill market with few oportunities to develop additional industrial space.
Market Indicators | Relative to prior period Q3 2017
Forecast
Vacancy Net Absorption Construction Rental Rate
Summary Statistics | San Gabriel Valley, Q3 2017 Vacancy Rate
1.5% +40 BPS
Change from Q2 ‘17 (Basis Points) Net Absorption
369,800 SF
Construction Completions
0 SF
Under Construction
1,772,300 SF
Asking Rents | San Gabriel Valley, Q3 2017 San Gabriel Industrial Market
San Gabriel Valley Industrial Market The San Gabriel Valley consists of 31 cities and 400 square miles, with more than 1.8 million residents. International trade, especially with the Pacific Rim, continues to be a vital aspect of the growing economy. Rents in the San Gabriel Valley market have surpassed previous peaks.. Exceptionally low vacancy rates and rising rental rates lead many tenants to consider purchasing their real estate.
Average Asking Rent
$0.70 PSF NNN
Change from Q3 ‘16($)
+$0.04
Y.O.Y. Change (%)
+6.1%
Labor Force | Los Angeles County 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
San Gabriel Valley | INDUSTRIAL
> The vacancy rate increased 40 basis points to 1.5% as new buildings were brought to market.
Historical Vacancy v. Rents | San Gabriel Valley
Q3 ‘13-’17
RENTS
> Forecast: Future quarters will see more industrial space brought to market. It is expected this will have little impact on the vacancy rate as the San Gabriel Valley remains one of the most sought-after markets in all of the Los Angeles Basin.
$ PSF PER MONTH (NNN)
> Vacancy remained tightest in the San Gabriel submarket at 0.4% and highest in the Foothill Freeway submarket at 3.6%.
Absorption and Leasing Activity
VACANCY
0.8
8%
0.7
7%
0.6
6%
0.5
5%
0.4
4%
0.3
3%
0.2
2%
0.1
1%
0
> Industrial demand reported 369,800 SF of positive net absorption. Industrial demand has increased for 28 consecutive quarters. > Sales and leasing activity totaled 2,079,700 SF this quarter. A growing shortage of property for sale has limited the amount of net absorption that can take place.
% VACANT (TOTAL)
Vacancy
Q3 2017
0% 3Q13
3Q14
3Q15
3Q16
3Q17
Net Absorption by Submarket | San Gabriel Valley | Q3 ’17
> Forecast: Absorption will likely be higher in future quarters as recently completed buildings are occupied by the growing businesses in the region.
700,000
636,900
600,000 500,000 400,000
200,000
SF
Rental Rates
300,000
100,000 0
> Asking rents are highest ($0.76 PSF NNN) in the Foothill Freeway submarket and are lowest in the Industry submarket ($0.65 PSF). > Forecast: Rents have continued to press upward, blowing past their previous peak, and will continue to rise in future quarters. Tenants can expect to pay a premium for all types of industrial space and those who signed leases five years ago can expect rents to increase roughly 30% upon renewal. This is the primary reason why tenants in the San Gabriel Valley increasingly choose to own their properties and be insulated from fluctuating market conditions.
(7,000)
(100,000) (200,000) (300,000)
(260,100)
(400,000) FOOTHILL FREEWAY
SAN GABRIEL
INDUSTRY
Historical Sales & Leasing Activity | San Gabriel Valley | Q3 ‘13 - ‘17 3.5 3.0 2.5
SF (MILLIONS)
> Average asking rents increased $0.02 PSF NNN to $0.70 PSF NNN. Asking rents have hit their highest point and will continue to increase as long as market conditions remain favorable.
2.0 1.5 1.0 0.5 0.0 3Q13
2
3Q14
3Q15
3Q16
3Q17
San Gabriel Valley | INDUSTRIAL
Construction
Q3 2017
Historical Net Absorption & Construction Completions San Gabriel Valley | Q3 ‘13-’17
> Construction completed this quarter totaled 896,200 SF, while 1,772,300 SF of space remains under construction.
NET ABSORPTION
> Land remains at a premium, with developable industrial land topping $1.2 million per acre. Rising industrial rents and limited availability will lead to higher land prices in future quarters.
1.0 0.9 0.8 0.7 SF (MILLIONS)
> Forecast: As rental rates and sales prices continue to rise in the San Gabriel Valley, there is increased pressure to develop and reposition functionally obsolete industrial space.
CONSTRUCTION COMPLETIONS
0.6 0.5 0.4 0.3 0.2
Investment Trends
0.1 0.0 3Q13
> Capitalization rates continued to remain tight in Los Angeles County, averaging 5% in the third quarter of 2017. > Forecast: Investor focus on fully leased industrial assets has increased in prime infill locations.. Consequently, we expect more investment sales to occur in future quarters, driving up sales prices and further compressing cap rates.
3Q15
3Q16
3Q17
Investment Trends Chart
San Gabriel Valley | Q3 ‘13-’17 Average Price Per sf
Average Cap Rate
7.0%
$180 $160
6.0%
Outlook > Tight market conditions, limited development and rising industrial rents are expected to persist in the San Gabriel Valley industrial market. The surge in rents is prompting many users to consider buying their properties, however available inventory is insufficient to meet demand. New projects that completed this quarter will likely be leased or sold in short order, leading to further decreases in the vacancy rate. Market conditions will continue to remain tight as the major industrial drivers of the San Gabriel Valley—import/export businesses, food manufacturing and life sciences—continue to expand.
3Q14
$140 5.0%
$120
4.0%
$100
3.0%
$80 $60
2.0%
$40 1.0%
$20
0.0%
$0 3Q13
3Q14
3Q15
3Q16
3Q17
Unemployment Rate | San Gabriel Valley | 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
San Gabriel Valley | INDUSTRIAL
Market Description
Q3 2017
Submarket Map
The San Gabriel Valley industrial market comprises 157.0 million square feet, and represents 12 percent of the total industrial space in buildings measuring 10,000 square feet and greater within the Los Angeles Basin. It includes a mix of newer and older buildings, 54 percent of which were built in 1980 or later. Half (50.3%) of the total space is contained in big-box buildings measuring more than 100,000 square feet, with the balance (44.6%) in smallto medium-sized buildings. The area has a significant concentration of firms in the high-tech sector and import/ export-related businesses.
RECENT TRANSACTIONS & MAJOR DEVELOPMENTS San Gabriel Valley Industrial Market Q3 2017
SALES ACTIVITY PROPERTY ADDRESS
SIZE SF
SALE PRICE
PRICE PSF
BUYER
SELLER
341 Baldwin, Industry
165,700 SF
$20.9 Million
$126 PSF
GFP Everwest City of Industry
Shivom, LLC
462 Humane, Pomona
146,800 SF
$20.3 Million
$138 PSF
FH Global
Crow Holdings
2001 Mission, Pomona
96,800 SF
$13.8 Million
$143 PSF
Sixth Peninsula, LLC
PSIP Chi Pomona, LLC
330 Turnbull Canyon, Industry
75,000 SF
$11 Million
$147 PSF
Andrew Khun
Liu Company
PROPERTY ADDRESS
LEASED SF
LEASE TYPE
BLDG TYPE
LESSEE
LESSOR
15761 Tapia, Irwindale
206,600 SF
Expansion
Distribution
Blue Ridge Home Fashions
Clarion Partners
370 Turnbull, Industry
62,800 SF
Direct - New
Light
LLP Global, Inc.
Allfast Fastening System LLC
21760 Garcia, Industry
45,000 SF
Sublease
Distribution
Houser Logistics, Inc.
Industry East Land LLC
1177 Jellick, Industry
39,800 SF
Sublease
Distribution
JKGY, Inc.
Oltmans Construction
PROJECT
DEVELOPER
SIZE SF
SUBMARKET
STATUS
ESTIMATED COMPLETION
825 Ajax, City of Industry
Bridge Development
429,900 SF
Industry
Completed
Q3 2017
311 Aerojet, Azusa
CT Realty Investors
107,400 SF
Foothill Freeway
Completed
Q3 2017
12359 Lower Azusa, Arcadia
Yellow Iron
328,800 SF
Foothill Freeway
Under Construction
Q4 2017
LEASING ACTIVITY
MAJOR DEVELOPMENTS
4
San Gabriel Valley | INDUSTRIAL
Q3 2017
INDUSTRIAL OVERVIEW San Gabriel Valley INDUSTRIAL OVERVIEW
Q3 2017 San Gabriel Valley Industrial Market
Q4 2015
EXISTING PROPERTIES
Submarket/ Building Size
Bldgs
CONSTRUCTION
Total Inventory SF
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
SAN GABRIEL 10,000 - 19,999
452
6,021,900
0
0
0.2%
0.5%
1.2%
19,500
1
36,700
2
56,200
100,300
18,100
-14,900
$0.82
20,000 - 39,999
212
5,744,200
0
0
0.9%
0.9%
1.9%
30,500
1
35,600
2
66,100
103,000
-
36,800
$0.65
40,000 - 69,999
76
3,879,100
0
0
0.0%
0.0%
0.0%
-
-
17,900
1
17,900
17,900
-
0
$0.63
70,000 - 99,999
15
1,163,800
0
0
2.2%
0.0%
2.2%
-
-
-
-
40,700
122,100
(25,100)
81,300
0.62
100,000- 249,999
17
2,549,500
0
0
0.0%
0.0%
6.4%
-
-
-
-
-
178,900
-
164,300
N/A
250,000 - 499,999
3
1,006,000
0
0
0.0%
0.0%
0.0%
-
-
-
-
-
0
-
0
N/A
500,000+
1
800,000
0
0
0.0%
0.0%
0.0%
-
-
-
-
-
0
-
0
N/A
776
21,164,500
0
0
0.4%
0.4%
1.7%
50,000
2
90,200
5
140,200
481,500
(7,000)
267,500
$0.72
$0.80
Subtotal
FOOTHILL FREEWAY 10,000 - 19,999
408
5,613,600
0
0
0.2%
0.8%
0.9%
-
-
40,200
3
40,200
99,100
29,700
43,900
20,000 - 39,999
208
5,487,200
30,600
0
1.5%
1.1%
5.7%
26,700
1
35,900
1
62,600
128,500
9,100
54,600
$0.75
40,000 - 69,999
87
4,327,300
47,300
0
3.2%
1.4%
4.3%
-
-
11,700
1
11,700
64,500
(30,500)
-89,100
$0.72
70,000 - 99,999
21
1,722,200
0
0
4.2%
0.0%
4.2%
-
-
-
-
-
211,900
(72,400)
42,900
N/A
100,000- 249,999
23
2,822,700
107,400
351,100
17.2%
6.8%
20.7%
-
-
-
-
-
22,100
(196,000)
-243,300
$0.69
250,000 - 499,999
6
1,706,100
0
328,800
0.0%
0.0%
0.0%
-
-
-
-
-
84,200
-
0
N/A
500,000+
0
0
0
0
-
-
-
-
-
-
-
-
0
-
0
N/A
753
21,679,100
185,300
679,900
3.6%
1.6%
5.6%
26,700
1
87,800
5
114,500
610,300
(260,100)
-191,000
$0.76
Subtotal INDUSTRY 10,000 - 19,999
798
11,198,300
0
0
0.3%
0.1%
1.1%
17,800
1
43,900
3
61,700
372,000
(12,600)
21,200
$0.75
20,000 - 39,999
553
15,298,300
95,400
162,200
0.8%
0.8%
2.2%
62,000
2
150,600
9
212,600
635,200
49,800
233,600
$0.78
40,000 - 69,999
304
15,815,600
185,700
195,000
2.8%
2.6%
5.1%
258,000
5
149,500
6
407,500
901,400
175,900
334,400
$0.73
70,000 - 99,999
127
10,623,800
0
72,300
2.0%
1.6%
4.8%
172,300
2
130,000
5
302,300
882,700
(6,400)
74,600
$0.73
100,000- 249,999
226
31,656,000
0
662,900
0.5%
1.8%
2.6%
146,800
1
665,300
11
812,100
1,912,600
430,200
114,700
$0.61
250,000 - 499,999
59
18,720,100
429,800
0
2.3%
0.0%
3.9%
-
-
28,800
1
28,800
44,300
-
0
$0.55
500,000+
16
10,971,100
0
0
0.0%
0.0%
4.4%
-
-
-
-
-
0
-
0
$0.42
2083
114,283,200
710,900
1,092,400
1.2%
1.2%
3.3%
656,900
11
1,168,100
35
1,825,000
4,748,200
636,900
778,500
$0.65
10,000 - 19,999
1658
22,833,800
0
0
0.2%
0.4%
1.1%
37,300
2
120,800
8
158,100
571,400
35,200
50,200
$0.80
20,000 - 39,999
973
26,529,700
126,000
162,200
1.0%
0.9%
3.2%
119,200
4
222,100
12
341,300
866,700
58,900
325,000
$0.79
40,000 - 69,999
467
24,022,000
233,000
195,000
2.4%
2.0%
2.7%
258,000
5
179,100
8
437,100
983,800
145,400
245,300
$0.75
Subtotal MARKET TOTAL
70,000 - 99,999
163
13,509,800
0
72,300
2.3%
1.3%
5.2%
172,300
2
130,000
5
343,000
1,216,700
(103,900)
198,800
$0.72
100,000- 249,999
266
37,028,200
107,400
1,014,000
1.8%
2.0%
4.2%
146,800
1
665,300
11
812,100
2,113,600
234,200
35,700
$0.65
250,000 - 499,999
68
21,432,200
429,800
328,800
2.0%
0.0%
6.2%
-
-
28,800
1
28,800
128,500
-
-
$0.57
500,000+
17
11,771,100
0
0
0.0%
0.0%
4.1%
-
-
-
-
-
-
-
-
$0.55
3612
157,126,800
896,200
1,772,300
1.5%
1.1%
3.4%
733,600
14
1,346,100
45
2,079,700
5,840,000
369,800
855,000
$0.70
Totals
5
San Gabriel Valley | 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: San Gabriel Valley Office License No. 01908231 17800 Castleton, Suite 495 City of Industry, Ca 91748
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: +1 909 605 9400 FAX: +1 909 937 6330
