Rents Rise & Vacancy Remains Flat. Research &. Forecast Report. Accelerating success. Key Takeaways. > Averag
Research & Forecast Report
San Gabriel VALLEY | INDUSTRIAL Q3 2016
Accelerating success.
>> Rents Rise & Vacancy Remains Flat Key Takeaways
Market Indicators | Relative to prior period
> Average asking rents increased $0.02 PSF NNN over the quarter to end at $0.66 PSF NNN. Rents have surpassed their previous cycle peak of $0.62 PSF NNN reached in late 2008.
Vacancy
> Vacancy remained steady at 1.3% despite the addition of 323,000 SF of new supply. Tight market conditions continue to limit expansion opportunities for firms in the region.
Rental Rate
> Sales and leasing activity totaled 2,269,000 SF, broken out into 21 sales (838,700 SF) and 33 leases (1,430,300 SF). > Net absorption totaled 234,200. We expect net absorption to be higher in future quarters as the recently completed space is absorbed. > There remains only 813,200 SF of space under construction as we reach the tail end of the recent construction boom that has taken place over the last two years in the San Gabriel Valley industrial market.
Q3 2016
Forecast
Net Absorption Construction
Summary Statistics | San Gabriel Valley, Q3 2016 Vacancy Rate
1.3% 00 BPS
Change from Q2 ‘16 (Basis Points) Net Absorption
234,200 SF
Construction Completions
323,000 SF
Under Construction
813,200 SF
Asking Rents | San Gabriel Valley, Q3 2016 San Gabriel Industrial Market
San Gabriel Valley Industrial Market
Average Asking Rent
$0.66 PSF NNN
Change from Q2 ‘16
+$0.02
($)
The San Gabriel Valley market has surpassed the previous market peak in terms of rents and vacancy. Exceptionally low vacancy rates and rising rental rates are leading many tenants to consider purchasing their real estate.
Y.O.Y. Change (%)
+27%
Labor Force | Los Angeles County Q3 2016 Construction
Manufacturing
Transportation, Trade & Utilities
12-mo Employment Growth (%)
-0.3%
-1.8%
1.0%
12-mo Actual Employment Change
-400
-6,400
+8,100
San Gabriel Valley | INDUSTRIAL
> The vacancy rate has remained unchanged at 1.3%; the all time low for this market.
Historical Vacancy v. Rents | San Gabriel Valley
Q3 ‘12-’16
RENTS
> Forecast: This quarter saw the completion of 323,000 SF of vacant space and next quarter will see the addition of 429,800 SF. 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 remains tightest in the Industry sub market at 1.0% and highest in the San Gabriel market at 2.2%.
VACANCY
$0.70
8%
$0.60
7% 6%
$0.50
5%
$0.40
4% $0.30
3%
$0.20
2%
$0.10
Absorption and Leasing Activity
1%
$0.00
0% 3Q12
> Sales and leasing activity totaled 2,269,000 SF this quarter. There is a growing lack of property for sale, limiting the amount of net absorption that can take place.
> Average asking rents increased $0.02 PSF NNN over the quarter to end at $0.66 PSF NNN. Asking rents have hit their highest point and will continue to increase as market conditions remain favorable. > Asking rents are highest ($0.75 PSF NNN) in the infill sub market of San Gabriel, which mostly includes smaller industrial buildings. Rents are lowest in the Industry sub market ($0.63 PSF) which accounts for over 70% of the industrial space in the San Gabriel Valley. > 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 5 years ago can expect to their rent to increase roughly 50% upon renewal. This is one reason why tenants in the San Gabriel Valley chose to own their property and be insulated from fluctuating market conditions.
3Q14
3Q15
3Q16
Q3 ’16
250,000
> Forecast: Absorption will likely be higher in future quarters as recently completed buildings are absorbed by the growing businesses in the region.
197,900
200,000
150,000
SF
Rental Rates
3Q13
Net Absorption by Submarket | San Gabriel Valley |
100,000
65,500
50,000
0
(50,000)
(29,200) FOOTHILL FREEWAY
SAN GABRIEL
INDUSTRY
Historical Sales & Leasing Activity | San Gabriel Valley | Q3 ‘12 - ‘16 3.5 3.0 2.5
SF (MILLIONS)
> Industrial demand reported 234,200 SF of positive net absorption. Industrial demand has increased for the previous 28 consecutive quarters.
% VACANT (TOTAL)
Vacancy
Q3 2016
2.0 1.5 1.0 0.5 0.0 3Q12
2
3Q13
3Q14
3Q15
3Q16
San Gabriel Valley | INDUSTRIAL
Construction
Q3 2016
Historical Net Absorption & Construction Completions San Gabriel Valley | Q3 ‘12-’16
> There was 323,000 SF of space completed this quarter in two projects. The remaining 813,200 SF of space under construction will be completed within the next 12 months.
> 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
1.0 0.8 SF (MILLIONS)
> Land remains at a premium, with industrial developable land topping over 1.2 million an acre. Rising industrial rents and limited availability will lead to higher land prices in future quarters.
NET ABSORPTION
1.2
0.6 0.4 0.2
Investment Trends > Cap rates have continued to remain tight in Los Angeles County, averaging 5.8% in Q2 2016, significantly lower then the US average of 6.8%.
0.0 3Q12
3Q13
3Q14
3Q16
Investment Trends Chart
San Gabriel Valley | Q3 ‘12-’16 Average Price Per sf
> Forecast: There has been increased investor focus on fully leased industrial assets in prime infill locations. As such, we expect more investment sales to occur in future quarters driving up sales prices and futher compressing cap rates.
Average Cap Rate
8.0%
$180
7.0%
$160 $140
6.0%
$120
5.0%
$100
4.0%
Outlook > Tight market conditions, limited development and rising industrial rents are expected to persist in the San Gabriel Valley industrial marketplace. The surge in rents is prompting many users to consider buying their properties, however the 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.
3Q15
$80
3.0%
$60
2.0%
$40
1.0%
$20
0.0%
$0 3Q12
3Q13
3Q14
3Q15
3Q16
Unemployment Rate | San Gabriel Valley | August 2016 5.6%
5.5%
5.4% 5.2% 5.0%
4.9%
4.9%
4.8% 4.6% 4.4% United States
3
California
Los Angeles County
San Gabriel Valley | INDUSTRIAL
Market Description
Q3 2016
Submarket Map
The San Gabriel Valley industrial market comprises 156.8 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 over 100,000 square feet, with the balance (49.7%) in small to 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 2016
SALES ACTIVITY PROPERTY ADDRESS
SIZE SF
SALE PRICE
PRICE PSF
BUYER
SELLER
17380 Railroad, City of Industry
102,600 SF
$14.1 Million
$137 PSF
Spire Properties LLC
Kerri Spreck
4411 Rowland, El Monte
50,000 SF
$5.2 Million
$104 PSF
Keith Thai
Dan Stathatos
124 Sunset, City of Industry
21,500 SF
$3.05 Million
$142 PSF
Lucky Apollo JR LLC
CEG Construction
3192 Factory, Pomona
16,900 SF
$2.4 Million
$142 PSF
Refresh Ideas, LLC
Diane Hannegan
PROPERTY ADDRESS
LEASED SF
LEASE TYPE
BLDG TYPE
LESSEE
LESSOR
18945 San Jose, City of Industry
150,000 SF
Direct - New
Distribution
BestOn Shoes
Majestic Realty Co.
1601 Mission, Pomona
147,500 SF
Direct - New
Distribution
HD Supply
ProLogis
350 Cheryl, City of Industry
32,500 Sf
Direct - New
Distribution
Veritas Global LLC
Haitao Group LLC
19888 Quiroz, City of Industry
31,000 SF
Direct - New
Light
American Contact Furniture
Shea Properties
PROJECT
DEVELOPER
SIZE SF
SUBMARKET
STATUS
ESTIMATED COMPLETION
1589 9th, Pomona
Oakmont
197,700 SF
Industry
Completed
Q3 2016
15000 Nelson, City of Industry
Dedeaux Properties
125,500 SF
Industry
Completed
Q3 2016
LEASING ACTIVITY
MAJOR DEVELOPMENTS
4
San Gabriel Valley | INDUSTRIAL
Q3 2016
INDUSTRIAL OVERVIEW San Gabriel Valley INDUSTRIAL OVERVIEW
Q3 2016 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
0.4%
0.2%
0.4%
11,800
1
21,600
2
33,400
89,600
(15,500)
-15,500
$0.71
20,000 - 39,999
212
5,744,200
0
0
1.5%
0.8%
3.0%
-
-
-
-
-
13,400
(43,600)
-70,000
$0.68
40,000 - 69,999
76
3,879,100
0
0
0.0%
1.4%
0.0%
102,400
2
-
-
102,400
179,800
55,400
79,500
$0.63
70,000 - 99,999
15
1,163,800
0
0
6.3%
12.2%
12.5%
66,200
1
-
-
40,700
122,100
69,200
66,200
0.71
100,000- 249,999
17
2,549,500
0
0
10.6%
16.1%
10.6%
139,200
1
-
-
139,208
139,208
-
0
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
2.2%
3.1%
2.9%
319,600
5
21,600
2
341,200
488,200
65,500
60,200
$0.75
Subtotal
FOOTHILL FREEWAY 10,000 - 19,999
409
5,624,100
0
0
0.8%
1.1%
2.1%
43,500
3
17,200
1
60,700
210,200
16,800
3,100
$0.75
20,000 - 39,999
209
5,505,100
0
0
1.1%
0.4%
3.1%
21,100
1
55,000
2
76,100
191,500
(38,100)
34,200
$0.74 $0.69
40,000 - 69,999
87
4,324,700
0
0
1.1%
0.0%
2.4%
-
-
-
-
-
0
(49,200)
-49,200
70,000 - 99,999
20
1,629,800
0
0
0.0%
2.5%
0.0%
-
-
28,900
1
28,900
28,900
41,300
0
N/A
100,000- 249,999
22
3,029,100
0
0
7.5%
7.5%
7.5%
-
-
-
-
-
49,800
-
-71,400
$0.65
250,000 - 499,999
5
1,706,100
0
0
0.0%
0.0%
0.0%
-
-
-
-
-
380,000
-
380,000
N/A
500,000+
0
0
0
0
0.0%
0.0%
0.0%
-
-
-
-
-
0
-
0
N/A
752
21,818,900
0
0
1.8%
1.6%
2.8%
64,600
4
101,100
4
165,700
860,400
(29,200)
296,700
$0.72
10,000 - 19,999
806
11,288,000
0
0
0.5%
1.1%
2.3%
97,200
6
79,600
5
176,800
374,000
67,900
14,700
$0.73
20,000 - 39,999
546
15,216,400
125,300
0
1.6%
0.8%
3.7%
74,000
3
97,400
4
171,400
614,100
3,200
217,100
$0.78
Subtotal INDUSTRY
40,000 - 69,999
297
15,635,900
0
55,200
1.5%
1.6%
6.3%
44,900
1
155,900
6
200,800
666,800
19,200
140,500
$0.72
70,000 - 99,999
127
10,532,000
0
181,400
0.0%
0.0%
4.1%
-
-
135,800
3
135,800
712,700
-
69,600
$0.66 $0.64
100,000- 249,999
225
31,890,000
197,700
146,800
1.5%
0.6%
3.3%
238,400
2
450,300
4
688,700
1,833,300
(96,100)
72,200
250,000 - 499,999
59
18,273,100
0
429,800
0.6%
0.9%
1.6%
-
-
241,100
4
241,100
241,100
56,200
-112,500
$0.59
500,000+
16
10,971,100
0
0
0.0%
1.3%
0.3%
-
-
147,500
1
147,500
247,500
147,500
247,500
$0.42
2076
113,806,500
323,000
813,200
1.0%
0.9%
3.2%
454,500
12
1,307,600
27
1,762,100
4,689,500
197,900
649,100
$0.63
10,000 - 19,999
1667
22,934,000
0
0
0.5%
0.8%
1.7%
152,500
10
118,400
8
270,900
673,800
69,200
2,300
$0.75
20,000 - 39,999
967
26,465,700
125,300
0
1.5%
0.8%
3.8%
95,100
4
152,400
6
247,500
819,000
(78,500)
181,300
$0.77
40,000 - 69,999
460
23,839,700
0
55,200
1.2%
0.8%
2.9%
147,300
3
155,900
6
303,200
846,600
25,400
170,800
$0.75
Subtotal MARKET TOTAL
70,000 - 99,999
162
13,325,600
0
181,400
0.5%
1.6%
4.9%
66,200
1
164,700
4
205,400
863,700
110,500
135,800
$0.71
100,000- 249,999
264
37,468,600
197,700
146,800
2.6%
2.2%
4.2%
377,600
3
450,300
4
827,908
2,022,300
(96,100)
800
$0.59
250,000 - 499,999
67
20,985,200
0
429,800
0.5%
1.4%
2.6%
-
-
241,100
4
241,100
621,100
56,200
267,500
$0.60
500,000+
17
11,771,100
0
0
0.0%
1.3%
0.3%
-
-
147,500
1
147,500
247,500
147,500
247,500
$0.50
3604
156,789,900
323,000
813,200
1.3%
1.3%
3.1%
838,700
21
1,430,300
33
2,269,008
6,038,100
234,200
1,006,000
$0.66
Totals
5
San Gabriel Valley | INDUSTRIAL
Q3 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.
554 offices in 66 countries United States: 153 Canada: 34 Latin America: 24 Asia Pacific: 231 EMEA: 112
> $2.5 billion in annual revenue > 2.0 billion square feet under management > Over 16,100 professionals
UNITED STATES: San Gabriel Valley Office License No. 01908231 17800 Castleton, Suite 495 City of Industry, Ca 91748
JOHN HOLLINGSWORTH Executive Managing Director THOMAS GALVIN Research Analyst Research Services
TEL: +1 909 605 9400 FAX: +1 909 937 6330
