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Research & Forecast Report
San Gabriel VALLEY | INDUSTRIAL Q4 2017
Accelerating success.
>> 2017 Ends With Massive Absorption Key Takeaways > Net absorption totaled 938,200 SF for the quarter, the 29th concecutive quarter of growing industrial demand. This was due to fully occupied newly constructed buildings. > Average asking lease rates increased $0.02 per square foot (PSF) triple net (NNN) to end at $0.72, the highest for the San Gabriel Valley ever. Rents have steadily increased as vacancy rates hit historic lows. > Vacancy rates remained flat at 1.4%. > Sales and leasing activity totaled 2,212,600 square feet (SF), which breaks down into 11 sales (443,800 SF) and 23 leases (1,768,800 SF). > A total of 1,191,600 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 Q4 2017
Forecast
Vacancy Net Absorption Construction Rental Rate
Summary Statistics | San Gabriel Valley, Q4 2017 Vacancy Rate
1.4% +0 BPS
Change from Q3 ‘17 (Basis Points) Net Absorption
938,200 SF
Construction Completions
1,185,200 SF
Under Construction
1,191,600 SF
Asking Rents | San Gabriel Valley, Q4 2017 San Gabriel Industrial Market
San Gabriel Valley Industrial Market
Average Asking Rent
$0.72 PSF NNN +$0.05
Change from Q4 ‘16($)
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.
Y.O.Y. Change (%)
+7.5%
Labor Force | Los Angeles County Q4 2017
12-mo Employment Growth (%) 12-mo Actual Employment Change
Construction
Manufacturing
Transportation, Trade & Utilities
6.2%
-1.0%
-0.2%
+8,200
-3,500
-1,400
San Gabriel Valley | INDUSTRIAL
> The vacancy rate remained flat at 1.4% despite the addition of new buildings.
Historical Vacancy v. Rents | San Gabriel Valley
Q4 ‘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 0.7% and highest in the Foothill Freeway submarket at 3.1%.
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 938,200 SF of positive net absorption. Most of this was due to the addition of new industrial space in the Foothill Freeway submarket. Industrial demand has increased for 29 consecutive quarters. > Sales and leasing activity totaled 2,212,600 SF this quarter. > Forecast: Absorption will likely be higher in future quarters as recently completed buildings are occupied by the growing businesses in the region.
% VACANT (TOTAL)
Vacancy
Q4 2017
0% 4Q13
4Q14
4Q15
4Q16
4Q17
Net Absorption by Submarket | San Gabriel Valley | Q4 ’17
1,400,000 1,163,100
1,200,000 1,000,000
Rental Rates
800,000
SF
600,000
> Average asking rents increased $0.02 PSF NNN to $0.72. Asking rents have hit their highest point and will continue to increase as long as market conditions remain favorable. > Asking rents are highest ($0.77 PSF NNN) in the Foothill Freeway submarket and are lowest in the Industry submarket ($0.69 PSF NNN).
200,000 0 (58,800)
(200,000)
(166,100)
(400,000) FOOTHILL FREEWAY
SAN GABRIEL
INDUSTRY
Historical Sales & Leasing Activity | San Gabriel Valley | Q4 ‘13 - ‘17 3.5 3.0 2.5
SF (MILLIONS)
> 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.
400,000
2.0 1.5 1.0 0.5 0.0 4Q13
2
4Q14
4Q15
4Q16
4Q17
San Gabriel Valley | INDUSTRIAL
Construction
Q4 2017
Historical Net Absorption & Construction Completions San Gabriel Valley | Q4 ‘13-’17
> Construction completed this quarter totaled 1,185,200 SF, while 1,191,600 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.
Investment Trends
1.4 1.2 1.0 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.
0.8 0.6 0.4 0.2 0.0 4Q13
> Capitalization rates continued to tighten in Los Angeles County, averaging 4.6% in the final quarter of 2017. > Sales prices fell over the quarter to $147 PSF. The fourth quarter saw a reduction in the number of deals as pending sales have been pushed to the following year. > Forecast: The full impact of the GOP tax bill looks to place new deductions for pass-through entities and make value-add strategies even more appealing. This will benefit real estate investment vechicles and will likely lead to a flood of private capital into commercial real estate in the following years.
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.
CONSTRUCTION COMPLETIONS
4Q14
4Q15
4Q16
4Q17
Investment Trends Chart
San Gabriel Valley | Q4 ‘13-’17 Average Price Per sf
Average Cap Rate
7.0%
$180 $160
6.0%
$140 5.0%
$120
4.0%
$100
3.0%
$80 $60
2.0%
$40 1.0%
$20
0.0%
$0 4Q13
4Q14
4Q15
4Q16
4Q17
Unemployment Rate | San Gabriel Valley | November 2017 4.7%
4.6%
4.6% 4.5% 4.4% 4.3% 4.2% 4.1%
4.1%
4.1%
4.0% 3.9% 3.8%
3
United States
California
Los Angeles County
San Gabriel Valley | INDUSTRIAL
Market Description
Q4 2017
Submarket Map
The San Gabriel Valley industrial market comprises 158.4 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 Q4 2017
SALES ACTIVITY PROPERTY ADDRESS
SIZE SF
SALE PRICE
PRICE PSF
BUYER
SELLER
4350 Temple City, El Monte
164,300 SF
$8 Million
$49 PSF
El Monte SS Properties, LLC
Levine Investments, LP
5011 Brooks, Montclair
59,400 SF
$6.9 Million
$115 PSF
Precision Performance
Strebin Farms
162 Atlantic, Pomona
29,900 SF
$4.9 Million
$164 PSF
Romas Investment, LLC
Suntrade International, LLC
123 Explorer, Pomona
23,100 SF
$3.8 Million
$165 PSF
Pro 120L
Equipment Design & Mfg. Inc.
PROPERTY ADDRESS
LEASED SF
LEASE TYPE
BLDG TYPE
LESSEE
LESSOR
12339 - 12359 Lower Azusa, Arcadia
529,200 SF
Direct - New
Distribution
Samuel Son & Co.
Yellow Iron Investments
2399 Bateman, Irwindale
48,900 SF
Direct - New
Distribution
BizRight
DNA Properties
3260 Pomona, Pomona
33,400 SF
Direct - New
Distribution
Le Miel Group
Invesco
735 Todd, Azusa
24,300 SF
Direct - New
Light
Avery Dennison
Canada Pension Plan Investment
PROJECT
DEVELOPER
SIZE SF
SUBMARKET
STATUS
ESTIMATED COMPLETION
12359 Lower Azusa, Arcadia
Yellow Iron
328,800 SF
Foothill Freeway
Completed
Q4 2017
12339 Lower Azusa, Arcadia
Yellow Iron
200,400 SF
Foothill Freeway
Completed
Q4 2017
12389 Lower Azusa, Arcadia
Yellow Iron
150,700 SF
Foothill Freeway
Completed
Q4 2017
LEASING ACTIVITY
MAJOR DEVELOPMENTS
4
San Gabriel Valley | INDUSTRIAL
Q4 2017
INDUSTRIAL OVERVIEW San Gabriel Valley INDUSTRIAL OVERVIEW
Q4 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
0.4%
0.2%
1.5%
11,800
1
-
-
11,800
112,100
(11,200)
-26,100
$0.85
20,000 - 39,999
213
5,784,200
0
0
0.9%
0.9%
0.9%
56,300
2
-
-
56,300
159,300
-
36,800
$0.65
40,000 - 69,999
79
4,011,300
0
0
0.5%
0.0%
0.5%
-
-
-
-
-
17,900
(19,100)
-19,100
$0.65
70,000 - 99,999
16
1,239,800
0
0
4.3%
2.0%
4.3%
-
-
-
-
40,700
162,800
(28,500)
52,800
$0.64
100,000- 249,999
17
2,549,500
0
0
0.0%
0.0%
0.0%
133,600
1
-
-
133,600
312,500
-
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
781
21,412,700
0
0
0.7%
0.4%
1.0%
201,700
4
-
-
201,700
683,200
(58,800)
208,700
$0.73
Subtotal
FOOTHILL FREEWAY 10,000 - 19,999
408
5,613,600
0
0
0.2%
0.2%
0.6%
-
-
16,800
1
16,800
115,900
-
43,900
$0.80
20,000 - 39,999
207
5,447,200
0
0
1.4%
1.5%
6.1%
30,000
1
51,200
2
81,200
209,700
3,800
58,400
$0.76
40,000 - 69,999
82
4,100,600
0
0
2.6%
3.3%
3.6%
-
-
79,400
2
79,400
143,900
30,500
-58,600
$0.76
70,000 - 99,999
19
1,560,600
0
0
0.0%
4.6%
0.0%
-
-
75,700
1
75,700
287,600
72,400
115,300
N/A
100,000- 249,999
23
3,173,800
351,100
0
15.3%
15.3%
18.4%
-
-
351,100
2
351,100
373,200
351,100
107,800
$0.72
250,000 - 499,999
7
2,411,400
705,300
0
0.0%
0.0%
0.0%
-
-
705,300
2
705,300
789,500
705,300
705,300
N/A
500,000+
0
0
0
0
-
-
-
-
-
-
-
-
-
-
-
N/A
746
22,307,200
1,056,400
0
3.1%
3.5%
4.9%
30,000
1
1,279,500
10
1,309,500
1,919,800
1,163,100
972,100
$0.77
Subtotal INDUSTRY 10,000 - 19,999
798
11,198,300
0
0
0.2%
0.3%
1.3%
-
-
11,300
1
11,300
383,300
900
22,100
$0.77
20,000 - 39,999
552
15,273,800
0
162,200
0.6%
0.8%
1.7%
100,500
4
67,600
3
168,100
803,300
32,900
266,500
$0.82
40,000 - 69,999
305
15,860,200
43,200
195,000
2.3%
1.8%
4.3%
111,600
2
-
-
111,600
1,013,000
(76,900)
257,500
$0.75
70,000 - 99,999
128
10,626,400
85,600
171,500
2.0%
2.0%
5.5%
-
-
153,500
5
153,500
1,036,200
1,400
76,000
$0.73
100,000- 249,999
227
31,761,600
0
662,900
1.1%
0.7%
3.8%
-
-
256,900
4
256,900
2,169,500
(124,400)
-9,700
$0.64
250,000 - 499,999
60
19,024,800
0
0
2.3%
2.3%
5.4%
-
-
-
-
-
44,300
-
0
$0.59
500,000+
16
10,971,100
0
0
0.0%
0.0%
4.4%
-
-
-
-
-
0
-
0
$0.42
2,086
114,716,200
128,800
1,191,600
1.3%
1.1%
3.8%
212,100
6
489,300
13
701,400
5,449,600
(166,100)
612,400
$0.69
Subtotal
MARKET TOTAL 10,000 - 19,999
1,658
22,833,800
0
0
0.3%
0.2%
1.2%
11,800
1
28,100
2
39,900
611,300
(10,300)
39,900
$0.83
20,000 - 39,999
972
26,505,200
0
162200
0.8%
1.1%
2.7%
186,800
7
118,800
5
305,600
1,172,300
36,700
361,700
$0.80 $0.79
40,000 - 69,999
466
23,972,100
43200
195000
2.1%
1.1%
2.3%
111,600
2
79,400
2
191,000
1,174,800
(65,500)
179,800
70,000 - 99,999
163
13,426,800
85600
171500
2.0%
2.6%
5.4%
-
-
229,200
6
269,900
1,486,600
45,300
244,100
$0.73
100,000- 249,999
267
37,484,900
351100
662900
2.2%
1.9%
4.8%
133,600
1
608,000
6
741,600
2,855,200
226,700
262,400
$0.69
250,000 - 499,999
70
22,442,200
705300
0
1.9%
3.7%
8.7%
-
-
705,300
2
705,300
833,800
705,300
705,300
$0.61
500,000+
17
11,771,100
0
0
0.0%
0.0%
4.1%
-
-
-
-
-
0
-
0
$0.55
3,613
158,436,100
1,185,200
1,191,600
1.4%
1.4%
3.6%
443,800
11
1,768,800
23
2,212,600
8,052,600
938,200
1,793,200
$0.72
Totals
5
San Gabriel Valley | INDUSTRIAL
Q4 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
