technology and consumer product tenants. Class A. Class B. All Classes .... NSB Associates. 80,000 SF ... (although much
Research & Forecast Report
South Bay | OFFICE Q2 2017
Accelerating success.
>> Vacancy Drops As Rents Continue To Rise Key Takeaways
> Leasing velocity fell year-over-year by 30.8%, the second consecutive quarter of negative velocity after 11 straight quarters of positive growth. > Average asking rents for the overall market rose from last quarter, climbing to $2.38 per square foot (PSF) Full Service Gross (FSG) from $2.34 PSF FSG. > Class A vacancy decreased for the quarter, registering a drop of 110 basis points. > 10,900 SF in one property delivered this quarter. The South Bay market still has 422,100 SF of inventory under construction, due to deliver in late 2017 and early 2018. > Sales activity in the second quarter was highlighted by CalSTRS acquiring 1700 E. Walnut Ave. in El Segundo for $48.5 million ($207 PSF) from Roxborough Group.
Market Indicators | Relative to prior period Q2 2017
Forecast
Vacancy Net Absorption Construction Rental Rate
Summary Statistics | South Bay, Q2 2017 Vacancy Rate
Class A
Class B
All Classes
14.4%
19.3%
16.5%
+100
-90
-30
-130.2
202.7
84.4
Change from Q4 ‘16 (Basis Points)
Net Absorption* Construction Completions*
0.0
10.9
0.0
339.1
83.0
422.1
Class A
Class B
All Classes
$2.81
$2.22
$2.38
+$0.04
+$0.03
+$0.04
5.2%
+2.9%
3.6%
Under Construction* *SF, Thousands
Asking Rents | South Bay, Q2 2017
South Bay Office Market
The South Bay market saw rental rates continue to rebound with positive growth for the fourteenth time in fifteen quarters. Vacancy made a modest drop from 16.8% to 16.5%. There was one construction delivery, but 4 projects totaling 422,100 SF are expected to deliver in 2017 and early 2018. Leasing activity slid from last quarter to 476,500 SF. The South Bay continues to be a desired destination for tenants seeking alternatives to the higher-priced submarkets to the north, as well as companies that have grown organically within the market. Future demand, high-quality traditional and creative space, and rental rates that have seen steady, but not meteoric, increases will continue to attract a variety of media, technology and consumer product tenants.
Average Asking Rent Change from Q4 ‘16 ($)
Y.O.Y. Change (%)
Labor Force | Los Angeles County, May 2017 Total Nonfarm
Prof. & Business Services
Financial Activities
12-mo Employment Growth (%)
1.3%
2.7%
0.4%
12-mo Actual Employment Change
55,700
15,900
800
South Bay | OFFICE
Historical Vacancy v. Rents | South Bay Office Market Q2
‘13-’17
> Year-over-year, vacancy has dropped by 280 basis points in the South Bay as robust demand has driven vacancies down.
> Absorption for the South Bay recorded at 84,400 SF, marking the first out of the last nine quarters where absorption did not exceed 100,000 SF.
$1.80
14%
$1.70
12% 10% 2Q13
2Q14
> The overall asking rent of $2.38 PSF FSG is up 2.3% yearover-year. Class A and B rents recorded 5.2% and 2.9% over the same time period.
2Q16
2Q17
Net Absorption by Submarket | South Bay Office Market 300,000 250,000 200,000 150,000 100,000
63,600
34,000
50,000
15,800
0 (2,700)
(50,000)
(16,000)
(10,300)
Historical Leasing Activity | South Bay Office Market Q2 ‘13 - ‘17
1100000
> All six submarkets recorded rent increases. LAX/Los Angeles/Westchester (+$0.06) and Long Beach Airport/Lakewood (+$0.05) posted the largest deltas.
1000000 900000 800000 700000
SF
> Forecast: South Bay rental growth was steady throughout 2016 and will continue along the same trajectory in 2017, albeit with possible fluctuations and at a more level pace than before.
2Q15
Q2 ’17
Rental Rates
> Class A and B rents increased moderately to start the year, while Class C rents decreased minimally.
% VACANT (TOTAL)
16%
$1.90
EL SEGUNDO/BEACH CITIES
> Forecast: Leasing velocity and demand lessened in the first half of the year, a trend that should flatten out through year-end.
18%
$2.00
LONG BEACH AIRPORT/LAKEWOOD
> Leasing activity for the quarter consisted of 476,500 SF. Major leases signed included Thai Union North America signing for 33,100 SF at 2150 E. Grand Ave. in El Segundo, as well as Dassault Systems agreeing to occupy 20,000 SF at 301 E. Ocean Ave. in Long Beach.
20%
$2.10
$1.60
SF
> Among the major move-ins for the quarter were Delta Airlines occupying 25,200 SF at 6033 W. Century Blvd., Nativo opening their new office (25,100 SF) at Pacific Corporate Towers and Walsh/Shea Corridor Construction taking 24,300 SF at 101 N. La Brea Blvd.
22%
$2.20
DOWNTOWN LONG BEACH
Absorption and Leasing Activity
24%
CENTRAL TORRANCE
> Forecast: Sliding velocity and new construction deliveries through early 2018 will temper major vacancy gains in the South Bay market.
VACANCY
$2.30
$ PSF FSG PER MONTH (WEIGHTED)
> The sublease vacancy rate increased from first quarter, jumping from 0.9% to 1.0%.
RENTS
$2.40
190TH STREET CORRIDOR
> The overall vacancy rate for the South Bay market saw a 30 basis point decrease in second quarter of 2017.
LAX/LOS ANGELES/WESTCHESTER
Vacancy
Q2 2017
600000 500000 400000 300000 200000 100000 2Q13
2
2Q14
2Q15
2Q16
2Q17
South Bay | OFFICE
Construction
> One new project broke ground in the second quarter. 555 S. Aviation Blvd. will consist of 259,100 SF developed by Tishman Speyer.
Q2 2017
Historical Net Absorption & Construction Completions South Bay Office Market Q2 ‘13-’17
> Construction continues to be concentrated in the El Segundo/Beach Cities submarket, which has 422,100 SF under construction.
CONSTRUCTION COMPLETIONS
300,000 200,000
SF
> The sole delivery for the quarter was 129-135 Sheldon St. in El Segundo. The 10,900 SF property delivered vacant to the El Segundo/Beach Cities submarket.
NET ABSORPTION
400,000
100,000 0
(100,000) (200,000)
> Forecast: Construction will lag behind the flourish the market saw in the past few years, but all current projects are due to deliver within a year.
(300,000) (400,000) (500,000)
Investment Trends
> In addition to the sale of 1700 E. Walnut Ave., Surf Management, Inc. purchased 3625 Del Amo Blvd. in Torrance for $23.9 million ($218 PSF).
2Q13
2Q15
2Q16
2Q17
Investment Trends Chart
South Bay Office Market ‘11-’17 Average Price PSF
Cap Rate
$350.00
> A JV of the Roxborough Group and TRG purchased 5901 W. Century Blvd. for $12.5 million ($41 PSF) with an eye towards repositioning the office asset. Only the improvement sold, as the property was on a ground lease.
10 9
$300.00 8 $250.00
7 6
$200.00
$/PSF
> Forecast: Value-add properties still constitute a large portion of investment activity going forward, with sellers looking to trade out of completed projects and buyers acquiring conversion prospects.
2Q14
5 $150.00
4 3
$100.00
Outlook
The outlook for the South Bay market remains positive. Vacancy should continue to decrease through the end 2017, although movement will be incremental due to lessened leasing activity in the beginning of this year. Steady rental growth throughout 2016 will continue along the same arc in 2017, but rates might see some fluctuations as higher priced space comes off the market. In addition to core investment properties, value-add and creative conversion projects will remain part of the investment environment as sellers divest completed projects and buyers seek opportunities to enter the market.
2 $50.00 1 $-
0 2011
2012
2013
2014
2015
2016
2017
Unemployment Rate | U.S., CA & Los Angeles County | May 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
Cap Rate
> Investment activity for properties over 25,000 SF rose from first quarter, recording over $123.8 million in volume over 6 transactions, up from $56.8 million.
(600,000)
United States
California
Los Angeles County
South Bay | OFFICE
Q2 2017
Market Description
Submarket Map
The South Bay office market is comprised of 33.2 million SF, representing 11% of the total office space in buildings 10,000 square feet and greater in the Los Angeles Basin. Most of the space (64%) was built in the 1980s, and only 8% was built 1990 – current. Nearly half (49%) of its space is contained within mid-rise buildings (5 – 13 stories), followed by 32 percent in low-rise buildings and 19% in high-rise. It has a large concentration of firms in aerospace (although much less than in the 1980s), automotive, telecommunications, information technology, healthcare and business services, and is served by a highly educated labor force.
RECENT TRANSACTIONS & MAJOR DEVELOPMENTS South Bay Office Market Q2 2017
SALES ACTIVITY PROPERTY ADDRESS
SIZE SF
SALE PRICE
PRICE PSF
BUYER
SELLER
1700 E. Walnut Ave., El Segundo
233,900 SF
$48,500,000
$207 PSF
CalSTRS
Roxborough Group
110 Pine Ave., Long Beach
180,800 SF
$27,000,000
$149 PSF
Beitler Commercial Realty Services
Pacific Investment Group
3625 Del Amo Blvd., Torrance
109,800 SF
$23,900,000
$218 PSF
Surf Management, Inc.
The Muller Company
5901 W. Century Blvd., Los Angeles
306,200 SF
$12,500,000
$41 PSF
Roxborough Group
L & R Group Of Companies
LEASING ACTIVITY PROPERTY ADDRESS
LEASED SF
LEASE TYPE
BLDG CLASS
LESSEE
LESSOR
2150 E. Grand Ave., El Segundo
33,100 SF
Direct
A
Thai Union North America
Continental Grand Office LLC
301 E. Ocean Ave., Long Beach
20,000 SF
Renewal
A
Dassault Systems
Paralle Capital Partners
301 E. Ocean Ave., Long Beach
17,900 SF
Direct
A
Tesoro Refining & Marketing Co.
Paralle Capital Partners
400 Oceangate, Long Beach
17,300 SF
Direct
A
Molina Healthcare
400 Oceangate Ltd.
5200 W. Century Blvd., Los Angeles
15,000 SF
Direct
A
Myers & Sons Construction
JM Eagle
PROJECT
DEVELOPER
SIZE SF
SUBMARKET
STATUS
ESTIMATED COMPLETION
555 S. Aviation Blvd., El Segundo
Tishman Speyer
259,100 SF
El Segundo/
Under Construction
Q1 2018
2330 Utah Ave., El Segundo
NSB Associates
80,000 SF
El Segundo/
Under Construction
Q4 2017
Trisonic-El Segundo
Live Oak Properties, 73,000 SF
El Segundo/
Under Construction
Q3 2017
123 Nevada St., El Segundo
Smoky Hollow LLC
10,000 SF
El Segundo/
Under Construction
Q4 2017
Douglas Park
Sares-Regis Group
67,000 SF
Long Beach
Proposed
TBD
MAJOR DEVELOPMENTS
4
South Bay | OFFICE
Q2 2017
EXISTING PROPERTIES Submarket/ Class
Bldgs
Total Inventory SF
VACANCY Direct Vacancy
Sublease Vacancy
Total Vacancy
ACTIVITY Total Vacancy Prior Qtr
Leasing Activity Current Qtr
Leasing Activity YTD SF
ABSORPTION Net Absorption Current Qtr SF
CONSTRUCTION
Net Completions Absorption Current Qtr YTD SF SF
Under Construction SF
RENTS Weighted Avg Asking Lease Rate
BUILDING CLASS/SIZE A -
-
-
-
-
-
-
-
-
-
-
-
-
25,000 SF +
10,000 - 24,999 SF
60
12,676,000
12.1%
2.3%
14.4%
13.3%
169,100
469,700
(130,200)
(164,300)
0
339,100
$2.81
Subtotal
60
12,676,000
12.1%
2.3%
14.4%
13.3%
169,100
469,700
(130,200)
(164,300)
0
339,100
$2.81
B 10,000 - 24,999 SF
87
1,387,100
7.0%
0.0%
7.0%
7.4%
17,400
24,000
15,300
22,900
10,900
10,000
$2.31
25,000 SF +
183
16,172,100
20.1%
0.2%
20.3%
21.5%
190,600
358,300
187,400
468,600
0
73,000
$2.22
Subtotal
270
17,559,200
19.1%
0.2%
19.3%
20.4%
208,000
382,300
202,700
491,500
10,900
83,000
$2.22
$2.04
c 10,000 - 24,999 SF
76
1,202,100
6.0%
0.0%
6.0%
7.6%
16,000
25,600
19,200
15,200
0
0
25,000 SF +
35
1,942,700
12.5%
0.0%
12.5%
12.1%
83,400
116,300
(7,300)
(51,200)
0
0
$1.96
Subtotal
111
3,144,800
10.0%
0.0%
10.0%
10.4%
99,400
141,900
11,900
(36,000)
0
0
$1.98
$2.44
SUBMARKET/BUILDING SIZE LAX/LOS ANGELES/WESTCHESTER 10,000 - 24,999 SF
10
162,500
15.5%
0.0%
15.5%
16.3%
6,400
9,400
1,400
2,400
0
0
25,000 SF +
25
4,191,300
36.3%
0.0%
36.3%
36.2%
68,300
154,200
(4,100)
25,500
0
0
$1.89
Subtotal
35
4,353,800
35.5%
0.0%
35.5%
35.4%
74,700
163,600
(2,700)
27,900
0
0
$1.90
$3.35
EL SEGUNDO/BEACH CITIES 10,000 - 24,999 SF
41
581,600
3.3%
0.0%
3.3%
1.9%
1,800
5,500
2,400
1,500
10,900
10,000
25,000 SF +
82
10,950,200
11.0%
1.6%
12.6%
12.5%
133,200
299,200
(12,700)
139,100
0
412,100
$3.19
Subtotal
123
11,531,800
10.6%
1.6%
12.1%
12.0%
135,000
304,700
(10,300)
140,600
10,900
422,100
$3.19
CENTRAL TORRANCE 10,000 - 24,999 SF
60
1,030,400
9.4%
0.0%
9.4%
10.4%
9,500
13,800
10,300
9,300
0
0
$1.98
25,000 SF +
52
3,249,000
10.5%
0.1%
10.7%
10.8%
41,000
84,500
5,500
14,300
0
0
$2.72
Subtotal
112
4,279,400
10.2%
0.1%
10.4%
10.7%
50,500
98,300
15,800
23,600
0
0
$2.56
$1.69
190TH STREET CORRIDOR 10,000 - 24,999 SF
12
178,000
3.7%
0.0%
3.7%
0.4%
1,600
2,100
(5,900)
(4,200)
0
0
25,000 SF +
35
3,369,000
22.7%
2.9%
25.6%
26.8%
55,400
97,800
39,900
62,500
0
0
$2.14
Subtotal
47
3,547,000
21.8%
2.7%
24.5%
25.5%
57,000
99,900
34,000
58,300
0
0
$2.14
$2.05
LONG BEACH AIRPORT/LAKEWOOD 10,000 - 24,999 SF
24
387,000
4.3%
0.0%
4.3%
10.9%
12,600
13,600
25,500
18,400
0
0
25,000 SF +
53
4,402,700
9.9%
0.7%
10.6%
11.5%
48,400
78,700
38,100
12,900
0
0
$2.11
Subtotal
77
4,789,700
9.4%
0.6%
10.1%
11.4%
61,000
92,300
63,600
31,300
0
0
$2.11
DOWNTOWN LONG BEACH 10,000 - 24,999 SF
16
249,700
2.2%
0.0%
2.2%
2.5%
1,500
5,200
800
10,700
0
0
$1.73
25,000 SF +
31
4,628,600
16.6%
0.1%
16.7%
16.4%
96,800
229,900
(16,800)
(1,200)
0
0
$2.39
Subtotal
47
4,878,300
15.9%
0.1%
16.0%
15.6%
98,300
235,100
(16,000)
9,500
0
0
$2.39
441
33,380,000
15.6%
1.0%
16.5%
16.8%
476,500
993,900
84,400
291,200
10,900
422,100
$2.38
MARKET TOTAL Total
Note: revisions to the inventory base were made effective Q2 2017, historical data reported here reflect these revisions and may not match data reported in previous quarters.
5
South Bay | OFFICE
Definitions of key terms in this report Total Rentable Square Feet: Office space in buildings with 25,000 square feet or more of speculative office space. Includes competitive space in Class A, B and C single-tenant and multi-tenant buildings. Excludes non-competitive owner-occupied buildings, buildings that include 30 percent or greater of medical or retail space, and space that is under-construction, underrenovation or off-market. Class A Space: Space that an image-conscious company would lease for its headquarters. Typically, this space has a very high level of finish and an excellent location, and commands the highest rents in the market. Class B Space: Highly functional, attractive space, but less prestigious than Class A Space, and commanding lower rental rates. Class C Space: Functional, competitive space, but with a lower level of finish and/or a less desirable location than with Class B Space, and commanding lower rental rates. Low-Rise: Buildings with a total of 4 floors or less. Mid-Rise: Buildings with a total of 5 to 13 floors. High-Rise: Buildings with 14 or more floors. Direct Vacancy: Space in existing buildings that is vacant and immediately available during the quarter for direct lease, plus space that is vacant but not available for direct lease or sublease (for example, that is being held for a future commitment). Total Vacancy: Space in existing buildings that is vacant and immediately available during the quarter for direct lease or for sublease, plus space that is vacant but not available for direct lease or sublease. 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). Leasing Activity: Square feet leased from all known transactions completed during the quarter. Excludes lease renewals. Weighted Average Asking Rental Rates: Weighted by the total square feet available for direct lease. Data is based on Full Service Gross rents, and includes all costs associated with occupying the space, including taxes, insurance, maintenance, janitorial service and utilities. Reported on a monthly, per SF basis. 6
Q2 2017 Space Added (Net): 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
> $2.6 billion in annual revenue > 2.0 billion square feet under management > Over 15,000 professionals
UNITED STATES: South Bay Office TEL: +1 310 787 1000 License No. 01908231 2121 Rosecrans Ave, Ste 3301 FAX: +1 310 381 2500 El Segundo, CA. 90245
HANS MUMPER
Executive Managing Director
CHRIS WONG
Regional Research Analyst Research Services
CAITLIN MATTESON Research Director Research Services
