Class A and B vacancy decreased for the quarter, register- ing drops of 80 and 110 basis points, respectively. > The
Research & Forecast Report
South Bay | OFFICE Q3 2017
Accelerating success.
>> Vacancy Drops As Rents Continue To Rise Key Takeaways
> Leasing activity fell year-over-year by 17.8%, the third consecutive quarter of negative activity after eleven straight quarters of positive growth. > Average asking rents for the overall market rose from last quarter, climbing to $2.43 per square foot (PSF) full service gross (FSG) from $2.38 PSF FSG. > Class A and B vacancy decreased for the quarter, registering drops of 80 and 110 basis points, respectively. > The 73,400 SF Trisonic campus delivered as an owner-user property. The South Bay market still has 349,100 SF of inventory under construction, due to deliver in late 2017 and early 2018. > Sales activity in the second quarter was highlighted by Starwood Capital Group acquiring 300-400 Continental Blvd. in El Segundo for $168.9 million ($345 PSF) from DivcoWest.
Market Indicators | Relative to prior period Q3 2017
Forecast
Vacancy Net Absorption Construction Rental Rate
Summary Statistics | South Bay, Q3 2017 Vacancy Rate
Class A
Class B
All Classes
13.6%
18.2%
15.6%
-80
-110
-90
101.7
187.7
300.2
Change from Q2 ‘17 (Basis Points)
Net Absorption* Construction Completions*
0.0
0.0
0.0
339.1
10.0
349.1
Class A
Class B
All Classes
$2.89
$2.25
$2.43
+$0.08
+$0.03
+$0.05
6.6%
3.8%
5.2%
Under Construction* *SF, Thousands
Asking Rents | South Bay, Q3 2017
South Bay Office Market
The South Bay market saw rental rates continue to rebound with positive growth for the fifteenth time in sixteen quarters. Vacancy made a modest drop from 16.5% to 15.6%. There was one owner-user construction delivery, and three projects totaling 349,100 SF are expected to deliver in late 2017 and early 2018. Leasing activity held relatively steady from last quarter, recording 484,100 SF. The South Bay market continues to be a desirable destination for tenants seeking alternatives to the higher-priced submarkets to the north, as well as companies that have grown organically within the market. Future demand, high-quality traditional and creative space, and moderately increasing rental rates will continue to attract a variety of media, technology and consumer product tenants.
Average Asking Rent Change from Q2 ‘17 ($)
Y.O.Y. Change (%)
Labor Force | Los Angeles County, August 2017 Total Nonfarm
Prof. & Business Services
Financial Activities
12-mo Employment Growth (%)
0.8%
0.8%
0.1%
12-mo Actual Employment Change
37,200
4,900
300
South Bay | OFFICE
Historical Vacancy v. Rents | South Bay Office Market Q3
‘13-’17
$2.10
18%
$2.00
16%
$1.90 14%
$1.80
12% 10% 3Q13
3Q16
3Q17
Net Absorption by Submarket | South Bay Office Market 300,000 250,000 200,000 126,300
150,000
95,800
100,000 50,000
75,200 51,200 12,900
0
(61,200)
EL SEGUNDO/BEACH CITIES
(50,000) (100,000)
> Class A and B rents increased in the third quarter by $0.08 and $0.03, respectively. Class C rents dropped by $0.04.
> All but two submarkets recorded rent increases. El Segundo/Beach Cities (+$0.11) and Central Torrance (+$0.08) posted the largest deltas.
3Q15
Q3 ’17
Rental Rates
> The overall asking rent of $2.43 PSF FSG is up 5.2% yearover-year. Class A and B rents recorded 6.6% and 3.8% over the same time period.
3Q14
LONG BEACH AIRPORT/LAKEWOOD
> Forecast: With leasing velocity holding steady, look for demand to stabilize through the end of 2017.
20%
$1.60
SF
> Leasing activity for the quarter comprised 484,100 SF. Major leases signed included Barrett Business Services signing for 11,300 SF at 330 Golden Shore in Long Beach, as well as Panasonic NA renewing 9,400 SF at 20000 Mariner Ave. in Torrance.
$2.20
$1.70
> Absorption for the South Bay recorded at 300,200 SF, a moderate rebound from last quarter’s sub-100,000 SF total. > Among the major move-ins for the quarter were fashion ecommerce company Just Fab expanding in El Segundo by 55,000 SF at 2221 Park Pl., Tesoro opening its new 17,900 SF office at Shoreline Square in Long Beach and Edge Systems taking 15,000 SF at 2165 E. Spring St. in Long Beach.
22%
$2.30
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
$2.40
$ PSF FSG PER MONTH (WEIGHTED)
> The sublease vacancy rate moved minimally from the second quarter, dropping to 0.9% from 1.0%.
RENTS
$2.50
% VACANT (TOTAL)
> Year-over-year, vacancy dropped by 270 basis points in the South Bay as robust demand drove vacancies down.
190TH STREET CORRIDOR
> The overall vacancy rate for the South Bay market saw a 90 basis-point decrease in the third quarter of 2017 to 15.7%.
LAX/LOS ANGELES/WESTCHESTER
Vacancy
Q3 2017
Historical Leasing Activity | South Bay Office Market Q3 ‘13 - ‘17
1100000 1000000
> Forecast: South Bay rental growth has been steady through 2017 and should continue along the same trajectory into 2018.
900000 800000
SF
700000 600000 500000 400000 300000 200000 100000 3Q13
2
3Q14
3Q15
3Q16
3Q17
South Bay | OFFICE
Construction
> There are currently three projects constituting 349,100 SF under construction in the South Bay market. All three are located in the El Segundo/Beach Cities submarket.
Q3 2017
Historical Net Absorption & Construction Completions South Bay Office Market Q3 ‘13-’17
> The largest property is 555 S. Aviation Blvd., a new 259,100 SF creative office complex being developed by Tishman Speyer.
CONSTRUCTION COMPLETIONS
300,000 200,000
SF
> The sole delivery for the quarter was the Trisonic Campus in El Segundo. The 73,400 SF property will be occupied by owner/user NantHealth.
NET ABSORPTION
400,000
100,000 0
(100,000) (200,000)
> Forecast: Construction will lag behind the boom the market saw in the past few years. However, all current projects, which account for 10% of all construction activity in the county, are due to deliver within a year.
(300,000) (400,000) (500,000) (600,000)
Investment Trends
> This quarter marks the second time Continental Grand has sold in the past four years. The property, which is currently 80.4% occupied, sold to DivcoWest in 2014 for $271 PSF.
3Q15
3Q16
3Q17
Investment Trends Chart
South Bay Office Market ‘11-’17 Average Price PSF
Cap Rate
$350.00
10 9
> Investment activity will continue through the end of 2017 as Torrance Technology Campus goes to market at 91.0% occupied. L3 Technologies leased the vast majority of that occupancy, which doesn’t expire until 2031.
$300.00 8 $250.00
7 6
$200.00
$/PSF
> Forecast: Value-add properties still comprise a large portion of investment activity going forward, with sellers looking to trade out of completed projects and buyers acquiring conversion prospects.
3Q14
5 $150.00
Cap Rate
> Investment activity for properties over 25,000 SF rose from the second quarter, recording over $247.6 million in volume over five transactions, up from $123.8 million.
3Q13
4 3
$100.00
2
Outlook
The outlook for the South Bay market remains positive. Vacancy should continue to decrease through the end of 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.
$50.00 1 $-
0 2011
2012
2013
2014
2015
2016
2017
Unemployment Rate | U.S., CA & Los Angeles County | August 2017 5.2%
5.1%
5.0% 4.8%
4.8% 4.6% 4.4%
4.4%
4.2% 4.0%
3
United States
California
Los Angeles County
South Bay | OFFICE
Q3 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 SF and greater in the Los Angeles Basin. Most of the space (64%) was built in the 1980s, and only 8% was built after 1989. Nearly half (49%) of its space is contained within mid-rise buildings (5–13 stories), followed by 32% in low-rise buildings and 19% in high-rise. It has a large concentration of firms in aerospace (although many fewer 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 Q3 2017
SALES ACTIVITY PROPERTY ADDRESS
SIZE SF
SALE PRICE
PRICE PSF
BUYER
SELLER
300-400 Continental Blvd., El Segundo (2 Bldgs.)
489,800 SF
$168,881,500
$345 PSF
Starwood Capital Group
DivcoWest
20770-20810 Madrona Ave., Torrance
211,400 SF
$48,750,000
$231 PSF
Continental Development Corporation Dominguez Investment Company
1899 Western Way, Torrance
75,700 SF
$19,000,000
$251 PSF
Miramar Property Group, LLC
Continental Development
LEASING ACTIVITY PROPERTY ADDRESS
LEASED SF
LEASE TYPE
BLDG CLASS
LESSEE
LESSOR
330 Golden Shore, Long Beach
11,300 SF
Direct
A
Barrett Business Services
Colony Northstar
20000 Mariner Ave., Torrance
9,400 SF
Renewal
B
Panasonic NA
Maricich Trust
37601 Kilroy Airport Way, Long Beach
6,400 SF
Direct
A
Alaska Airlines
Kilroy Realty
340 Golden Shore, Long Beach
4,000 SF
Renewal
A
Manson Construction
Colony Northstar
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
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
Q3 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
11.2%
2.3%
13.6%
14.4%
197,700
667,400
101,700
(62,600)
0
339,100
$2.89
Subtotal
60
12,676,000
11.2%
2.3%
13.6%
14.4%
197,700
667,400
101,700
(62,600)
0
339,100
$2.89
B 10,000 - 24,999 SF
87
1,387,100
5.9%
0.1%
6.0%
7.0%
15,100
39,100
14,300
37,200
0
10,000
$2.32
25,000 SF +
183
16,172,100
19.2%
0.1%
19.2%
20.3%
224,200
582,500
173,400
642,000
0
0
$2.25
Subtotal
270
17,559,200
18.1%
0.1%
18.2%
19.3%
239,300
621,600
187,700
679,200
0
10,000
$2.25
$2.00
c 10,000 - 24,999 SF
76
1,202,100
4.9%
0.0%
4.9%
6.0%
26,300
51,900
13,100
28,300
0
0
25,000 SF +
35
1,942,700
12.6%
0.0%
12.6%
12.5%
20,800
137,100
(2,300)
(53,500)
0
0
$1.93
Subtotal
111
3,144,800
9.7%
0.0%
9.7%
10.0%
47,100
189,000
10,800
(25,200)
0
0
$1.94
$2.45
SUBMARKET/BUILDING SIZE LAX/LOS ANGELES/WESTCHESTER 10,000 - 24,999 SF
10
162,500
11.2%
0.0%
11.2%
15.5%
8,000
17,400
6,900
9,300
0
0
25,000 SF +
25
4,191,300
33.3%
0.1%
33.4%
36.3%
43,800
198,000
119,400
144,900
0
0
$1.87
Subtotal
35
4,353,800
32.4%
0.1%
32.6%
35.5%
51,800
215,400
126,300
154,200
0
0
$1.88
$3.03
EL SEGUNDO/BEACH CITIES 10,000 - 24,999 SF
41
581,600
0.8%
0.3%
1.1%
3.3%
9,500
15,000
13,100
14,600
0
10,000
25,000 SF +
82
10,950,200
10.7%
1.3%
12.0%
12.6%
96,700
395,900
62,100
201,200
0
339,100
$3.30
Subtotal
123
11,531,800
10.2%
1.3%
11.5%
12.1%
106,200
410,900
75,200
215,800
0
349,100
$3.30
CENTRAL TORRANCE 10,000 - 24,999 SF
60
1,030,400
9.4%
0.0%
9.4%
9.4%
12,700
26,500
(400)
8,900
0
0
$2.16
25,000 SF +
52
3,249,000
12.4%
0.1%
12.5%
10.7%
72,200
156,700
(60,800)
(46,500)
0
0
$2.76
Subtotal
112
4,279,400
11.7%
0.1%
11.8%
10.4%
84,900
183,200
(61,200)
(37,600)
0
0
$2.64
190TH STREET CORRIDOR 10,000 - 24,999 SF
12
178,000
4.2%
0.0%
4.2%
3.7%
400
2,500
(800)
(5,000)
0
0
$1.61
25,000 SF +
35
3,369,000
22.3%
2.9%
25.2%
25.6%
109,900
207,700
13,700
76,200
0
0
$2.14
Subtotal
47
3,547,000
21.4%
2.8%
24.2%
24.5%
110,300
210,200
12,900
71,200
0
0
$2.13
LONG BEACH AIRPORT/LAKEWOOD 10,000 - 24,999 SF
24
387,000
3.1%
0.0%
3.1%
4.3%
6,400
20,000
4,600
23,000
0
0
$2.11
25,000 SF +
53
4,402,700
8.8%
0.7%
9.5%
10.6%
51,500
130,200
46,600
59,500
0
0
$2.13
Subtotal
77
4,789,700
8.4%
0.6%
9.0%
10.1%
57,900
150,200
51,200
82,500
0
0
$2.13
DOWNTOWN LONG BEACH 10,000 - 24,999 SF
16
249,700
0.6%
0.0%
0.6%
2.2%
4,500
9,700
4,000
14,700
0
0
$1.70
25,000 SF +
31
4,628,600
14.2%
0.5%
14.7%
16.7%
68,500
298,400
91,800
90,600
0
0
$2.43
Subtotal
47
4,878,300
13.5%
0.5%
14.0%
16.0%
73,000
308,100
95,800
105,300
0
0
$2.43
441
33,380,000
14.7%
0.9%
15.6%
16.5%
484,100
1,478,000
300,200
591,400
0
349,100
$2.43
MARKET TOTAL Total
Note: revisions to the inventory base were made effective Q3 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 SF 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
Q3 2017 Space Added (Net): Total SF added during the quarter via construction completions, including renovated space returned to market, less total SF 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
