Sales and leasing activity totaled 2,699,200 SF broken out into 10 sales ... to be deterrents that drive tenants to neig
Research & Forecast Report
South Bay | INDUSTRIAL Q2 2017
Accelerating success.
>> Vacancy Flat & Industrial Rents Continue Upward Key Takeaways
Market Indicators | Relative to prior period
> Industrial rents increased $0.01 PSF NNN over the quarter to $0.79 PSF NNN. Rents have increased 9.7% over the last 12 months and are at their highest point ever.
Vacancy
> Net absorption was 421,900 SF this quarter, much of which came from several new projects that finished construction this quarter.
Rental Rate
> Sales and leasing activity totaled 2,699,200 SF broken out into 10 sales (294,800 SF) and 48 leases (2,404,400 SF). > There is 1,031,700 SF of new space currently under construction which will finish in the next 12 months. > Vacancy has remained flat over the quarter at 0.8%, the lowest recorded vacancy rate ever for the region.
South Bay Industrial Market
Q2 2017
Forecast
Net Absorption Construction
Summary Statistics | South Bay, Q2 2017 Vacancy Rate
0.8%
Change from Q1 ‘17 (Basis Points)
0 BPS
Net Absorption
421,900 SF
Construction Completions
610,300 SF
Asking Rents | South Bay, Q2 2017 South Bay Industrial Market Average Asking Rent
South Bay remains the premier market for distribution companies and sea and air cargo centered industrial users. It is nearly fully developed so land is incredibly scarce. Tight market conditions and a lack of larger modern space continue to be deterrents that drive tenants to neighboring markets, primarily to the east.
$0.79 PSF NNN
Change from Q2 ‘16
+$0.07 PSF NNN
Y.O.Y. Change (%)
+9.7%
Labor Force | South Bay, Q2 2017
12-mo Employment Growth (%) 12-mo Actual Employment Change
Construction
Manufacturing
Transportation, Trade & Utilities
5.3%
-1.5%
-0.4%
+7,000
-5,600
-3,500
South Bay | INDUSTRIAL
Historical Vacancy v. Rents | South Bay | Q2 ‘13-’17
> The vacancy rate remained at 0.8%, its lowest level ever recorded.
5%
0.8
Absorption and Leasing Activity
0.7
3%
0.65 2%
0.6 0.55
1%
0.5 0.45
0% 2Q13
2Q17
Q2 ’17
400,000 300,000
180,200
210,000
283,500
200,000
SF
100,000 0 (8,600)
(100,000) (200,000) (243,200)
(300,000)
CARSON/COMPTON/RD
> Average asking rents increased $0.01 PSF NNN over the quarter to end at $0.79 PSF NNN. Asking rents are at their highest levels ever and will continue to rise. > Even marginal space in the South Bay is getting multiple offers and tenants are having to expand their search criteria in order to find suitable space. > Forecast: Rents will continue to rise in future quarters and tenants can expect to pay a premium for all types of industrial space. Tenants who signed leases 5 years ago can expect to their rent to increase roughly 45% upon renewal.
2Q16
Net Absorption by Submarket | South Bay |
> Forecast: Absorption is likely to be flat for 2017 as there is little new supply hitting the market and further gains will be hard to achieve.
Rental Rates
2Q15
LB/HARBOR CITIES
> Sales and leasing activity totaled 2,699,200 SF this quarter. This was broken out into 10 sales (294,800 SF) and 48 leases (2,404,400 SF).
2Q14
GARDENA/HARBOR FWY
> Industrial demand reported 421,900 SF of positive net absorption this quarter and 879,400 SF for the year to date.
% VACANT (TOTAL)
4%
0.75
LAX/ES/HAWTHORNE
> Forecast: New supply may bring some relief in vacancy rates, but with only 1 million SF of supply on the horizon we may be see sub 1% vacancy in the South Bay for much of 2017.
VACANCY
0.85
$PSF PER MONTH (NNN)
> Vacancy is tightest in the LAX / ES / Hawthorne submarket at 0.4% and highest in the Carson / Compton / RD market at 1.2%
RENTS
TORRANCE
Vacancy
Q2 2017
Historical Leasing Activity | South Bay | Q2 ‘13 - ‘17
5000000
4000000
SF
3000000
2000000
1000000
0 2Q13
2
2Q14
2Q15
2Q16
2Q17
South Bay | INDUSTRIAL
Construction
Q2 2017
Historical Net Absorption & Construction Completions South Bay | Q2 ‘13-’17
> There was 610,300 SF of new supply this quarter in multiple projects.
NET ABSORPTION
> There remains 1,031,700 SF of space currently under construction; an incredibly small amount for a 211.6 million SF industrial market.
> Forecast: We are on the tail end of a construction boom and new supply will trickle in for the rest of 2017. Development will remain limited to build to suit projects or creative rehabilitation of underperforming space.
2500000 2000000
SF
> Development is exceedingly difficult in the South Bay as raw land, if available, will sell for a premium.
CONSTRUCTION COMPLETIONS
3000000
1500000 1000000 500000 0 2Q13
Investment Trends > Cap rates continue to remain tight in Los Angeles County, averaging 4.9% in Q2 2017.
2Q14
2Q15
2Q16
2Q17
Investment Trends Chart
Los Angeles County | Q2 ‘13-’17
> Class A product in the South Bay trades at a lower cap rate than the Los Angeles County average near 4%, while Class B product is in the low 5% range.
Average Price Per sf
> Forecast: There has been increased investor focus on fully leased industrial assets in prime infill locations. Consequently, we expect further demand to drive up sales prices, further compressing cap rates.
Average Cap Rate
8.0%
$180
7.0%
$160 $140
6.0%
$120
5.0%
$100
4.0%
$80
3.0%
$60
2.0%
Outlook
$40
1.0%
$20
0.0%
> Tight market conditions are expected to persist in the South Bay industrial marketplace with vacancy rates below single digits expected in future quarters. Rents are at their highest ever levels, prompting many users to consider buying their properties, however the available inventory is insufficient to meet demand. > Land is incredibly scarce and many industrial users are having to get creative or face paying a premium to secure land for truck, car or trailer storage.
$0 2Q13
2Q14
2Q15
2Q16
2Q17
Unemployment Rate | 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
United States
California
Los Angeles County
South Bay | INDUSTRIAL
Q2 2017
Market Description
Submarket Map
The South Bay industrial market includes 211.6 million square feet, representing 16 percent of the total space in the Los Angeles Basin for buildings 10,000 square feet and greater. The market has a high concentration of firms oriented toward international trade at the Ports of Los Angeles and Long Beach, respectively, and/or with LAX airport. The South Bay is a relatively mature market, with 63 percent of its space built prior to 1980. There is a good mix of product types, with nearly half of the space (45%) in big-box space (100,000 SF+) and the balance (55%) in small and medium sized buildings.
RECENT TRANSACTIONS & MAJOR DEVELOPMENTS South Bay Industrial Market Q2 2017
SALES ACTIVITY PROPERTY ADDRESS
SIZE SF
SALE PRICE
PRICE PSF
BUYER
SELLER
3171 Fujita, Torrance
25,200 SF
$5.7 Million
$226 PSF
3171 Fujita, LLC
Bachem Americas
15700 Texaco, Paramount
35,200 SF
$4.7 Million
$134 PSF
Golden Moon Property
John Durkee
436 Alaska, Torrance
22,400 SF
$4.7 Million
$210 PSF
Robert Burg
Choi Lyons Alaska
7200 Adams, Paramount
25,700 SF
$3.6 Million
$139 PSF
Minotti
George Myers
PROPERTY ADDRESS
LEASED SF
LEASE TYPE
BLDG TYPE
LESSEE
LESSOR
23610 Banning, Carson
168,400 SF
Expansion
Light
Quik Pick Express
Watson Land Company
4240 190th, Torrance
156,800 SF
Direct - New
Distribution
VIE Logistics, Inc.
ZKS Real Estate Partners, LLC
3040 Ana, Rancho Dominguez
115,700 SF
Renewal
Distribution
Onestop Internet
JCQ Industrial LLC
18502 Laurel Park, Compton
49,600 SF
Direct - New
Distribution
Techmer PM
Dembo Goodman South Bay
PROJECT
DEVELOPER
SIZE SF
SUBMARKET
STATUS
ESTIMATED COMPLETION
20333 Normandie, Torrance
Bridge Development
512,500 SF
Torrance
Under Construction
Q2 2018
4800 Conant, Long Beach
Sares Regis
219,300 SF
Long Beach
Completed
Q2 2017
4350 Conant, Long Beach
Sares Regis
140,400 SF
Long Beach
Completed
Q2 2017
LEASING ACTIVITY
MAJOR DEVELOPMENTS
4
South Bay | INDUSTRIAL
Q2 2017
INDUSTRIAL OVERVIEW South Bay Industrial Market Q2 2017
EXISTING PROPERTIES Submarket/ Building Size
Bldgs
CONSTRUCTION
Total Inventory SF
VACANCY
Completions Under Current Qtr Construction Vacancy SF SF
Vacancy Prior Qtr
AVAILABILITY
Availability
ACTIVITY Sales Activity SF
ABSORPTION
RENTS
Total Gross Total Gross Net Net Number of Lease Activity Number Activity Current Activity YTD Absorption Absorption Sales SF of Leases Qtr SF SF Current Qtr SF YTD SF
Weighted Avg Asking Lease Rates
LAX/ES/HAWTHORNE 10,000 - 19,999
383
5,250,700
0
0
0.3%
1.0%
0.7%
29,100
2
22,600
2
51,700
51,700
38,900
26,300
20,000 - 39,999
281
7,746,500
0
0
1.0%
1.5%
4.0%
0
0
83,400
4
83,400
177,300
33,600
22,000
$1.21 $1.16
40,000 - 69,999
93
4,824,300
0
0
0.0%
0.0%
1.3%
0
0
47,100
2
47,100
67,200
0
20,100
$1.01
70,000 - 99,999
38
3,032,200
0
0
0.7%
0.7%
2.8%
0
0
0
0
0
0
0
-21,100
$1.09
100,000- 249,999
35
5,431,600
149,000
0
0.0%
0.0%
0.0%
0
0
149,000
1
149,000
210,300
149,000
149,000
N/A
250,000 - 499,999
8
2,664,000
0
0
1.5%
0.0%
1.5%
0
0
0
0
0
71,200
-41,300
29,900
N/A
500,000+
7
7,048,600
0
0
0.0%
0.0%
0.0%
0
0
0
0
0
0
0
0
N/A
Subtotal
845
35,997,900
149,000
0
0.4%
0.5%
1.5%
29,100
2
302,100
9
331,200
577,700
180,200
226,200
$1.15
$0.76
GARDENA/HARBOR FWY 10,000 - 19,999
511
7,115,900
0
0
0.0%
0.2%
2.5%
0
0
25,300
2
25,300
101,500
15,100
33,100
20,000 - 39,999
308
8,166,000
0
0
0.6%
0.8%
2.8%
0
0
54,800
3
54,800
54,800
16,500
16,500
$0.79
40,000 - 69,999
167
8,492,900
0
0
0.5%
1.4%
2.2%
0
0
138,100
4
138,100
148,100
77,800
0
$0.82
70,000 - 99,999
46
3,760,400
0
41,100
0.0%
0.0%
0.5%
0
0
0
0
0
29,900
0
0
N/A
100,000- 249,999
41
5,498,300
100,600
0
2.4%
2.4%
3.3%
100,600
1
100,600
1
201,200
201,200
100,600
-28,900
$0.62 N/A
250,000 - 499,999
1
256,000
0
0
0.0%
0.0%
0.0%
0
0
0
0
0
0
0
0
500,000+
0
0
0
0
0.0%
0.0%
0.0%
0
0
0
0
0
0
0
0
N/A
Subtotal
1074
33,289,500
100,600
41,100
0.7%
1.0%
2.4%
100,600
1
318,800
10
419,400
535,500
210,000
20,700
$0.67
TORRANCE 10,000 - 19,999
202
2,739,000
0
0
0.4%
0.4%
1.2%
0
0
0
0
0
0
0
-11,200
$0.85
20,000 - 39,999
173
4,854,800
30,500
0
4.2%
2.9%
5.9%
22,400
1
40,600
2
63,000
136,800
-33,300
3,400
$0.64
40,000 - 69,999
76
3,837,800
0
0
0.0%
0.6%
2.7%
0
0
24,700
1
24,700
24,700
24,700
24,700
$0.72
70,000 - 99,999
34
2,778,000
0
0
0.0%
0.0%
0.0%
0
0
0
0
0
36,300
0
31,500
$0.84
100,000- 249,999
47
6,420,400
0
0
0.0%
0.0%
0.4%
0
0
109,500
1
109,500
271,200
0
38,400
$0.85
250,000 - 499,999
13
4,454,300
0
0
0.0%
0.0%
0.0%
0
0
156,800
1
156,800
156,800
0
0
$0.63
500,000+
4
1,914,200
0
512,500
0.0%
0.0%
0.0%
0
0
0
0
0
0
0
0
N/A
Subtotal
549
26,998,500
30,500
512,500
0.8%
0.7%
1.9%
22,400
1
331,600
5
354,000
625,800
-8,600
86,800
$0.74
CARSON/COMPTON/RD 10,000 - 19,999
256
3,585,200
0
0
0.0%
0.4%
0.8%
0
0
13,400
1
13,400
65,600
13,400
13,400
$0.83
20,000 - 39,999
330
9,349,200
0
0
0.1%
0.3%
1.9%
63,000
2
28,800
2
91,800
323,400
14,000
62,000
$0.76
40,000 - 69,999
235
12,245,300
0
0
1.2%
0.7%
3.0%
0
0
127,600
3
127,600
455,300
-67,600
-42,200
$0.73
70,000 - 99,999
132
10,876,500
0
0
1.7%
1.0%
2.4%
0
0
164,600
4
164,600
333,400
-75,400
-34,500
$0.74
100,000- 249,999
222
33,407,700
0
337,700
0.9%
1.0%
3.2%
0
0
650,000
8
650,000
1,397,000
17,600
-32,000
$0.74
250,000 - 499,999
32
10,196,700
0
0
1.3%
1.3%
1.3%
0
0
0
0
0
750,100
0
464,300
$0.85
500,000+
2
1,047,300
0
0
13.9%
0.0%
13.9%
0
0
0
0
0
0
-145,200
-145,200
N/A
Subtotal
1209
80,707,900
0
337,700
1.2%
0.9%
2.7%
63,000
2
984,400
18
1,047,400
3,324,800
-243,200
285,800
$0.79
$0.76
LB/HARBOR CITIES 10,000 - 19,999
563
7,764,700
0
0
0.9%
1.2%
1.5%
28,000
2
38,800
3
66,800
107,300
25,100
-1,000
20,000 - 39,999
315
8,302,400
0
0
0.9%
0.6%
2.7%
51,700
2
0
0
51,700
117,600
-29,800
-47,200
$0.78
40,000 - 69,999
92
4,567,500
0
0
0.9%
0.0%
2.0%
0
0
0
0
0
20,000
-42,000
-22,000
$0.66
70,000 - 99,999
28
2,287,300
0
0
0.0%
0.0%
2.4%
0
0
98,500
1
98,500
98,500
0
-100
$0.70
100,000- 249,999
37
5,326,000
330,200
140,400
0.8%
0.8%
0.8%
0
0
330,200
2
330,200
330,200
330,200
330,200
$0.85
250,000 - 499,999
8
2,460,400
0
0
0.0%
0.0%
0.0%
0
0
0
0
0
0
0
0
N/A
500,000+
5
3,905,800
0
0
0.0%
0.0%
0.0%
0
0
0
0
0
0
0
0
N/A
Subtotal
1048
34,614,100
330,200
140,400
0.7%
0.5%
1.5%
79,700
4
467,500
6
547,200
673,600
283,500
259,900
$0.82
10,000 - 19,999
1915
26,455,500
0
0
0.3%
0.7%
1.5%
57,100
4
100,100
8
157,200
326,100
92,500
60,600
$0.97
20,000 - 39,999
1407
38,418,900
30,500
0
1.1%
1.0%
3.2%
137,100
5
207,600
11
344,700
809,900
1,000
56,700
$0.87
40,000 - 69,999
663
33,967,800
0
0
0.7%
0.7%
2.4%
0
0
337,500
10
337,500
715,300
-7,100
-19,400
$0.85
70,000 - 99,999
278
22,734,400
0
41,100
0.9%
0.6%
1.8%
0
0
263,100
5
263,100
498,100
-75,400
-24,200
$0.83
100,000- 249,999
382
56,084,000
579,800
478,100
0.9%
0.9%
2.4%
100,600
1
1,339,300
13
1,439,900
2,409,900
597,400
456,700
$0.77
250,000 - 499,999
62
20,031,400
0
0
0.9%
0.6%
0.9%
0
0
156,800
1
156,800
978,100
-41,300
494,200
$0.75
13,915,900
0
MARKET TOTAL
500,000+ Total
5
18 4725
211,607,900 610,300
512,500
1.0%
0.0%
1.0%
0
0
0
0
0
0
-145,200
-145,200
N/A
1,031,700
0.8%
0.8%
2.2%
294,800
10
2,404,400
48
2,699,200
5,737,400
421,900
879,400
$0.79
South Bay | INDUSTRIAL
Q2 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: South Bay Office License No. 01908231 2121 Rosecrans Ave, Suite 3301 El Segundo, CA 90245
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: +1 310 787 1000 FAX: +1 310 381 2500
