LOS ANGELES - LONG BEACH

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1 LOS ANGELES - LONG BEACH INDUSTRIAL MARKET REPORT Q3 MARKET REPORT Q LOS ANGELES - LONG BEACH INDUSTRIAL MARKET REPORT

2 VACANCY TIGHTER THAN REPORTED Q3 TRENDS AT A GLANCE Absorption 163,337 SF Average Rent $0.73 / SF Sales Transactions $60.14 Million Vacancy 1.0% Under Construction 1,171,800 SF Average Sales Price PSF $ / SF Source: CoStar Property & AIR Commercial Real Estate Association ABOUT LEE & ASSOCIATES At Lee & Associates our reach is national but our expertise is local market implementation. This translates into seamless, consistent execution and value driven marketto-market services. NATIONWIDE LOCATIONS Our agents understand real estate and accountability. They provide an integrated approach to leasing, operational efficiencies, capital markets, property management, valuation, disposition, development, research and consulting. We are creative strategists who provide value and custom solutions, enabling our clients to make profitable decisions. LOCAL EXPERTISE. NATIONAL REACH. WORLD CLASS 2

3 The South Bay submarket continues to stay strong with the Ports leading the way for local industries. Vacancy is down, prices are up, and owners are getting rents at a level unseen since the height of the Real Estate bubble in It s safe to say the economy has officially recovered. In a strong market such as ours, owners now have the leverage when it comes to negotiations. With such low vacancy rates we are often times seeing multiple tenants go after the same property, allowing Owner s to dictate price and be selective with whom they decide to lease to. The days of high concessions, tenant improvements, and free rent are quickly moving past us. Tenants now need to plan ahead, have strong financials, and be willing to put down hefty security deposits to even get a response to their offers. With so little inventory available, we are seeing varying accounts on the actual vacancy status for industrial buildings in the LA market. Costar is currently reporting the vacancy for the South Bay to be 2.5%, while the AIR Commercial Real Estate Association is claiming the number to be as low as 1.2%. After reviewing the available product, we have determined that the true vacancy number (i.e. buildings that can be occupied immediately) to be closer to 1.0 % if not slightly lower. Regardless, if one wanted to go out and occupy a space immediately the pickings will be very slim, and buyers/tenants will need to plan accordingly. There is currently a mad dash of users and investors vying to tie up what little is left of the usable space in an already very tight market. Consequently, there has been a rise in both lease and sales rates. There is currently a mad dash of users and investors vying to tie up what little is left of the usable space in an already very tight market. Consequently, there has been a rise in both lease and sales rates. The price per square foot (PSF) has risen by almost 2% for leases over last quarter to average out at $0.73 PSF. In the meanwhile sales have risen to $ PSF a 15% jump from last year s $ PSF. Meantime, with less to choose from, Investors with 1031 exchanges are settling for lower returns. This has brought the average cap rate down to 5.86% from the 6.26% we saw at this time last year. Institutional buyers are now venturing into the low 4% range for the first time in years. Nationwide the theme is the same: quality space is hard to come by. The national average for vacancy is down to 6.7%, a number unseen since Subsequently we ve had a rise in rates across the country. With the traditional markets getting tighter we are witnessing emerging markets, such as Philadelphia, come forward. With existing infrastructure and almost 15 million square feet in construction it will be a welcome addition to a congested eastern seaboard. Recently our Lee offices across the country got together to discuss our respective territories and their rising trends. Across the board the consensus appears to be the same: vacancy seems much tighter than reported. Within the next quarter, we will potentially see an additional 20 acres of land from the former Farmer s Brother Coffee plant hit the market. Based on recent press reports they have moved their operations out of state and their Southern California plant is being made available. The Brickyard in Compton is back as well, albeit at a hefty increase from its previous purchased price. With the lack of usable space, the scramble to acquire viable land sites for either truck parking or the development of new and much needed warehouse space has begun. Developers and city municipalities will inevitably be at odds with truckers as raw land becomes just as valuable as existing warehouse space. Either way the competition will be tough. Moving forward the outlook is positive. The inevitability of the Trans Pacific Partnership (TPP) will likely give to a rise to both exports and imports in what is already the nation s busiest port. In addition, the rising possibility of not only one, but two NFL teams coming to the South Bay by the end of next year, will provide a boost in both tourism and local businesses. As the economy charges forth, we expect the South Bay Market to continue to hold its title as the strongest Industrial market in the country and finish out the year strong. - Dustin Byington 3

4 NET ABSORPTION VACANCY 1m 9.0% 800k 8.0% 600k 7.0% 400k 6.0% 200k 5.0% 0 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4.0% -200k 3.0% -400k 2.0% -600k 1.0% -800k 0.0% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 AVERAGE ASKING RENT BY QUARTER ASKING PRICE PER SQ FT $0.74 $170 $0.72 $0.70 $150 $0.68 $0.66 $130 $0.64 $0.62 $110 $0.60 $0.58 $0.56 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 $ Source: CoStar Property 4

5 Q INDUSTRIAL STATISTICS Source: CoStar Property Q TOP LEASES PROPERTY ADDRESS CITY TYPE TENANT SQUARE FEET LEASE TYPE 2250 E. Dominguez St. Carson Land Yusen Logistics 338,274 SF Direct 2000 E. Carson St. Carson Warehouse Toll Global 293,800 SF Direct 1710 E. Sepulveda Blvd. Carson Warehouse Nova CFS 259,249 SF Renewal 220 W. Manville St. Compton Warehouse National Retail Transportation 176,656 SF Sublease S. Alameda St. Carson Warehouse The Triangle Group 147,390 SF Direct 720 Watson Center Rd. Carson Warehouse Calko Transport Company Inc. 135,727 SF Renewal Q TOP SALES PROPERTY ADDRESS CITY REGION TYPE SQUARE FEET SALES PRICE W. Compton Blvd. Compton South Warehouse 161,976 SF $70.06 PSF 200 E. Alondra Blvd. Carson South Land 157,353 SF $33.36 PSF Broadway Ave. Gardena South Warehouse 36,880 SF $ PSF S. Avalon Blvd. Unincorporated LA South Investment 33,500 SF 5.75% Cap 2601 E. Del Amo Blvd Rancho Dominguez South Warehouse 25,768 SF $90.29 PSF 2250 E DOMINGUEZ ST CARSON LEASED 2000 E CARSON ST CARSON LEASED 1710 E SEPULVEDA BLVD CARSON LEASED W COMPTON BLVD COMPTON SOLD 200 E ALONDA BLVD CARSON SOLD BROADWAY AVE GARDENA SOLD 5

6 LOS ANGELES & LONG BEACH PORT ACTIVITY The Southern California ports have been playing catch up throughout 2015 due to the cargo diversion experienced for the first two months of There was an approximately 18% deficit in overall volume through the end of February (a loss of over 415,000 TEU). It s quite remarkable that by the end of August, volumes were just over 1% higher than 2014 at over 10 million TEUs. This is the first time hitting this milestone through August since The Port of Long Beach had the busiest quarter in its 104-year history with over 2 million TEUs. Long Beach grew 18.38% in July, 22.78% in August and a marginal 4.1% gain in September. This represented more than a 10.5% increase in both imports and exports than the previous year. Year-to-date, the Port of Long Beach is up 5.2% overall and up 11.5% since the labor dispute was resolved this past March. Since cargo has been shifting within the San Pedro Basin, volumes at the Port of Los Angeles were mixed for the quarter and are down 2.9% for the year. The TEU count decreased 2.55% in July, but experienced a positive increase in August of 3.83%. Containers dropped again in September by 5.78%. This decline prompted Gene Seroka, the Port of Los Angeles Executive Director, to say, While we fell short of last September s exceptional volume of 775,000 TEUs (one of the Port s largest), I m encouraged by the productivity our terminals and supply chain partners have demonstrated over the past six months. We are experiencing a consistent pattern of larger ships and more efficient cargo conveyance at volumes that are market leading. Overall, shippers have been moving inventory earlier than previous years indicating an elongated Peak Season compared to the late surge that has been more common in recent years. This demonstrates a conscious effort by importers to try and avoid disruptions in the supply chain due to congestion. Looking forward, both Ports acknowledge being in the Mega Ship business presents its own set of logistical challenges. Lined up end to end, each 16,000 TEU vessel could create a row of containers over 60 miles long. Adding a truck that distance would be over 100 miles of containers lined up from the Port of Long Beach to the Mexican Border. Both Ports hope that the final quarter will be busy, but not congested. Demonstrating that Southern California is once again reliable, dependable and stable is critical as shippers will have alternatives when the Panama Canal s wider docks will allow larger ships commencing in the 2nd quarter of David Bales YTD SEPTEMBER 2015 Source: Loaded Inbound Loaded Outbound Total Containers 6,000,000 12,000,000 5,000,000 11,000,000 4,000,000 10,000,000 3,000,000 9,000,000 2,000,000 8,000, ,000, TEUs TEUs 6

7 LOS ANGELES & LONG BEACH INDUSTRIAL MARKET MAP LAX 1 EL SEGUNDO SOUTH GATE 710 DOWNEY 605 HAWTHORNE COMPTON 105 MANHATTAN BEACH 405 GARDENA 91 PARAMOUNT 91 REDONDO BEACH RANCHO DOMINGUEZ LAKEWOOD 605 TORRANCE BIXBY KNOLLS CARSON LONG BEACH AIRPORT 405 ROLLING HILLS ESTATES LOMITA WILMINGTON LONG BEACH RANCHO PALOS VERDES SAN PEDRO PORT OF LONG BEACH PORT OF LOS ANGELES LOOK TO LEE & ASSOCIATES FOR SOLUTIONS CONTRIBUTED BY: David Bales Dustin Byington Contact a Lee & Associates Broker who can provide you with the most comprehensive market knowledge and expertise in the business. We specialize in: Build-to-Suit For Lease For Sale Facility Specification Bidding & Design Build Construction Expansion Planning Fair Market Value Analysis Valuation of Land Valuation of Buildings and Other Improvements Financial Analysis of Alternatives Comparing Alternative Proposals Purchase vs. Lease Analysis Existing Building Search Site Search Site Selection Criteria Development & Analysis Sale-Leaseback Institutional Investors Private Investors Disposition of Existing Buildings Locally & Nationally REO & Distressed-Asset Valuation & Sales The information and details contained herein have been obtained from third-party sources believed to be reliable; however, Lee & Associates Los Angeles-Long Beach, Inc. has not independently verified its accuracy. Lee & Associates Los Angeles - Long Beach, Inc. makes no representations, guarantees, or express or implied warranties of any kind regarding the accuracy or completeness of the information and details provided herein, including but not limited to the implied warranty of suitability and fitness for a particular purpose.* Copyright 2015 Lee & Associates Los Angeles - Long Beach,Inc. All rights reserved. *Third-Party Data Sources: CoStar Group, Inc., AIR Commercial Real Estate Association, Port of Long Beach, Port of Los Angeles, and The Journal of Commerce. 7

8 LOCAL EXPERTISE. NATIONAL REACH. WORLD CLASS. Los Angeles Office 1411 W. 190th Street, Suite 450, Gardena, CA Office: Fax: Long Beach Office 5000 E. Spring Street, Suite 750, Long Beach, CA Office: Fax: