LOS ANGELES - LONG BEACHINDUSTRIAL MARKET REPORT

M A R K E T R E P O R T Q 3 2 0 16

L O S A N G E L E S - L O N G B E A C HI N D U S T R I A L M A R K E T R E P O R T

Q3

2LOS ANGELES - LONG BE ACH INDUSTR IAL MARKET REPORT Q3 2016

WEST MIDWEST

SOUTH

SOUTHWEST

EAST

CANADA

AustriaBelgiumFranceIrelandLuxembourg

NetherlandsPolandSlovakiaSpainTurkey

AFFILIATE INTERNATIONAL RELATIONSHIP

Absorption (388,320 SF)

Vacancy 0.9%

Average Rent$0.81 / SF

Under Construction1,799,685 SF

Sales Transactions $143.259 Million

Average Sales Price PSF$149.54 / SF

Q3 TRENDS AT A GLANCE

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LOCAL EXPERTISE. NATIONAL REACH. WORLD CLASS

INDUSTRIAL STAYS HOT, DESPITE OUTSIDE NOISE

Source: CoStar Property® & AIR Commercial Real Estate Associat ion

3LOS ANGELES - LONG BE ACH INDUSTR IAL MARKET REPORT Q3 2016

Thi rd Quarter 2016 remained strong for the Los

Angeles / Long Beach Industr ial Real Estate Market despite the

vacancy rate s l ightly increasing to 0.9%. Continued demand

and l imited supply has put upward pressure on lease rates and

sale pr ices despite the market’s noise from the recent Hanj in

Bankruptcy, uncertainty about the upcoming elections, and

the macro effects of ‘Brexit’. The diverse industry mix in the

Los Angeles and Long Beach marketplace keeps the local

market wel l insulated from the ups and downs of the global

economy which is wel l reflected in our extremely low vacancy

rate. The Los Angeles/Long Beach Industr ial Real Estate

Market remains a Landlords’ and Sel lers’ market, as Tenants

and Buyers are left frustrated with thei r l imited choices. It is

expected that the market noise shal l persist; however, local

market fundamentals are better in place than the last upward

market trend and these fundamentals should continue to

keep our market on its cur rent trajectory upward. Tenants and

Buyers wi l l need to plan accordingly.

The di rect industr ial vacancy rate in the Los Angeles /

Long Beach marketplace increased sl ightly from 0.7% in the

2nd Quarter 2016 to 0.9% in the 3rd Quarter 2016. Asking

rents increased again in the 3rd Quarter to $0.81 PSF, from

$0.78 PSF the previous quarter. Property owners continue to

test the market with higher lease rates. The average sale

pr ice increased in the 3rd Quarter 2016 to $149.54 PSF from

$142.15 the previous quarter. Development activity in the

Los Angeles/Long Beach region continued to provide much

needed product to the Los Angeles/Long Beach Industr ial

Real Estate Market with 1,799,685 SF under construction. UPS

committed to the largest lease of the quarter with a 525,400

SF deal at the new “Br ick Yard” project in the City of Compton.

“The r ise of e-commerce has led to a rapid acceleration in

the use of space devoted to fulf i l lment centers, specif ical ly

in the Inland Empire portion of the market,” says John Husing,

chief economist for the Inland Empire Economic Partnership.

Companies choose to locate closer to heavy populated

areas and keep more products on hand to meet customer’s

speedy del ivery expectations and ever growing onl ine order

appetite. Investors have been attracted to these industr ial

leased investments, and have been wi l l ing to pay record

pr ices to get thei r hands on these pr ized assets. According to

CoStar Group, “Cap rates have been lower in 2016, averaging

5.40%, compared to the f i rst s ix months of last year when they

averaged 5.91%.”

The economic signals look posit ive heading into the

Fourth Quarter 2016. Cal ifornia ranked f i rst among the 50

states in economic growth last year with a 4.1% gain. Gross

state product grew at an estimated 2.0% rate in the f i rst

quarter of 2016, more than double the US growth rate of 0.8%.

The state also outpaced the nation in terms of job gains, with

a 2.8% year ly increase in May compared to the nation’s 1.7%

rate. With continued job gains, Cal ifornia’s unemployment

rate fel l to 5.2% in May, the lowest in nine years. “Just as the

nation is poised to grow through the balance of this year,

Cal ifornia’s economy is ful ly expected to outpace the nation,

both in terms of output growth and job growth,” said Robert

Kleinhenz, Beacon Economics’ Executive Di rector of Economic

Research. Kleinhenz continues, “Job and wage gains in

communities around the state wi l l t r igger increases in local

expenditures, which mean continued improvement in local

government revenues.” The global economy grew in 2015 by

about 2.8 percent, and the US economy was close behind at

2.4 percent, according to the International Monetary Fund

(IMF). The IMF expects s imi lar growth over the next two years.

Lee & Associates sees several trends that are shaping up

in the Industr ial Sector for the greater Los Angeles and Long

Beach markets as we approach the f inal stretch of 2016. Even

though we only have less than 1% of space avai lable in the

market, the Shipping Companies have al l ordered and are

operating new “Megaships” that can handle up to 18,000

TEU’s (twenty-foot equivalent unit) to stay relevant and cur rent

in thei r industry. Unfor tunately, these new large ships have

created an oversupply of capacity which has pushed shipping

rates down. As an example, moving a container from China

to Long Beach used to cost approximately $2,000.00, now it

can be sent for as l it t le as $750. These signals from the supply

chain may indicate that some type of market cor rection is

around the corner. Could the election be the catalyst for

rais ing of interest rates? Only t ime wi l l tel l. “This isn’t to say

that issues in the global economy—namely a wobbly Chinese

4LOS ANGELES - LONG BE ACH INDUSTR IAL MARKET REPORT Q3 2016

$0.56

$0.58

$0.60

$0.62

$0.64

$0.66

$0.68

$0.70

$0.72

$0.74

$0.76

$0.78

$0.80

AVERAGE ASKING RENT BY QUARTER

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

-1m

0

-500k

500k

1m

1.5m

2m

NET ABSORPTION3Q

15

1Q16

2Q16

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

VACANCY

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

1Q14

6.0%

1Q14

4Q15

3Q14

4Q14

1Q15

2Q15

3Q16

2Q14

$10006 08 10 12 14 16

$110

$120

$130

$140

$150

$160

ASKING PRICE PER SQ FT

economy and the Brexit—aren’t ser ious, they are,” said

Beacon Economics’ Founding Partner Chr istopher Thornberg,

“but these are ser ious issues that wi l l play out over many years,

not a few months, a cr it ical dist inction.”

If this trend persists, we wi l l continue to see property values

and sale pr ices increase. This wi l l be a great opportunity for

Property Owners to put thei r investments up for sale or to

lease them out in attempts to capture the markets cur rent

high values. Interest rates are sti l l histor ical ly low and these

low rates wi l l continue to encourage business owners to take

advantage of the favorable market conditions. As seen last

quarter, Industr ial properties for lease or sale wi l l be diff icult

to f ind, whi le newer faci l it ies wi l l be bui lt to support fulf i l lment

centers and the move towards electronic retai l ing. Despite

the background noise global ly, local ly the market s ignals

are strong heading into 4Q 2016. Contact your local Lee

& Associates Agent for your most up to date local market

condition information.

- Brandon Carr i l lo, Pr incipal

Source: CoStar Property® & AIR Commercial Real Estate Associat ion

5LOS ANGELES - LONG BE ACH INDUSTR IAL MARKET REPORT Q3 2016

2201 E CARSON ST | LONG BEACH LEASED

Q3 2016 TOP LEASESPROPERTY ADDRESS CITY TYPE TENANT SQUARE FEET LEASE TYPE

1430 N McKINLEY AVE (BLDG 1) COMPTON WAREHOUSE UPS 525,400 SF DIRECT

2201 E CARSON ST LONG BEACH WAREHOUSE SONY 521,856 SF RENEWAL

153 W ROSECRANS AVE GARDENA WAREHOUSE 151 ROSECRANS LLC 104,234 SF DIRECT

1370-1420 VICTORIA ST CARSON WAREHOUSE ACESS PLUS WAREHOUSE 90,052 SF DIRECT

2161 TECHNOLOGY PL LONG BEACH WAREHOUSE PREMIER TRANSPORTATION & WAREHOUSING 42,712 SF DIRECT

Q3 2016 TOP SALES

PROPERTY ADDRESS CITY REGION TYPE SQUARE FEET SALES PRICE

20333 NORMANDIE AVE TORRANCE SOUTH LAND 884,268 SF $43,000,000

490-500 N OAK ST INGLEWOOD WEST WAREHOUSE 216,300 SF $30,000,000

2550 EL PRESIDIO ST CARSON SOUTH WAREHOUSE 140,424 SF $16,582,500

291 CORAL CIRCLE EL SEGUNDO SOUTH WAREHOUSE 41,658 SF $12,650,000

1241 E BURNETT ST SIGNAL HILL SOUTH WAREHOUSE 12,572 SF $4,800,000

Source: CoStar Property® & AIR Commercial Real Estate Association

1430 N MCKINLEY AVE | COMPTON LEASED

20333 NORMANDIE AVE | TORRANCE SOLD 2550 EL PRESIDIO ST | CARSON SOLD490-500 N OAK ST | INGLEWOOD SOLD

153 W ROSECRANS AVE | GARDENA LEASED

6LOS ANGELES - LONG BE ACH INDUSTR IAL MARKET REPORT Q3 2016

The Ports of Los Angeles and Long Beach combined volumes for the 3rd quarter were down approximately 5.1% compared to 2015; however, they are stil l up almost 1% for the year. While there were several major news stories this quarter, one made the front pages around the world.

On August 31st, Hanjin Container Line filed for Bankruptcy and immediately stranded almost $14 Bill ion worth of goods worldwide. Hanjin’s global capacity was approximately 600,000 TEUs equaling roughly 3.2% of the global containers in almost 100 vessels. The enormous ripple effect immediately wreaked havoc on the world’s supply chain. Ports and Stevedores had no guarantee of payment for services and therefore initially denied ships to berth. Goods were stranded for up to 2 months as beneficial cargo owners incurred significant additional costs to release their product on top of the charges that had already been paid to Hanjin. Problems were only further complicated by the Ports refusal to accept Hanjin’s empty containers. While they were not charged demurrage, cargo owners and or transportation carriers incurred additional daily fees for the chassis that were captive because of the connected Hanjin container. As a further complication, chassis were quickly tied up underneath Hanjin boxes creating an immediate shortage of pooled chassis for ALL carriers. The Hanjin collapse is believed to be directly responsible for September’s National Imports being down by 3.8%.

For Long Beach, volumes are down over 12% for the quarter and 4.6% for the year. July and August were both down months with 7.7% and 8.9% respectfully compared to last year. Hanjin containers have accounted for approximately 12% percent of Long Beach’s yearly volumes and with their bankruptcy September’s volumes were immediately impacted and decreased by 16.6%. Further adding to their crisis, Long Beach CEO Jon Slangerup unexpectedly resigned and vacated a post that he held for less than 2 and a half years on September 8th and leaving the Board of Harbor Commissioners

searching for a replacement.

The Port of Los Angeles’ 3rd quarter was significantly different than Long Beach’s. July volumes were stil l strong, but down slightly compared to 2015 by 1.61%. August posted a small gain of 1.56%; however, its nominal gain was a remarkable achievement as it commemorated the 2nd busiest month in LA’s 109-year history with a total of 798,933 TEUs. Executive Director Gene Seroka remarked on their accomplishment with, “[Our] strong numbers on both our import and export cargo during the industry’s peak season indicates confidence in our ability to meet supply chain expectations. While our industry is currently facing many challenges, the Port of Los Angeles remains committed to handling the nation’s cargo with speed, efficiency and first-class service.” Despite the Hanjin bankruptcy, September’s volumes increase by 2.4% overall with exports surging 16.7% for the month. Los Angeles’ overall cargo volume is up 4.1% for the year thus far.

With Hanjin’s demise, fundamental economics has shattered the previous belief that major carriers are immune to failure and can withstand prolonged years of lower rates and financial losses. Its estimated that the shipping industry will have a collective loss of more than $5 bill ion this year as excess capacity and weak demand continue to erode profitability. The Panama Canal’s recently opened enlarged canal enhances the competitiveness of the East Coast Ports; however, supply-chain fundamentals such as price, time and the ability to efficiently service mega-ships will ultimately determine cargo routing and presently favors the West Coast. All that said, Black Friday is around the corner and the National Retailer Federation expects October volumes to post significant import gains as the industry hurriedly attempts to fil l demand by retailers for the Christmas shopping season; potentially becoming Southern California’s biggest container year ever.

- David Bales, Pr incipal

Total Containers San Pedro Port Complex

3,000,000

2,000,000 8,500,000

9,000,000

9,500,000

10,000,000

10,500,000

4,000,000

5,000,000

6,000,000

CombinedLoaded Outbound

CombinedLoaded Inbound

LOS ANGELES & LONG BEACH PORT ACTIVITY

YTD SEPTEMBER 2016 Source: www.polb.com www.portoflosangeles.org

2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016

T E U s T E U s

7LOS ANGELES - LONG BE ACH INDUSTR IAL MARKET REPORT Q3 2016

*Third-Party Data Sources: CoStar Group, Inc., AIR Commercial Real Estate Association, Beacon Economics, Port of Long Beach, Port of Los Angeles, and The Journal of Commerce.

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

Contact a Lee & Associates Broker who can provide you with the most comprehensive market knowledge and expertise in the business. We specialize in:

LONG BEACHAIRPORT

LAX

COMPTON

RANCHODOMINGUEZ

BIXBY KNOLLS

SOUTH GATEDOWNEY

PARAMOUNT

LAKEWOOD

LONG BEACH

SAN PEDRO

WILMINGTON

PORT OFLOS ANGELES

PORT OFLONG BEACH

RANCHOPALOS VERDES

REDONDOBEACH

MANHATTANBEACH

TORRANCE

LOMITA

ROLLING HILLSESTATES

CARSON

GARDENA

HAWTHORNE

EL SEGUNDO 710

710110

110105

105

605

605

405

405

91 91

1

1

1

103

LOS ANGELES & LONG BEACH INDUSTRIAL MARKET MAP

LOOK TO LEE & ASSOCIATES FOR SOLUTIONSThe 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 2016 Lee & Associates Los Angeles - Long Beach,Inc. All rights reserved.

Contributed By:Brandon Carrillo

David Bales

Los Angeles Office1411 W. 190th Street, Suite 450, Gardena, CA 90248

Office: 310.768.8800 | Fax: 310.768.8978

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Office: 562.354.2500 | Fax: 562.354.2501

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