LOS ANGELES - LONG BEACHINDUSTRIAL MARKET REPORT

M A R K E T R E P O R T Q 4 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

Q4

2LOS ANGELES - LONG BE ACH INDUSTR IAL MARKET REPORT Q4 2016

WEST MIDWEST

SOUTH

SOUTHWEST

EAST

CANADA

AustriaBelgiumFranceIrelandLuxembourg

NetherlandsPolandSlovakiaSpainTurkey

AFFILIATE INTERNATIONAL RELATIONSHIP

Absorption 819,013 SF

Vacancy 1.1%

Average Rent$0.81 / SF

Under Construction2,131,012 SF

Sales Transactions $80.31 Million

Average Sales Price PSF$139.79 / SF

Q4 TRENDS AT A GLANCE

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local market implementation. This

translates into seamless, consistent

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and accountability. They provide

an integrated approach to leasing,

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LOCAL EXPERTISE. NATIONAL REACH. WORLD CLASS

STRONG MOMENTUM TO CARRY INTO 2017

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

3LOS ANGELES - LONG BE ACH INDUSTR IAL MARKET REPORT Q4 2016

2016 was another strong year for the for the Long Beach /

South Bay Industrial Real Estate Market and this trend is expected

to extend through 1Q 2017. Industrial rents will continue to

climb, as Ecommerce companies continue to drive demand for

industrial properties. Beyond Ecommerce, the recent passage of

recreational use of marijuana in California has led to a surge in

demand for industrial properties. The lack of available space is

a major concern heading into 2017 and has created concerns

for companies looking to expand as many are forced to settle

with renewing their existing space or outsourcing the additional

business. Landlords have taken advantage of these market

conditions and continue to push rates upward knowing there is

very limited amount of land for new development. Currently there

is 2,131,012 square feet of industrial space under construction

versus 741,832 square feet this time last year.

The direct industrial vacancy rate in the Long Beach / South

Bay Industrial Marketplace was relatively flat due to the lack of

space, 0.9% in the 3rd Quarter versus 1.1% in the 4th Quarter,

2016. The vacancy rate in the 4th quarter, 2015 was 0.9%, showing

the lack of available space for 2016 has remained steady. Lease

asking rates remained unchanged into the 4th Quarter as lease

rates averaged $0.81 PSF. However, lease rates from just 1 year ago

were hovering around $0.75 PSF. This 8% year over year increase in

lease rates demonstrates how Landlords have been methodically

pushing up rates. The lack of quality, Class A and B buildings for

sale provided downward pressure for the average sale price of

$139 PSF from $149 in the 3rd Quarter. According to the CoStar

Group: “Total year to date industrial building sales activity in 2016

is up compared to the previous year. In the first nine months of

2016, the market saw 297 industrial sales transactions with a total

volume of $2,528,172,986. The price per square foot has averaged

$134 this year. In the first nine months of 2015, the market posted

335 transactions with a total volume of $2,157,815,566. The price

per square foot averaged $126.84. Cap rates have been lower in

2016, averaging 5.34% compared to the first nine months of last

year when they averaged 5.92%.”

According to Chris Thornberg of Beacon Economics, “Beacon

Economics is forecasting continued increases in both nonfarm

employment and the labor forces over the next six years in Los

Angeles County. The unemployment rate is forecasted to continue

its decline, albeit at a slower pace, falling to about 4.5% by 2021.

Leading the way is the Restaurant and Hotels spending category,

where taxable receipts increased 6% from second quarter

of 2015 to the second quarter of 2016. A record level of tourist

expenditures in 2015 drove this trend. The strong demand for

Leisure and Hospitality services continued in 2016, as evidenced

by growth in the hotel industry. The occupancy rate in the County

reach 85.73%...Other spending categories showing taxable

receipts growth include Autos and Transportation (1.9%), Building

and Construction (5.3%) Food and Drugs (2.4%) and General

Consumer Goods (1.0%).” The cost of money is still relatively cheap

with the SBA 20 year fixed debenture rate hovering around 4.58%

according to Union Bank. Rates have stayed fairly stable, with

a slight increase at the end of 2016. Many banks can offer up

to a 90-day rate lock and can be helpful for borrowers who are

concerned where rates could go with the new Presidency.

Lee & Associates sees several trends that will shape the

Industrial Sector for Long Beach/ South Bay in 2017. The impact of

a Trump Presidency is beginning to take shape with companies like

Ford, Carrier and Sprint announcing plans to not lay off American

workers. Many businesses are excited for the Trump Presidency

and his pledge to get rid of government ‘red tape’ that businesses

encounter, and implement polices to help domestic growth.

From what we’ve seen and heard, consumer confidence is Very

High. Local Landlords are also bullish on the market and see that

there is still room for rental rate and sale price growth. Demand

is still outpacing supply, port activity continues to be strong,

there is little land to develop in Long Beach/South Bay; all which

contribute to a strong 2017. California’s new marijuana laws will

be another factor to skew pricing and supply for industrial product

in the Long Beach/South Bay region. As we saw in Washington

and Colorado, lease and sales values skyrocketed a few years

4LOS ANGELES - LONG BE ACH INDUSTR IAL MARKET REPORT Q4 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

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

-1m

0

-500k

500k

1m

1.5m

2m

NET ABSORPTION

3Q15

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

4Q16

6.0%

4Q15

4Q16

3Q14

4Q14

1Q15

2Q15

3Q16

2Q14

$10007 09 11 13 15 17

$110

$120

$130

$140

$150

$160

ASKING PRICE PER SQ FT

ago when jurisdictions passed the recreational use of Marijuana.

Money for the Marijuana Industry flooded into those markets to

capture real estate product. We believe this trend will continue

in California, and then level off, like it did in Washington and

Colorado. This will likely be positive for property owners but

negative for local business as the local market values will increase

and could potentially push local business out of the area. Many

industries forecast growth for this year, however; their ability to

expand in Long Beach / South Bay will require creativity and

expertise to navigate through these new series of factors in the

marketplace. Despite these concerns, the market signals for the

Long Beach/ South Bay real estate market is strong heading into

1Q 2017. Contact your local Lee & Associates specialist for more

information regarding your submarket and guidance in how to

navigate through these new factors for 2017.

- Brandon Carrillo, Principal

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

5LOS ANGELES - LONG BE ACH INDUSTR IAL MARKET REPORT Q4 2016

3025 E DOMINGUEZ ST | CARSON LEASED

Q4 2016 TOP LEASESPROPERTY ADDRESS CITY TYPE TENANT SQUARE FEET LEASE TYPE

2626 E. VISTA INDUSTRIA RANCHO DOMINGUEZ WAREHOUSE CNR INTERNATIONAL INC 163,499 SF DIRECT

3025 E. DOMINGUEZ ST. CARSON WAREHOUSE GROWTH POINT GLOBAL 131,593 SF DIRECT

910 E. SANDHILL AVE. CARSON WAREHOUSE HIRSCH PIPE & SUPPLY 87,000 SF DIRECT

2131 TECHNOLOGY PL. LONG BEACH WAREHOUSE HEAVY WEIGHT TRANSPORT, INC 49,723 SF DIRECT

2924 E. ANA ST. RANCHO DOMINGUEZ WAREHOUSE TANDEM GSC LLC 23,937 SF SUBLEASE

Q4 2016 TOP SALES

PROPERTY ADDRESS CITY REGION TYPE SQUARE FEET SALES PRICE

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

301-445 N. FIGUEROA ST. WILMINGTON SOUTH WAREHOUSE 133,925 SF $13,000,000

24724 S. WILMINGTON AVE. CARSON SOUTH WAREHOUSE 102,000 SF $24,250,000

910 E. G ST. WILMINGTON SOUTH LAND 41,818 SF $2,850,000

211 W. 140TH ST. LOS ANGELES SOUTH WAREHOUSE 37,000 SF $4,637,000

Source: CoStar Property® & AIR Commercial Real Estate Association

2626 E VISTA INDUSTRIA | RANCH DOM LEASED

2550 EL PRESIDIO ST | CARSON SOLD 24724 S WILMINGTON AVE | CARSON SOLD301-445 N FIGUEROA ST | WILMINGTON SOLD

910 E SANDHILL AVE | CARSON LEASED

6LOS ANGELES - LONG BE ACH INDUSTR IAL MARKET REPORT Q4 2016

The Southern California Port Complex finished their 3rd largest year and increased their volumes from 2015 by approximately 1.8%. With over 15.6 M TEUs, their volume was more than doubled the second-largest US port complex; New York-New Jersey. However, the shipping industry did experience a tumultuous year that will be remembered most for having the largest shipping bankruptcy, diverging container traffic between Long Beach and Los Angeles, reorganizing global container lines, larger vessel-sharing agreements and historically low spot rates just to name a few. 2016’s transformations have reset the ‘New’ Normal and will greatly influence 2017 ocean transportation trends.

The Port of Long Beach was heavily impacted by Hanjin Shipping’s bankruptcy as it was their largest customer and the 7th largest container line in the world. While the ‘Hanjin Effect’ started in the 3rd quarter, it had devastating results throughout the rest of the year. Long Beach’s 4th quarter volumes were down each month; October fell by 6.16%, November slid further by another 13.78% and December struggled with losses of 7.97%. With these setbacks, overall volumes for the year decreased approximately 6.15%, while still recording their fifth best year and moved almost 6.8 million TEUs. Total imports were down by 5% as empty containers decreased further by 11.7%; however, a positive sign was that exports were actually up by 0.3% percent. The Port of Long Beach’s Interim Chief Executive Duane Kenagy said, “As the New Year starts, we’re grateful to be able to put the Hanjin bankruptcy behind us. At the same time, MSC’s quick interest in Pier T [Hanjin’s Berth] once it became available shows the facility’s value to the industry. We’re looking forward to a mutually beneficial partnership with MSC and the 2M Alliance.” With a bolstering economy and their new terminal partner in place, Long Beach’s prognosis for 2017 is bright and could result in a break out performance.

For the Port of Los Angeles, 2016’s 4th Quarter was the biggest quarter in their 110-year history and broke all annual records for the

entire Western Hemisphere with 8,856,782 TEUs -- up 8.5% from 2015 AND surpassed their previous record in 2006 by over 4.5%. October and November were both over 800,000 TEUs and were up 15.61% and 23.61% respectfully with November’s 877,563 TEUs being the busiest month ever! December was up over 27% and finished just shy of 800,000 TEUs. Mayor Eric Garcetti said, “We have seen incredible progress over the last two years, and it speaks to the hard work and partnership between the City, business leaders, and the workers who keep our port running smoothly every day. We’re breaking records because we understand the importance of innovating and collaborating to move our economy forward,” Port of Los Angeles Executive Director Gene Seroka added, “To handle this much volume with minimal issues is an extraordinary accomplishment and demonstrates our capability-building efforts here in the San Pedro Bay complex.” There were many other praises for Los Angeles including Jonathan Gold from the National Retail Federation, stating, “The Port of Los Angeles is a critical partner in the retail supply chain. The Port continues to lead the way in stakeholder engagement to address issues that impact the movement of goods. This commitment and focus on supply chain optimization is essential as the maritime industry changes and evolves.”

With The Port of Los Angeles reaching new milestones and The Port of Long Beach procuring new terminal partners with MSC and recently Hyundai Merchant Marine (HHM) adding interest in the berth, combined volumes should continue to increase in the next 12 months. Looking forward to 2017, all US ports will face unprecedented operational challenges when ocean carriers are scheduled to restructure their vessel-sharing alliances on April 1st. Being the largest Ports, LA and Long Beach will have the greatest obstacles; but by avoiding congestion and aligning with cargo and shipper’s goals of reliability and efficiency, they are well poised to attract additional freight and further bolster our region’s economy.

- David Bales, Principal

Total Containers San Pedro Port Complex

4,000,000

3,000,000

2,000,000 13,000,000

13,500,000

14,000,000

14,500,000

15,000,000

16,000,000

15,500,000

5,000,000

6,000,000

7,000,000

8,000,000

CombinedLoaded Outbound

CombinedLoaded Inbound

LOS ANGELES & LONG BEACH PORT ACTIVITY

YTD DECEMBER 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 Q4 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

Long Beach Office5000 E. Spring Street, Suite 600, Long Beach, CA 90815

Office: 562.354.2500 | Fax: 562.354.2501

www.lee-associates.com

LOCAL EXPERTISE. NATIONAL REACH. WORLD CLASS.