LOS ANGELES - LONG BEACHINDUSTRIAL MARKET REPORT

M A R K E T R E P O R T Q 1 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

Q1

2LOS ANGELES - LONG BE ACH INDUSTR IAL MARKET REPORT Q1 2016

WEST MIDWEST

SOUTH

SOUTHWEST

EAST

CANADA

AustriaBelgiumFranceIrelandLuxembourg

NetherlandsPolandSlovakiaSpainTurkey

AFFILIATE INTERNATIONAL RELATIONSHIP

Absorption 165,476 SF

Vacancy 0.9%

Average Rent$0.76 / SF

Under Construction1,867,256 SF

Sales Transactions $82.62 Million

Average Sales Price PSF$152.50 / SF

Q1 TRENDS AT A GLANCE

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 market-

to-market services.

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

NO PLACE TO GO

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

3LOS ANGELES - LONG BE ACH INDUSTR IAL MARKET REPORT Q1 2016

Across the country the economy is continuing to march

forward. Taking up the l ion’s share of economic growth is

the Golden State of Cal ifornia. Accounting for almost 20%

of the Nation’s incoming foreign investments and home to

some of the wor ld’s largest corporations. With 4 out of the

top 10 investment market places in the U.S., Cal ifornia is

THE prefer red destination for foreign investors looking for

a long term and stable place to park their money. In 2015

the state surpassed Brazi l as the 7th largest economy in the

wor ld with a GDP of 2.42 tr i l l ion dol lars. Taking these factors

in to consideration, Cal ifornia is expected to outper form

the rest of the nation in overal l economic growth this year.

More than 650,000 jobs are anticipated to be coming to

the state in 2016 in construction, professional and technical

services, and warehousing and transportation as related

to foreign trade. With more jobs comes more growth, and

with growth, companies are f inding their existing faci l it ies

inadequate in keeping up with the demands of their

increased business.

Warehouse and Flex vacancy, at the end of the f i rst

Quarter, continued to fal l, the combined estimate is

1.1% in LA County. The South Bay submarket is lower at

approximately 0.9% combined and even lower at 0.8% for

South Bay Warehouse only. True to the nature of supply

and demand the pr ice per square foot in the South Bay

Submarket has r isen near ly 16% from last year’s $0.66 PSF

to the $0.76 PSF we are seeing today. Due to these factors,

tenants have to plan fur ther ahead when searching out

qual ity space in which to relocate or expand their existing

businesses. In many instances companies are opting not

to expand, and instead renew at the higher rental rates

in order to maintain their most prof itable l ines of business

whi le they adjust to this “new economy”. On the f l ipside,

landlords have al l the leverage and are being more picky

about with whom they decide to enter into an agreement.

Having so many tenants at the negotiating table, we

are f inding they are able to demand higher rates,

better credit, and longer terms al l whi le giving up fewer

concessions. For better or for worse, it has been made

abundantly clear over the last quarter that vacancy has

been and wi l l continue to be the main issue facing the Los

Angeles Industr ial Real Estate Market. Great for Landlords

and troublesome for tenants, we are seeing that the lack

of space has created a surplus of shoppers left to f ight for

what l itt le inventory remains left on the shelves.

Continuing the trend, land pr ices have seen a substantial

increase as wel l. With over 40% of the nation’s goods

coming through our ports, we are currently witnessing a

complete lack of viable land sites left in the South Bay

approved for trucking and transportation related uses. This

has presented itself to be problematic when determining

a value for such product. However, with the recent lease

of 21.5 acres at 1500 Lomita, a new precedent for qual ity

trucking and transportation faci l it ies has been set at

almost $30,000,000 in total consideration, companies can

now expect to see a rate between $0.25-$0.30 PSF gross

for s izeable (10+Acres) land leases. Moving forward, it is

doubtful companies wi l l be able to continue the practice

of tying up large swaths of land with long term leases at

low pr ices.

The lack of sites has not only greatly affected Los Angeles

and Long Beach Ports, but LAX is feel ing the pinch as wel l.

The extremely tight market is making places l ike Hawthorne

and Inglewood seem more attractive to companies looking

to be next to one of the wor ld’s busiest ai rports. As a result

Amazon has recently acquired 215,000 SF in Hawthorne for

their additional warehousing and distr ibution operations.

Not only has leasing witnessed a signif icant increase, but

over-al l sales have seen considerate r ise in their pr ice.

With l imited inventory being made avai lable for sale

in the South Bay Industr ial Market, we are seeing both

investors and users al ike rushing to grab what viable sites

they can. Properties that were previously ignored due

4LOS ANGELES - LONG BE ACH INDUSTR IAL MARKET REPORT Q1 2016

$0.56

$0.58

$0.60

$0.62

$0.64

$0.66

$0.68

$0.70

$0.72

$0.74

$0.76

AVERAGE ASKING RENT BY QUARTER

3Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

-1m

0

-500k

500k

1m

1.5m

2m

NET ABSORPTION

4Q13

3Q15

1Q16

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

VACANCY

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

3Q13

4Q13

1Q14

6.0%

1Q14

4Q15

3Q14

4Q14

1Q15

2Q15

2Q14

3Q13

$6006 08 10 12 14 16

$80

$100

$120

$140

$160

ASKING PRICE PER SQ FT

4Q13

functional obsolescence, contamination, or zoning issues

are now being reconsidered. As a result the average

rates have gone from just over $120 PSF at this t ime last

year to asking almost $160 PSF for industr ial space today.

There is cur rently just over 1,200,000 SF in the development

pipel ine, which isn’t much when taking into consideration

the existing demand. It is most l ikely that the major ity of

this new space wi l l be del ivered with leases al ready in

place with high credit tenants.

Looking forward, buyers and tenants wi l l have to

plan fur ther ahead, and be ready to jump on the r ight

opportunity as it comes along. Vacancies are expected

to stay below the 1% mark this year, and wi l l continue to

plague buyers and tenants. As for owners, the deck is

stacked in your favor. There is no longer a point in doing

off market transactions when the market is so transparent,

and properties are often receiving multiple offers. Having

such high demand and l itt le product, owners can expect

to maximize their prof its by going to market.

Written by Dustin W. Byington

Source: CoStar Property®

5LOS ANGELES - LONG BE ACH INDUSTR IAL MARKET REPORT Q1 2016

Q1 2016 INDUSTRIAL STATISTICS

Q1 2016 TOP LEASESPROPERTY ADDRESS CITY TYPE TENANT SQUARE FEET LEASE TYPE

1500 E. Lomita Blvd. Wilmington Land California Multimodal / Cal-Cartage 931,748 SF Direct

2230 E. Carson St. Long Beach Warehouse Idea Nuova Inc. 198,292 SF Direct

21950 Arnold Cener Rd Carson Warehouse DG Logistics 185,629 SF Direct

18221 S. Susana Rd., Ste. A & B Rancho Dominguez Warehouse Western Intermodal Transport 100,427 SF Direct

1200 W. Walnut St. Compton Warehouse Ablecargo 43,000 SF Direct

Q1 2016 TOP SALES

PROPERTY ADDRESS CITY REGION TYPE SQUARE FEET SALES PRICE

705 E. D St. Wilmington South Warehouse 50,000 SF $217.00 PSF

19500 - 19506 Normandie Ave. Torrance South Warehouse 20,000 SF $165.00 PSF

690 W. Manville St. Compton South Warehouse 55,048 SF $136.34 PSF

1650 W. Rosecrans Ave. Gardena South Multi-Tenant Warehouse 32,256 SF $135.11 PSF

19603 Figueroa St. Carson South Warehouse 15,120 SF $125.66 PSF

Source: CoStar Property®

1500 E LOMITA BLVD, WILMINGTON LEASED

705 E. D ST, WILMINGTON SOLD 690 W. MANVILLE ST, COMPTON SOLD19500-19506 NORMANDIE AVE, TORRANCE SOLD

2230 E. CARSON ST, LONG BEACH LEASED 21950 ARNOLD CENTER RD, CARSON LEASED

6LOS ANGELES - LONG BE ACH INDUSTR IAL MARKET REPORT Q1 2016

At the start of 2016, the Southern California Ports had confidence, productivity and demand blowing at their backs producing combined increase in containers over 9%. To quote Executive Director Gene Seroka, “The Feedback we are receiving from cargo owners and exporters is that the Port is delivering on speed, efficiency, cost and service. Our terminal operators and supply chain partners are working with us to continuously improve and optimize operations.”

The Port of Los Angeles had their biggest January and February in a 109 year history, leading to a record first quarter showing containers increasing by 11.3% with 2,030,982 TEUs. January was up over 33% (704,398 TEUs) and February was even better at almost a 42% increase (713,721 TEUs). Total March volumes decreased by 22.6% (612,863 TEUs) when compared to last year. This significant drop in container volume is attributed to last year’s surge after congestion issues were resolved.

The Port of Long Beach 1st quarter experienced a 6.1% increase and had their best start since their peak in 2007, as well as their strongest February. January 2015 surged 24.84 %, over (536,188 TEUs) and then posted an even stronger gain of 35.90% (561,412 TEUs) in February. The same March drop was experience by Long Beach, for the same reason as LA; and fell 26.2 % (464,855 TEUs). Long Beach’s CEO Jon Slangerup stated “Our value proposition, being the fastest and most cost-effective supply route from Asia to America’s consumer markets, continues to define Long Beach and Southern California as the multimodal gateway of choice for our

shipping customers.”

Looking forward to the 2nd quarter, cost to deliver containers to the West Coast are still extremely competitive and viewed as low by industry standards. A 40 foot container costs are approximately $700-$800 and arrives in 12 days. Whereas the same container is over $1,600 going to NY-NJ and takes over twice as long with 25 days transit. Additionally, the two largest container vessels currently calling North America, the CMA CGM Benjamin Franklin and the Maersk Edmonton, are scheduled to return concurrently in late April; re-enforcing the mega-ship dominance of the Sothern California Ports.

While these volumes set the stage to what could be the Ports biggest year, there has been a setback to future capacity growth. In late March, A California Superior Court judge found the environmental impact report on the BNSF Railway’s near-dock intermodal rail yard to be inadequate, further delaying a project that has been more than 10 years in the making. Furthermore, more competition for the mega-ships later this year as the Panama Canal is 97% completed and is finally scheduled to open later this year after 8 years of construction. After the Canal opens, competing Gulf and East Coast Ports will be able to service larger ships that Southern California deep water ports have had an advantage on. These other Ports have plans to increase their market share, however, they would have to beat LA / Long Beach’s current value-add proposition for imported goods. This is something to monitor in the future.

Total Containers San Pedro Port Complex

600,000

0 2,800,000

3,000,000

3,200,000

3,400,000

3,600,000

1,000,000

1,400,000

1,800,000

CombinedLoaded Outbound

CombinedLoaded Inbound

LOS ANGELES & LONG BEACH PORT ACTIVITY Written by David Bales, Principal

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

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

TEUs TEUs

7LOS ANGELES - LONG BE ACH INDUSTR IAL MARKET REPORT Q1 2016

*Third-Party Data Sources: CoStar Group, Inc., AIR Commercial Real Estate Association, UCLA Anderson Forecast, 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 2015 Lee & Associates Los Angeles - Long Beach,Inc. All rights reserved.

Contributed By:Dustin Byington | Craig Poropat

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

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