LOS ANGELES - LONG BEACHINDUSTRIAL MARKET REPORT

M A R K E T R E P O R T Q 4 2 0 17

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 BEACH INDUSTRIAL MARKET REPORT Q4 2017

Absorption 353,296 SF

Vacancy 1.2%

Average Rent$0.85 / SF

Under Construction732,718 SF

Sales Transactions $83.03 Million

Average Sales Price$187.26 / SF

Q4 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. INTERNATIONAL REACH. WORLD CLASS.

AS SOUTH BAY INDUSTRIAL ATTRACTS STABLE YIELD, DEVELOPERS LOOM

Source: AIR Commercial Real Estate Associat ion

3LOS ANGELES - LONG BEACH INDUSTRIAL MARKET REPORT Q4 2017

The persistent demand for industrial space and the corresponding lack of supply continued through the fourth quarter of 2017, characterizing the South Bay submarket as one of the most robust and stable industrial real estate markets in the nation. As lease rates have increased by 4.94% year over year from 4Q16 to 4Q17, we expect landlords will continue to give fewer concessions and tenants will be challenged to compete for limited and expensive inventory through 1Q18.

As we enter the longest economic expansion since the early 2000’s tech boom, investors and developers continue to seek opportunities to place capital. One of the most notable developments since the Brickyard (1.1 million SF compound) is the 512,490 square foot speculative building built by Bridge Development at 20333 Normandie Avenue in Torrance. Bridge Development had the property under contract with multiple back-up offers from investors prior to completion, illustrating that investment capital continues to seek opportunities that will provide long-term stable growth.

The vacancy rate has seen a slight uptick from 1.1% in 4Q16 to 1.2% in 4Q17. The increase in vacancy is attributed to approximately 481,148 square feet of new deliverable buildings added during the fourth quarter of 2017. In addition, much of the vacancy tends to be in older, functionally obsolete properties. With limited new construction planned due to the lack of available industrial land and onerous permitting processes implemented by local municipalities, vacancy is expected to remain limited.

The average asking lease rates for the fourth quarter of 2017 were $0.85/SF NET, as compared to $0.81/SF NET for the fourth quarter of 2016. The increase in lease rates can be attributed to third-party logistic providers and e-commerce related users moving into “last mile” space to decrease delivery times as the consumer buying tendencies continue to effect retail supply chain. While larger Class A warehouses have experienced the most significant rent gain, lease rates for less

functional industrial product continue to increase as tenants fiercely compete to remain close to the ports of Los Angeles and Long Beach. Looking forward, we expect further pricing pressure on lease rates as third-party logistic providers and E-commerce related users battle the ballooning demand for reverse logistics. According to an Allied Market Research Report, “the global third-party logistics market is expected to [grow by an annual compound growth rate of 5.16%] to reach $1.1T over the next six years” (Souce: Bisnow, LLC).

Some of the more notable transactions in 4Q17 include:

• WSS leasing 201,027 square feet at 11600 Alameda St. in Lynwood

• Fitzmark, Inc. leasing 145,150 square feet at 2201 E. Carson St. in Carson.

• Classic Brands, LLC leasing 98,000 square feet at 1431 W. Via Plata St. in Long Beach

The average sales price has increased by 34.0% year over year up from $139.79 in 4Q16 to $187.26 in 4Q17. The sales price increase can be attributed to competition from investors seeking an attractive stable yield and owner/users seeking to take advantage of low interest rates to own in lieu of rising lease rates. An example of the need for investors to deploy capital can be seen from Rexford’s Industry (NYSE: REXF) approximately $667 Million in aquisitions from 2017, with roughly 40% of their acquisitions being in our local South Bay industrial market. Business owners seeking to expand seem to feel constrained as the flow of capital from institutional investors has created opposition.

Looking forward in 2018, we expect the Los Angeles South Bay industrial market to continue to be a place for strong capital investment, foreign investor demand, tenant activity, and continued increases in sale prices and lease rates. With the implementation of recent federal tax reform, many experts suggest that small business owners will have

4LOS ANGELES - LONG BEACH INDUSTRIAL MARKET REPORT Q4 2017

$0.45

$0.50

$0.55

$0.60

$0.65

$0.70

$0.75

$0.80

$0.85

$0.90

$0.95

AVERAGE ASKING RENT BY QUARTER

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

-1m

0

-500k

500k

1m

1.5m

2m

NET ABSORPTION

3Q15

1Q16

1Q17

3Q17

4Q17

2Q16

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

VACANCY

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

6.0%

4Q15

4Q16

2Q17

2Q15

3Q16

$10007 09 11 13 15 17

$120

$140

$160

$180

$200

ASKING PRICE PER SQ FT

more incentive to invest capital (i.e. equipment / automation), create more manufacturing facilities, and ultimately create more jobs. According to Gregory Daco of Oxford Economics (a forecasting and consulting firm), “Oxford estimates that each $1 of corporate tax cut will lead to 40 cents of spending” (Source: WSJ). Furthermore, landlords should benefit from a lower tax rate for passthrough entities such as LLCs and Partnerships. Now is a great time to consult with your CPA and/or tax professional to make sure you’re able to reap the benefits

for your personal or business situation. As your local market experts in industrial real estate, contact us for more information regarding your submarket and guidance in how to best achieve your goals in 2018.

- Joseph Stanko, Associate

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

5LOS ANGELES - LONG BEACH INDUSTRIAL MARKET REPORT Q4 2017

220 W. MANVILLE ST. | COMPTON LEASED

Q4 2017 TOP LEASESPROPERTY ADDRESS CITY TYPE LEASE RATE SQUARE FEET LEASE TYPE

11600 ALAMEDA ST. LYNWOOD WAREHOUSE $0.77 NNN 201,027 SF DIRECT

220 W. MANVILLE ST. COMPTON WAREHOUSE $1.19 NNN 176,656 SF DIRECT

2201 E. CARSON ST. CARSON WAREHOUSE $0.69 NNN 145,150 SF SUBLEASE

2340 W. 17TH ST. LONG BEACH LAND $0.43 NNN 100,000 SF DIRECT

1431 W. VIA PLATA ST. LONG BEACH WAREHOUSE $0.92 NNN 98,000 SF DIRECT

Q4 2017 TOP SALESPROPERTY ADDRESS CITY TYPE SALES PRICE SQUARE FEET REGION

24700 S. MAIN ST. CARSON LAND $41.46 / SF 455,000 SF SOUTH

16627 S. AVALON BLVD. CARSON LAND $64.22 / SF 296,208 SF SOUTH

1855 W. 139TH ST. GARDENA WAREHOUSE $162.77 / SF 231,000 SF SOUTH

16325 S. AVALON BLVD. CARSON WAREHOUSE $219.97 / SF 210,710 SF SOUTH

687 N. EUCALYPTUS AVE. INGLEWOOD WAREHOUSE $375.78 / SF 143,436 SF SOUTH

Source: CoStar Property® & AIR Commercial Real Estate Association

11600 ALAMEDA ST | LYNWOOD LEASED

24700 S. MAIN ST. | CARSON SOLD 1855 W. 139TH ST | GARDENA SOLD16627 S. AVALON BLVD. | CARSON SOLD

2201 E. CARSON ST. | CARSON LEASED

6LOS ANGELES - LONG BEACH INDUSTRIAL MARKET REPORT Q4 2017

The Ports of Long Beach and Los Angeles closed out 2017 with new records both individually and combined. Since the acquisition by Mediterranean Shipping Co. of the defunct Hanjin terminal, the Port of Long Beach had an 11.36% year over year increase with 7.54 Million total TEU’s moved. The Port of Los Angeles broke its own Western Hemisphere container record with a gain of 5.5%, totaling 9.34 Million TEUs. Additionally, Los Angeles posted its first 900K+ TEU month ever in November with 924,224 TEU’s. Exports grew roughly 1.6% in 2017 while imports grew by about 6.9% as a combined port complex. The growth in value of U.S. imports during the 4th quarter was 13.9%, the fastest growth in seven years according to the Commerce Department. These record volumes continue to demonstrate that the convenience, consumer demand and efficiency of Southern California continuously attract beneficial cargo owners even as other competitive US Ports and the Panama Canal spend substantial capital on improved infrastructure projects.

2017 was an incredible turnaround story for the Port of Long Beach and the 4th quarter volumes truly demonstrated the difference a year can make. For both October and November, volumes were up approximately 15% (669,218 and 612,659 TEUs respectfully), while December experienced an incredible 27% increase (696,919 TEUs) helping push Long Beach into the record books. “For us to continue to grow sustainably, our Port must be better prepared than other North American ports to bring goods on vessels that plug into clean shore power, move on zero-emission yard equipment and cranes, and are transferred quickly onto the most efficient network of trucks and trains.”, said Port of Long Beach Executive Director Mario Cordero.

For the quarter, LA was actually down slightly by 1.5% compared to 2016’s record quarter as it absorbed volumes from Long Beach. October

volumes decreased just over 8% (748,760 TEUs), November’s historic total rebounded back with a 5.3% gain (924,224 TEUs), and December closed slightly down by 2.1% (779,210 TEUs). “Executive Director Gene Seroka relays, “Our ‘Digital Infrastructure’ efforts in 2017 included a game-changing initiative to digitize critical data that will help cargo owners, rail and trucking companies track their containers and more effectively plan for land-side transport.”

As of January 22nd, 2018, the Port of Long Beach’s Board of Harbor Commissioners approved the long-awaited Pier B “On-Dock” Rail Support Facility to streamline rail operations, reduce truck traffic on local roads, and improve air quality near the Ports. On a national level, port operators, truckers, and various heavy users of U.S. infrastructure are excited about President Trump’s lofty $1.5 Trillion spending goal for the repair and expansion of roads, highways, and bridges. Shippers continue to struggle with a shortage in available trucks due to costly equipment upgrades, a lack of willing drivers, and most importantly increased freight demand. The Panama Canal posted a new 103-year history record with the recent navigating of its largest ship this past August carrying nearly 15,000 TEUs, ultimately berthing at the Ports of New York and New Jersey for the inauguration of the raised Bayonne Bridge. While 2017’s major retail container volume throughout the US was predicted to grow between 3.2 – 3.8%, the actual increase was much more dramatic with an increase of about 7%, according to the monthly Global Port Tracker. National Retail Federation Vice President Jonathan Gold stated, “Retail had a strong year fueled by growing wages, higher employment and a boost in consumer confidence. Retailers imported more merchandise than ever to meet demand for quality products at affordable prices, and growth is expected to continue in the year ahead.”

- David Bales, Principal & Ryan Endres, Principal

Total Containers San Pedro Port Complex

4,000,000

2,000,000

0 13,000,000

14,000,000

15,000,000

16,000,000

17,000,000

6,000,000

8,000,000

CombinedLoaded Outbound

CombinedLoaded Inbound

LOS ANGELES & LONG BEACH PORT ACTIVITY

YTD DECEMBER 2017 Source: www.polb.com www.portoflosangeles.org

2011 2012 2013 2014 2015 2016 2017 2011 2012 2013 2014 2015 2016 2017

T E U s T E U s

7LOS ANGELES - LONG BEACH INDUSTRIAL MARKET REPORT Q4 2017

*Third-Party Data Sources: CoStar Group, Inc., AIR Commercial Real Estate Association, Beacon Economics, Port of Long Beach, Port of Los Angeles, Bisnow, LLC, 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 2017 Lee & Associates Los Angeles - Long Beach,Inc. All rights reserved.

Contributed By:Joseph Stanko | Bret Osterberg

David Bales | Ryan Endres

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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