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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
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BIXBY KNOLLS
SOUTH GATEDOWNEY
PARAMOUNT
LAKEWOOD
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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
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