LOS ANGELES - LONG BEACHINDUSTRIAL MARKET REPORT

M A R K E T R E P O R T Q 4 2 0 1 9

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 2019

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Absorption (157,083) SF

Vacancy 1.5%

Average Rent$1.07 / SF

Under Construction*1,150,951 SF

Sales Transactions $301.62 Million

Average Sales Price$202.83 / SF

Q4 TRENDS AT A GLANCE

ABOUT LEE & ASSOCIATES

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local market implementation. This

translates into seamless, consistent

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profitable decisions.

LOCAL EXPERTISE. INTERNATIONAL REACH. WORLD CLASS.

HAS RENTGROWTH STABILIZED?

Source: CoStar Real ty Informat ion Inc.(As Of January 3, 2020) and *AIR CRE

3LOS ANGELES - LONG BEACH INDUSTRIAL MARKET REPORT Q4 2019

It was another strong year throughout 2019 for the Long Beach / Los Angeles Industrial Real Estate Market, and this trend should extend into the 1st Quarter 2020. Industrial rents appear to have stabilized, at least this quarter, as e-commerce companies continue to drive demand for industrial properties. Demand for cannabis properties in California has also leveled off, helping to contribute to the potential stabilization of lease and sale values. The lack of available space is a concern heading into 2020 for most businesses. Companies looking to expand into highly functional Class A spaces have been forced to settle with renewing their existing spaces or outsourcing the additional business to third-party logistics companies. Landlords have taken advantage of these market conditions and continue to push for favorable terms due to the limited amount of land for new development. Currently there is 2,013,297 square feet of industrial space under construction versus 1,048,875 square feet this same time last year. Lease rates had increased over the past 12 quarters, however this quarter could be signaling stabilization coming to the market place as the average lease asking rate slightly decreased to $1.07 PSF.

The direct industrial vacancy rate in the Long Beach / Los Angeles Industrial Marketplace was relatively flat due to the lack of space, as the vacancy rate was 1.4% in the 3rd Quarter versus 1.5% in the 4th Quarter, 2019. The vacancy rate in the 4th quarter, 2018 was 1.4%; which shows the lack of available space for 2020 has remained steady despite new supply being added the past 5 years. Lease asking rates softened in the 4th Quarter to $1.07 PSF from $1.09 in the 3rd Quarter. However, lease rates from 1 year ago were hovering around $1.00 PSF. This 7% year over year increase in lease rates demonstrates how Landlords have been methodically pushing up rates this

past year. The lack of functional, Class A and B buildings for sale provided downward pressure for the average sale price with 4Q sale prices averaging approximately $202 PSF versus $208 in the 3rd Quarter.

According to Chapman & UCLA Economic Forecasts “GDP to reach 2% with No Recession in 2020.” UCLA Anderson Forecast Director Jerry Nickelsburg believes California is on a two-track economy stating, “On one hand, growth in California is slowing. On the other hand, this is, in part, because unemployment rates are very low…therefore the rate should slow down…” The cost of money is still relatively cheap with the SBA 25-year fixed debenture rate hovering around 3.71% according to Harvest Bank. Rates have stayed stable with the 10 Year T Bill around 1.8%. Most banks have a 90-day rate lock and can be helpful for borrowers who are concerned where rates could go under after the election.

Lee & Associates sees several trends that could create headwinds for the Industrial Sector of Long Beach/ Los Angeles in 2020. For the 7th year in a row, California saw more people leaving the state than moving into the state. According to Jim Doti, PH.D., “Migration of residents to other states and the trade wars disproportionate impact on California have put the state’s growth on parity with the U.S.” 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. The lack of available space is a major concern as we head into 2020. Many industries forecast growth for this year, however; their ability to expand in Long Beach / Los Angeles will require creativity and expertise to navigate through these new series of factors in the marketplace. Despite these

4LOS ANGELES - LONG BEACH INDUSTRIAL MARKET REPORT Q4 2019

$0.55

$0.60

$0.65

$0.70

$0.75

$0.80

$0.85

$0.90

$0.95

$1.00

$1.05

$1.10

AVERAGE ASKING RENT BY QUARTER

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

-1m

0

-500k

500k

1m

1.5m

2m

NET ABSORPTION

2Q17

4Q18

2Q19 3Q

19 4Q191Q

19

1Q18

3Q18

0.5%

0.7%

0.9%

1.1%

1.3%

1.5%

VACANCY

1.7%

3Q17

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

2Q17

3Q17

1Q18

2Q18

4Q17

4Q17

2Q18

$10009 11 13 15 17 19

$140

$180

$220

$260

$300

ASKING PRICE PER SQ FT

concerns, the market signals for the Long Beach/ Los Angeles real estate market is strong heading into 1Q 2020. Contact your local Lee & Associates specialist for more information regarding your submarket and guidance in how to navigate through these new factors in 2020.

-Brandon Carrillo, Principal Garrett Massaro, Principal

Bret Osterberg, Principal

Source: CoStar Real ty Informat ion Inc

5LOS ANGELES - LONG BEACH INDUSTRIAL MARKET REPORT Q4 2019

225 W MANVILLE ST | COMPTON LEASED

Q4 2019 TOP LEASESPROPERTY ADDRESS CITY TYPE LEASE RATE SQUARE FEET LEASE TYPE

2100 E 223RD ST CARSON LAND $0.37 / SF 428,019 SF DIRECT

225 W MANVILLE ST COMPTON LAND $0.40 / SF 339,687 SF DIRECT

940, 970, 990 FRANCISCO ST TORRANCE WAREHOUSE $0.97 /SF 301,680 SF DIRECT

24760 MAIN ST CARSON WAREHOUSE $0.93 / SF 231,008 SF DIRECT

20500 ALAMEDA ST CARSON WAREHOUSE $0.83 / SF 147,390 SF SUBLEASE

Q4 2019 TOP SALESPROPERTY ADDRESS CITY TYPE SALES PRICE SQUARE FEET REGION

1325 E EL SEGUNDO BLVD EL SEGUNDO WAREHOUSE $245.76 /SF 128,833 SF SOUTH

333 E GARDENA BLVD GARDENA LAND $58.38 / SF 101,059 SF SOUTH

424-436 E WEBER AVE COMPTON LAND $53.80 / SF 65,524 SF SOUTH

14601 S BROADWAY GARDENA WAREHOUSE $200.00 / SF 61,500 SF SOUTH

750 W MANVILLE ST COMPTON WAREHOUSE $191.85 / SF 59,996 SF SOUTH

Source: CoStar Real ty Informat ion Inc

2100 E 223RD ST | CARSON LEASED

1325 E EL SEGUNDO BL | EL SEGUNDO SOLD 424-436 E WEBER AV | COMPTON SOLD333 E GARDENA BL | GARDENA SOLD

940-990 FRANCISCO ST | TORRANCE LEASED

6LOS ANGELES - LONG BEACH INDUSTRIAL MARKET REPORT Q4 2019

The Ports of Los Angeles and Long Beach experienced another good year with 16,969,662 TEUs moved. Although it was its 2nd biggest year compared to 2018’s record, the port complex moved 3.31% less in volume. Throughout 2019, the combined cargo center was on pace to slightly exceed last year’s record until the 4th Quarter, which slowed dramatically by 11.71% in comparison – primarily attributed to last year’s import tariff avoidance spike. In 2019, Imports in general were down -5.52% YoY, exports were down -5.78%, and Empties were up by 2.20%.

The Port of Long Beach (POLB) experienced some cargo diversion to Los Angeles primarily due to incentives that its sister port implemented the previous year. As of October 2019, POLB implemented their own incentive program, competing with Los Angeles, in hopes of creating equilibrium for 2020. Overall, the volumes dropped by -5.67% (7,632,039 TEUs) for the year. Each month of the 4th Quarter declined in volume: October by -2.41% (688,425 TEUs), November by -3.51% (599,984 TEUs), and December down -10.30% (665,262 TEUs).

The Port of Los Angeles (POLA) annual volumes also dropped slightly by only -1.28% (9,337,623 TEUs). Despite this small yearly drop, the quarter was incredibly lowered as October decreased by -19.14% (770,186 TEUs), November by -12.42% (728,916 TEUs), and December down -17.33% (746,749 TEUs). “In the face of lagging exports due to international trade tensions and tariff uncertainties, the Port of Los Angeles has maintained strong momentum and kept cargo flowing,” Port Executive

Director Gene Seroka stated at the annual State of the Port address.

With 2020 commencing and the ‘phase one’ trade deal signed by the Trump administration and Chinese Vice Premier Liu He this month, China committed to increasing its purchases of U.S. goods and services by $200 Billion over the next two years while the U.S. slashed duties on $120 Billion in goods to 7.5%. Tariffs on $250 Billion in other goods are staying put. The National Retail Federation predicts that 1st Quarter container volumes will fall by approximately 5% in both January and February with a rebound in March. The U.S.-Mexico-Canada Agreement (USMCA), an updated version of the nearly 25-year-old trillion-dollar North American Free Trade Agreement (NAFTA), was recently approved by both the House and Senate and is awaiting the President’s signature. This agreement changes country of origin rules for auto components, labor provisions that will give greater protections to workers, as well as U.S. farmers’ access to the Canadian dairy market. It also extends the terms of copyright and includes new provisions to deal with the digital economy.

While neither port director can control the economy, their biggest challenge continues to be pushing the nearly 20% growth in container volume since 2005, while minimizing lost market share to increasingly competitive U.S. port complexes.

- David Bales, Principal Ryan Endres, Principal

Total Containers San Pedro Port Complex

5,000,000

3,000,000

1,000,000 10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

7,000,000

9,000,000

CombinedLoaded Outbound

CombinedLoaded Inbound

LOS ANGELES & LONG BEACH PORT ACTIVITY

TEUs YTD DECEMBER 2019 Source: www.polb.com www.portoflosangeles.org

2013 2014 2015 2016 2017 2018 2019 2013 2014 2015 2016 2017 2018 2019

7LOS ANGELES - LONG BEACH INDUSTRIAL MARKET REPORT Q4 2019

*Third-Party Data Sources: CoStar Group, Inc., AIR CRE, Port of Long Beach, Port of Los Angeles, Lee & Associates National Market Report, GlobeSt.com, NAIOP.Org, and The Wall Street Journal

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 2019 Lee & Associates Los Angeles - Long Beach,Inc. All rights reserved.

Contributed By:

Brandon Carrillo | CalDRE Lic# 01745362 Bret Osterberg | CalDRE Lic# 01364530David Bales | CalDRE Lic# 01388502Garrett Massaro | CalDRE Lic# 01771471Ryan Endres | CalDRE Lic# 01901652

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

CalDRE Lic#01069854

www.lee-associates.com

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