Eric Smith · Orange County Market Update Anaheim Irvine Inland Empire Los Angeles San Diego January 24, 2019. Eric Smith. SIOR Candidate Member. CCIM Candidate Member

Orange County Market Update

Anaheim

Irvine

Inland Empire

Los Angeles

San Diego

www.VoitCo.com

January 24, 2019Eric SmithSIOR Candidate MemberCCIM Candidate Member

Tel: 714.935.2310Fax: 714.978.9431Broker License: #01940591e-mail: [email protected]

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ORANGE COUNTY INDUSTRIAL MARKET

Positive:• Historically low cost of capital• Sub 3% vacancy rate• Reasonably vibrant economy

Negative:• Global issues- China slow down,

trade war• State and Federal debt• High rent and high wage growth• Looking over your shoulder

Forecast:• Lower transaction volume –

declining inventory• Lease Rates – Still Rising• Sale Prices – Still Rising• Capital markets open – SBA,

CMBS, Life Insurance & Banks• Continued investor demand for

quality assets• Tenants / Buyers look East

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• Lease Rates - Anticipate asking rents to increase by a minimum of 3% to reach a level of $0.93 per square foot by the fourth quarter of 2019 with more robust increases coming in Class A buildings with modern features, such as 30' warehouse clearance, ample dock-high loading, fenced yards and immediate freeway access.

• Vacancy - Availability will be a significant hurdle for tenants in 2019 and reaction time will be critical. “Off market” deals will be, and arguably have already become, the norm and tenant concessions will continue to be severely limited in this competitive market. With very little new product coming online

• Overall – The Orange County industrial market will continue to perform well in 2019. Expect healthy economic conditions to continue through 2019, buoyed by consumer and business confidence. The fundamentals are projected to continue a positive path for the remainder of the year. Growing trade is poised to accelerate trends in the industrial sector, with strong absorption driving vacancy contractions. Absorption is projected to continue growing, leading to declining vacancies.

Forecast

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Orange County Industrial Market Statistics

Inventory Added 1,237,534 474,187 770,655 160.98%

Under Construction 841,447 1,083,684 274,187 -22.35%

Vacancy Rate 2.67% 2.33% 2.00% 14.59%

Availability Rate 4.98% 4.77% 3.84% 4.40%

Average Asking Lease Rate $0.90 $0.84 $0.75 7.14%

Average Asking Sale Price $290.27 $264.28 $235.97 9.83%

Sale & Lease Transactions 16,472,974 19,699,142 22,298,346 -16.38%

Gross Absorption 10,998,734 10,598,595 11,997,906 3.78%

Net Absorption 469,123 (298,412) 1,654,130 N/A

% Change vs. 2016201620172018

Sheet1

UnemploymentMid Counties Industrial Market Statistics

% Change% Change

4Q20003Q20004Q1999vs. 4Q994Q20003Q20004Q1999vs. 4Q99

Nation4.00%3.90%4.10%-2.44%Inventory89,351,04088,942,38487,548,6552.06%

State4.80%4.80%4.90%-2.04%Construction926,2551,037,6931,274,587-27.33%

LA4.90%5.50%5.60%-12.50%Vacancy3.95%4.25%4.87%-18.89%

OC2.20%2.50%2.10%4.76%Availablity4.54%5.12%5.70%-20.35%

SD2.60%3.00%2.50%4.00%Pricing$0.51$0.47$0.4415.91%

Orange County Industrial Market StatisticsOrange County Research & Development Market Statistics

201820172016% Change vs. 2016% Change

4Q20003Q20004Q1999vs. 4Q99

Inventory Added1,237,534474,187770,655160.98%Planned Construction576,181467,977869,181-33.71%0

Under Construction841,4471,083,684274,187-22.35%

Vacancy Rate2.67%2.33%2.00%14.59%

Availability Rate4.98%4.77%3.84%4.40%Availablity6.20%6.36%7.35%-15.65%

Average Asking Lease Rate$0.90$0.84$0.757.14%Pricing$0.95$0.93$0.896.74%

Average Asking Sale Price$290.27$264.28$235.979.83%

Sale & Lease Transactions16,472,97419,699,14222,298,346-16.38%

Gross Absorption10,998,73410,598,59511,997,9063.78%

Net Absorption469,123(298,412)1,654,130N/A

Activity1,700,9861,728,2261,428,50019.07%

Orange County Office Market StatisticsOrange County Industrial Flex Market Statistics

% Change% Change

4Q20003Q20004Q1999vs. 4Q994Q20003Q20004Q1999vs. 4Q99

Under Construction2,289,0572,752,2162,875,533-20.40%Under Construction786,823499,701994,012-20.84%

Planned Construction6,181,6215,863,1935,647,8529.45%Planned Construction1,224,6401,056,8972,607,543-53.03%

Vacancy9.27%8.24%9.76%-5.02%Availablity7.38%14.81%21.56%-65.77%

Availability14.50%13.05%10.92%32.78%Pricing$1.60$1.59$1.3915.11%

Pricing$2.23$2.15$2.077.73%Activity645,815327,712259,858148.53%

Absorption401,2931,382,022403,464-0.54%

Sheet2

Sheet3

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2.67%

4.98%

0%

1%

2%

3%

4%

5%

6%

4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19

Vacancy Availability

Market Overview

Vacancy vs. Availability

Percent Forecast

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$0.90

$0.55

$0.60

$0.65

$0.70

$0.75

$0.80

$0.85

$0.90

$0.95

$1.00

$1.05

4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19

Leasing Market

Average Asking NNN Lease Rate

Forecast

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Lease Transaction Activity

0

1,000,000

2,000,000

3,000,000

4,000,000

4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18

Square Feet

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$290.27

$120$130$140$150$160$170$180$190$200$210$220$230$240$250$260$270$280$290$300

4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18

Sales Market

Average Asking Sales Rates Per SF

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Sale Transaction Activity

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18

Investment Users

Square Feet

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-800,000

-400,000

0

400,000

800,000

1,200,000

4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18

Net Absorption

Square Feet

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Annual New Deliveries vs. Availability

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

08 09 10 11 12 13 14 15 16 17 18

New Deliveries Availability Rate

Square Feet Percentage

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Major Transactions for 2018

Sales Activity

Property Address City Square Feet Sale Price Buyer Seller

300 E. Cypress St. Brea 329,000 $19,604,000 Kh Acquisition I Co. Kirkhill-Ta Co

50 Icon Foothill Ranch 307,781 $56,500,000 Prologis AEW Capital Managment

2300-2320 Red Hill Ave. Santa Ana 212,121 $43,625,000 CT Realty Ricoh Development of CA

1256 N. Magnolia Ave. Anaheim 208,000 $36,042,000 Goodman North America Vera Guerin

17111 Red Hill Ave. Irvine 193,366 $36,000,000 Edwards Lifesciences LLC MDD Red Hill LP

Leasing ActivityProperty Address City Square Feet Effective Rate Tenant Owner

1123 E. Warner Ave. – Renewal Tustin 500,625 $0.66 NNN Ricoh Bedrosian Tustin LLC

3454 E. Miraloma Ave. – Renewal Anaheim 300,000 $0.82 NNN Kuehne + Nagel, Inc. DCT/Prologis

5701 Skylab Rd. – Sublease Huntington Beach 280,460 $0.78 NNN Hybrid Apparel C&D Zodiac, Inc.

1501-1601 E. Cerritos Ave. – Renewal Anaheim 206,707 $0.7 NNN Disney Inland Empire Realty Holding

1211 N. Miller St. – Renewal Anaheim 200,646 $0.74 NNN Targus, Inc. TIAA-CREF

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Orange County Top Industrial Lease Comparables

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Orange County Top Industrial Lease Comparables

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Orange County Top Industrial Sale Comparables

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4th Quarter 2014 Report NORTH ORANGE COUNTY INDUSTRIAL MARKET

Hypothetical Case Example• Joe Widget maker signed a 5 year lease in

2014 for his 50,000 sf building at $.55/sf with $.12/sf NNN

• His lease comes up this year at $.85/sf with $.20/sf NNN (his building sold during the 5 years and the taxes were re-assessed.

• Joe is looking at a 35.29% increase on base rent and 36.19% overall increase

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Hypothetical Case Example Cont.

• Joe’s rent went from $402,000 to $630,000• Joe’s wage growth also grew 15% during

this time• 25% tariff on a critical component to Joe’s

Widget• Joe gets hit with a major lawsuit in Q1 of

2019, what does Joe do?

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Other fun things occurring in Industrial Real Estate

• 2 Story Warehouses – Prologis Georgetown Crossing in Seattle

• MARIJUANA! Measure X/M in Santa Ana and Costa Mesa

• Final Mile/Last Mile• Self-driving/Autonomous Trucks• 36’ Ft Ceiling Clearance, Thicker Slabs

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To download this presentation, please go to:

http://www.voitco.com/ftp/SoCal_Appraisal_Institute_2019_Orange_County.pdf

To download our reports, please go to:

http://voitco.com/market-research/market-reports

Slide Number 1Slide Number 2Slide Number 3Orange County Industrial Market Statistics Slide Number 5Slide Number 6Slide Number 7Slide Number 8Slide Number 9Slide Number 10Slide Number 11Slide Number 12Slide Number 13Slide Number 14Slide Number 15Slide Number 16Slide Number 17Slide Number 18Hypothetical Case ExampleHypothetical Case Example Cont.Other fun things occurring in Industrial Real EstateSlide Number 22

Documents

Eric Smith · Orange County Market Update Anaheim Irvine Inland Empire Los Angeles San Diego January 24, 2019. Eric Smith. SIOR Candidate Member. CCIM Candidate Member