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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 1 8
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 BEACH INDUSTRIAL MARKET REPORT Q3 2018
Absorption 82,230 SF
Vacancy 1.3%
Average Rent$0.95 / SF
Under Construction206,875 SF
Sales Transactions $73.99 Million
Average Sales Price$259.88 / SF
Q3 TRENDS AT A GLANCE
ABOUT LEE & ASSOCIATES
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local market implementation. This
translates into seamless, consistent
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LOCAL EXPERTISE. INTERNATIONAL REACH. WORLD CLASS.
SALES VOLUME DOWN, BUT LEASING ACTIVITY REMAINS STRONG
Source: CoStar Property®
3LOS ANGELES - LONG BEACH INDUSTRIAL MARKET REPORT Q3 2018
The South Bay industrial market continues to exude robust performance in the 3rd Quarter of 2018 from positive economic indicators and market fundamentals. The US GDP grew at approximately 3.5% during Q3 2018, which was a slight down-tick from 4.2% for Q2 2018. This, however, is the best back-to-back GDP growth in the past four years and can be attributed to both the increases in consumer and government spending. While trade tensions still loom, the South Bay Industrial market continues to elicit strong demand for functional logistical space.
The direct industrial vacancy rate in the Los Angeles/Long Beach Marketplace increased slightly from 1.0% in the Q2 2018 to 1.3% in the Q3 2018, getting back up to where the market was in the beginning of the year. That being said, leasing activity remains relatively strong, with peak season wrapping up for transportation/logistics companies providing limited options for tenants to choose. For the 3rd Quarter we did see a slight decrease in asking lease rates, down $0.02 from the previous Quarter, flattening out at $0.95. This slight decrease was due to the lack of available Class A properties, which are still demanding top dollar. Landlords seek high-credit tenants and attempt to lock them into longer term leases while the market stays hot and lease rates remain higher than any previous year. A few of the largest leases were:
• Reyes Holdings leasing 355,590 square feet in Santa Fe Springs
• Next Trucking, Inc. leasing 340,000 of land with multiple cross docks in Gardena
• Living Spaces leasing a 203,850 square foot warehouse in La Mirada
The volume of sales transactions also decreased heavily, being down from $281.23 million in Q2 2018 to $73.99 million
in Q3 2018. The sales volume was down in Q3 2018, with only eleven transactions to report. With institutional buyers still paying premiums for Class A/B product, owner/users are having a tough time competing on the larger transactions. With the lack of sales transactions, the average sales price was up from $178.47 in Q2 2018 to $259.88 in Q3 2018. This was due to two transactions, both having sales prices of over $500 per square foot, with one being a 93,800 square foot cross dock facility in El Segundo and the other being a 28,254 square foot cold storage facility in the City of Los Angeles. Industrial land has become harder and harder to acquire, with so many developers looking to get into this market. Both price per square foot and the ability to overcome environmental issues have become the main factors that land owners are evaluating when considering to sell. One thing is for sure, the Los Angeles/Long Beach market is always going to be a desirable place for both investors and owner/users to look in search the next “great deal.”
The 3rd Quarter of 2018 had leading indicators that continue to point towards strong demand for the industrial sector. According to the NAIOP Industrial Space Demand Forecast, without an increase in construction for industrial space, landlords will see a rise in rent and occupancy rates based on demand predictions for the rest of 2018 and all of 2019 (Source: https://www.naiop.org). Primarily, the consumer’s appetite for e-commerce has driven the need for modern fulfillment space. With just over 200,000 square feet under construction, we expect renewal transactions to continue dominate most large transactions as tenants have limited options for modern fulfillment space. While, the United States economy has been in an expansion for over nine years, Dr. Hany Guirguis, and Dr. Joshua Harris of the NAIOP Industrial Space Demand Forecast, state “Eventually, the U.S. will experience some form of a contraction, but at this moment, it appears to be more than two years away” (Source:
4LOS ANGELES - LONG BEACH INDUSTRIAL MARKET REPORT Q3 2018
$0.45
$0.50
$0.55
$0.60
$0.65
$0.70
$0.75
$0.80
$0.85
$0.90
$0.95
$1.00
AVERAGE ASKING RENT BY QUARTER
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
-1m
0
-500k
500k
1m
1.5m
2m
NET ABSORPTION
4Q16 2Q
17
1Q18
3Q18
0.5%
0.7%
0.9%
1.1%
1.3%
1.5%
VACANCY
1.7%
1Q17
1Q16
3Q17
1Q16
3Q18
2Q16
2Q17
3Q16
3Q17
1Q18
2Q18
4Q16
1Q17
4Q17
4Q17
2Q18
2Q16
3Q16
$10008 10 12 14 16 18
$140
$180
$220
$260
$300
ASKING PRICE PER SQ FT
https://www.naiop.org). For further clarity on the Industrial Real Estate market and how it may affect your business, please contact your local Lee & Associates representative to properly plan your next lease or sale transaction..
-Joseph Stanko, Senior Associate and Andy Gage, Associate
Source: CoStar Property®
5LOS ANGELES - LONG BEACH INDUSTRIAL MARKET REPORT Q3 2018
11204 NORWALK BL | SFS LEASED
Q3 2018 TOP LEASESPROPERTY ADDRESS CITY TYPE LEASE RATE SQUARE FEET LEASE TYPE
2500 PELLISIER PL CITY OF INDUSTRY LAND $0.24 / SF MG 627,264 SF DIRECT
11204 NORWALK BLVD SANTA FE SPRINGS DISTRIBUTION $0.81 / SF NNN 355,590 SF DIRECT
600 W 135TH ST GARDENA LAND $0.41 / SF GRS 340,000 SF DIRECT
14585-14589 INDUSTRY CIRC LA MIRADA WAREHOUSE $0.69 / SF NNN 203,850 SF DIRECT
19100 S SUSANA RD RANCHO DOMINGUEZ LAND $0.44 / SF GRS 171,626 SF DIRECT
Q3 2018 TOP SALESPROPERTY ADDRESS CITY TYPE SALES PRICE SQUARE FEET REGION
DEL AMO BLVD & PRAIRIE AVE TORRANCE LAND $36.24 / SF 1,359,072 SF SOUTH
6172 N PARAMOUNT BLVD LONG BEACH LAND $59.25 / SF 558,875 SF SOUTH
2310 E IMPERIAL AVE EL SEGUNDO WAREHOUSE $530.78 / SF 93,800 SF SOUTH
2400 E ARTESIA BLVD LONG BEACH SPECIALTY $165.28 / SF 90,000 SF SOUTH
200 MESNAGER ST LOS ANGELES COLD STORAGE $537.98 / SF 28,254 SF CENTRAL
Source: CoStar Property®
2500 PELLISIER PL | CITY OF INDUSTRY LEASED
DEL AMO BL / PRAIRIE AV | TORRANCE SOLD 2310 E IMPERIAL AV | EL SEGUNDO SOLD6172 N PARAMOUNT BL | LONG BEACH SOLD
600 W 135TH ST | GARDENA LEASED
6LOS ANGELES - LONG BEACH INDUSTRIAL MARKET REPORT Q3 2018
Through the 3rd Quarter of 2018, combined container volume at our Southern California Port Complex is up 2.7% from last year’s record.
For the third consecutive month, the Port of Los Angeles moves more than 800,000 TEUs. With this said, Los Angeles is still down by 1.75% for the year. July was up by 4.61% YoY (833,566 TEUs) while exports experienced an increase of 8.4%. August fell by 2.5% YoY (826,637 TEUs), while exports were up again by 2.05%, however empties and imports decreased by 5% and 2.75% respectfully. September concluded the quarter ahead by 4.91% YoY (801,262 TEUs), as imports (up 6.58%) and exports (up 14.4%) posting strong gains while empties fell (down 2.7%). September’s growth is encouraging as it’s Los Angeles’ best September ever record. Port of LA Executive Director Gene Seroka attributes much of the activity to two factors: shippers importing holiday season inventories and manufacturers bringing materials and supplies ahead of time to avoid additional costs associated with upcoming tariffs.
The Port of Long Beach is poised to break their calendar year record by the end of December, however, the quarter was down slightly overall. July and August both decreased by 4.42% (688,458 TEUs) and 1.85% (679,543 TEUs), respectively. While September stayed relatively flat with a 0.06% decline (701,205 TEUs),. Despite the Quarter being down, Long Beach is still up 8.2% for the first 3 quarters of 2018. Port of Long Beach Executive Director Mario Cordero seemed optimistic in a recent press release stating, “Despite the tariffs imposed by Washington and Beijing, international trade is showing resilience, and at our port we are providing a conduit for commerce that’s efficient
for our customers and getting their cargo to destinations faster, saving the money.”
Some other developments for the Southern California Ports is their new Pier Pass structure commencing on November 19th. The new program will schedule an appointment time for container pickups and charge the same fee regardless of a Day or Night container move -- their previous plan incentivizing cargo moves at night with fees charged on daytime pickups. Probably more impactful to the trucking community and their retail customers is the California Senate Bill 1402. The Bill was signed by Governor Brown in September and authorizes the state to penalize retailers, shippers and other companies for labor violations made by trucking firms they contract with. The new bill goes into effect January 1st, 2019 and could have far reaching implications as retailers could be held liable for any unpaid wages, unlawful deductions, unreimbursed expenses, and penalties during the period it engages with a ‘black listed’ trucking company. While there is much uncertainty on how the tariff war will play out, the foreign trade deficit in goods and services increased by another 1.3% from August to September topping $54 Billion. The Port of Los Angeles estimates that the tariffs will affect about 20% of the total freight value. The Anderson Forecast’s new third quarter report predicts California’s economy will slow in 2020, which is consistent with a slowing of the national economy, while Economist John E. Husing, PhD. is under the impression the tariffs will end up being paid for through increased prices mostly for goods and services consumed by the lower and middle classes.
- David Bales, Principal & Ryan Endres, Principal
Total Containers San Pedro Port Complex
3,000,000
1,500,000
0 9,000,000
10,000,000
11,000,000
12,000,000
13,000,000
4,500,000
6,000,000
CombinedLoaded Outbound
CombinedLoaded Inbound
LOS ANGELES & LONG BEACH PORT ACTIVITY
TEUs YTD OCTOBER 2018 Source: www.polb.com www.portoflosangeles.org
2012 2013 2014 2015 2016 2017 2018 2012 2013 2014 2015 2016 2017 2018
7LOS ANGELES - LONG BEACH INDUSTRIAL MARKET REPORT Q3 2018
*Third-Party Data Sources: CoStar Group, Inc., Port of Long Beach, Port of Los Angeles, Lee & Associates National Market Report, GlobeSt.com, NAIOP.Org, and The Wall Street Journal
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Construction• Expansion Planning
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Financial Analysis of Alternatives
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Sale-Leaseback• Institutional Investors• Private Investors
Disposition of Existing Buildings
• Locally & Nationally• REO & Distressed-Asset
Valuation & Sales
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EL SEGUNDO 710
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110105
105
605
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91 91
1
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1
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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 2018 Lee & Associates Los Angeles - Long Beach,Inc. All rights reserved.
Contributed By:Andy Gage | 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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