LOS ANGELES - LONG BEACH INDUSTRIAL MARKET REPORT

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1 LOS ANGELES - LONG BEACH INDUSTRIAL MARKET REPORT Q3 MARKET REPORT Q LOS ANGELES - LONG BEACH INDUSTRIAL MARKET REPORT

SALES VOLUME DOWN, BUT LEASING ACTIVITY REMAINS STRONG Q3 TRENDS AT A GLANCE Absorption 82,230 SF Average Rent $0.95 / SF Sales Transactions $73.99 Million Vacancy 1.

88 / SF Source: CoStar Property ABOUT LEE & ASSOCIATES At Lee & Associates our reach is national but our expertise is local market implementation.

2 SALES VOLUME DOWN, BUT LEASING ACTIVITY REMAINS STRONG Q3 TRENDS AT A GLANCE Absorption 82,230 SF Average Rent $0.95 / SF Sales Transactions $73.99 Million Vacancy 1.3% Under Construction 206,875 SF Average Sales Price $ / SF Source: CoStar Property 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 marketto-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. 2

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.

3 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 downtick from 4.2% for Q This, however, is the best back-toback 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 Q 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 $ million in Q to $73.99 million in Q 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 $ in Q to $ in Q 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: 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: 3

4 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 NET ABSORPTION 2m VACANCY 1.7% 1.5m 1.5% 1m 1.3% 500k 1.1% 0-500k 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 0.9% 0.7% -1m 0.5% 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 AVERAGE ASKING RENT BY QUARTER ASKING PRICE PER SQ FT $1.00 $0.95 $300 $0.90 $0.85 $260 $0.80 $0.75 $220 $0.70 $0.65 $180 $0.60 $0.55 $140 $0.50 $0.45 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 $ Source: CoStar Property 4

Source: CoStar Property Q3 2018 TOP LEASES PROPERTY ADDRESS CITY TYPE LEASE

24 / SF MG 627,264 SF DIRECT 11204 NORWALK BLVD SANTA FE SPRINGS DISTRIBUTION

41 / SF GRS 340,000 SF DIRECT 14585-14589 INDUSTRY CIRC LA MIRADA WAREHOUSE $0.

44 / SF GRS 171,626 SF DIRECT Q3 2018 TOP SALES PROPERTY ADDRESS CITY TYPE

24 / SF 1,359,072 SF SOUTH 6172 N PARAMOUNT BLVD LONG BEACH LAND $59.

78 / SF 93,800 SF SOUTH 2400 E ARTESIA BLVD LONG BEACH SPECIALTY $165.

98 / SF 28,254 SF CENTRAL 2500 PELLISIER PL CITY OF INDUSTRY LEASED 11204

5 Source: CoStar Property Q TOP LEASES PROPERTY ADDRESS CITY TYPE LEASE RATE SQUARE FEET LEASE TYPE 2500 PELLISIER PL CITY OF INDUSTRY LAND $0.24 / SF MG 627,264 SF DIRECT 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 INDUSTRY CIRC LA MIRADA WAREHOUSE $0.69 / SF NNN 203,850 SF DIRECT S SUSANA RD RANCHO DOMINGUEZ LAND $0.44 / SF GRS 171,626 SF DIRECT Q TOP SALES PROPERTY 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 $ / SF 93,800 SF SOUTH 2400 E ARTESIA BLVD LONG BEACH SPECIALTY $ / SF 90,000 SF SOUTH 200 MESNAGER ST LOS ANGELES COLD STORAGE $ / SF 28,254 SF CENTRAL 2500 PELLISIER PL CITY OF INDUSTRY LEASED NORWALK BL SFS LEASED 600 W 135TH ST GARDENA LEASED DEL AMO BL / PRAIRIE AV TORRANCE SOLD 6172 N PARAMOUNT BL LONG BEACH SOLD 2310 E IMPERIAL AV EL SEGUNDO SOLD 5

6 LOS ANGELES & LONG BEACH PORT ACTIVITY 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 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 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 TEUs YTD OCTOBER 2018 Source: Combined Loaded Inbound Combined Loaded Outbound Total Containers San Pedro Port Complex 6,000,000 13,000,000 4,500,000 12,000,000 3,000,000 11,000,000 1,500,000 10,000, ,000,

7 LOS ANGELES & LONG BEACH INDUSTRIAL MARKET MAP LAX 1 EL SEGUNDO SOUTH GATE 710 DOWNEY 605 HAWTHORNE COMPTON 105 MANHATTAN BEACH 405 GARDENA 91 PARAMOUNT 91 REDONDO BEACH RANCHO DOMINGUEZ LAKEWOOD 605 TORRANCE BIXBY KNOLLS CARSON LONG BEACH AIRPORT 405 ROLLING HILLS ESTATES LOMITA WILMINGTON LONG BEACH RANCHO PALOS VERDES SAN PEDRO PORT OF LONG BEACH PORT OF LOS ANGELES LOOK TO LEE & ASSOCIATES FOR SOLUTIONS Contact a Lee & Associates Broker who can provide you with the most comprehensive market knowledge and expertise in the business. We specialize in: 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 The 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 *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 7

LOCAL EXPERTISE. INTERNATIONAL REACH. WORLD CLASS. Los Angeles Office 1411 W. 190th Street, Suite 450, Gardena, CA 90248 Office: 310.768.

8 LOCAL EXPERTISE. INTERNATIONAL REACH. WORLD CLASS. Los Angeles Office 1411 W. 190th Street, Suite 450, Gardena, CA Office: Fax: Long Beach Office 5000 E. Spring Street, Suite 600, Long Beach, CA Office: Fax:

INDUSTRIAL MARKET REPORT

INDUSTRIAL MARKET REPORT Los Angeles - Long Beach MARKET REPORT ECONOMIC OVERVIEW The South Bay Industrial Real Estate Market continued its positive momentum from 3rd-4th Quarter with 187,758 SF of Positive Absorption, and a decrease