1 RETAIL GREATER LOS ANGELES BASIN MARKET REPORT Vacancy Decreases and Net Absorption Increases From Previous Quarter MARKET INDICATORS - VACANCY 6. NET ABSORPTION 732,000 CONSTRUCTION 1,787,900 RENTAL RATE $2.06 P NNN UNEMPLOYMENT LA 8. EXECUTIVE SUMMARY Retail market fundamentals continue to gradually improve as we reach the midpoint of the year. During Q2 2014, the Los Angeles basin retail market recorded positive net absorption of 732,000, an increase from the prior quarter of 544,600. Los Angeles and Orange County recorded positive absorption while the Inland Empire experienced essentially flat movement. The vacancy rate for the region also decreased slightly to 6., a drop of 10 basis points from the previous quarter. Orange County witnessed the largest vacancy decrease in the region to 5. from 5. compared to one quarter ago. The weighted average asking rental rate increased to $2.06 per square foot (P), per month, triple net (NNN) from the previous quarter s rate of $2.04 P NNN. Orange County continues to dominate the average asking rental rate in the region, recording in at $2.52 P NNN. OC 5. IE 9. MARKET TRENDS - >> The overall total vacancy rate for the region was flat at 6. >> Weighted average asking rental rate increased slightly to $2.06 per square foot NNN >> There was positive demand with 732,000 net absorption >> Construction completions decreased to 595,600 HISTORICAL VACANCY VS RENTS Q $ P PER MONTH (NNN) $2.55 $2.45 $2.35 $2.25 $2.15 $2.05 $1.95 $1.85 $1.75 RENTS VACANCY 2Q10 2Q11 2Q12 2Q13 2Q14 % VACANT (TOTAL) HISTORICAL NET ABSORPTION & CONSTRUCTION COMPLETIONS Q ,400,000 1,000, , ,000 (200,000) (600,000) (1,000,000) ABSORPTION CONSTRUCTION COMPLETIONS 2Q10 2Q11 2Q12 2Q13 2Q14 1 Colliers International continuously refines its database. As a result, data reflected in this report may not be consistent with data reported in previous quarters.
2 MARKET REPORT RETAIL LOS ANGELES BASIN GREATER LOS ANGELES DEMOGRAPHICS >> POPULATION: 18,309,200 (2013 Estimate) 19,065,900 (2018 Projection) 4.0% (Growth ) >> HOUSEHOLD INCOME: $80,900 (Average) $57,500 (Median) >> JOB GROWTH: 2.1% (past 12 months) >> UNEMPLOYMENT RATE: 8. (as of February 2014) Over the second quarter of 2014, the Los Angeles County retail market experienced 313,600 of positive net absorption and an increase of $0.09 P NNN in average asking rents. The average asking rental rate was brought up by increasing average rates for super regional/regional malls, power centers and single tenant buildings. Currently, there is a total of 977,800 of retail under construction in Los Angeles County. The largest property currently being built is the Runway in Playa Vista which is schedule to be completed by the third quarter of this year. A lease transaction of note in the LA County market was Stater Bros. leasing 42,300 at N Brand Ave in Covina. Orange County witnessed the largest percentage change in total vacancy from 5. to 5. this quarter. Community/neighborhood retail centers showed the greatest decrease of vacancy from 7. in the previous quarter to 7.1% this quarter. There was slight movement of asking rents in all but one category, the overall average asking rental rate decreased slightly over the second quarter of 2014 to $2.52 P NNN. There is approximately 600,000 of retail space under construction in Orange County. The largest property currently being built is The Source lifestyle center in Buena Park, which includes 460,000 square feet of retail space. The project is expected to be completed by the end of However, this property has had initial challenges in securing any significant tenants. The Inland Empire experienced little change during the 2nd quarter. Overall net absorption recorded just 89,600 square feet for the quarter. The total vacancy rate increased slightly by 10 bases points to 10.0%. Average asking rents remained flat at $1.52 P NNN for the fourth consecutive quarter. Super regional/regional malls had the highest average asking rental rate of $2.40 P NNN, while strip centers had the lowest at $1.18 P NNN. There is currently 210,738 square feet of new retail inventory under construction in the Inland Empire. The largest property is a 186,000 Walmart Supercenter being built in Victorville. Also, in the second quarter of 2014 leasing activity remained positive as Hobby Lobby leased 48,100 at Bob Hope Dr, in Rancho Mirage. VACANCY BY MARKET VACANCY BY PROPERTY TYPE % VACANT 12% 11% 10% 2% 1% 0% % % VACANT 11% 10% 2% 1% 0% % P. 2 COLLIERS INTERNATIONAL
3 MARKET REPORT RETAIL LOS ANGELES BASIN RETAIL OVERVIEW EXISTING PROPERTIES VACANCY ABSORPTION CONSTRUCTION RENTS Market/ Property Type Inventory Vacancy Vacancy Prior Qtr Net Absorption Current Qtr Net Absorption YTD Completions Current Qtr Under Construction Weighted Avg Asking Lease Rates 25,986, ,500 (4,300) 0 30,000 $ ,312, ,500 68, ,300 $3.20 LIFESTYLE/THEME- 4,709, , , , ,900 $ ,613, (43,100) 170, ,200 0 $ ,908, % 75, , ,800 $ ,428, , , ,800 $2.21 SUBTOTAL 224,959, , , , ,900 $ ,422, (17,200) 2, $4.94 5,986, , , $3.35 LIFESTYLE/THEME- 3,086, ,000 54, ,200 $ ,360, % , , ,000 $ ,525, ,700 56, $ ,644, % 2.1% (5,900) (9,200) 10, ,100 $2.22 SUBTOTAL 102,025, , ,600 10, ,300 $ ,740, % (68,500) (146,600) 0 0 $ ,167, (3,900) 21, $1.98 LIFESTYLE/THEME- 2,330, ,000 (19,700) 0 0 $ ,678, ,500 (11,800) 124, ,400 $ ,214, % 36, , ,400 $ ,580, (47,800) 86,100 20,100 48,800 $1.34 SUBTOTAL 129,713, % 9. 89, , , ,700 $1.51 LA BASIN TOTAL 50,150, (77,200) (148,200) 0 30,000 $ ,466, % 68, , ,200 $2.62 LIFESTYLE/THEME- 10,126, % , , , ,100 $ ,652, , , , ,400 $ ,648, , , ,200 $ ,653, , ,900 30, ,800 $1.87 TOTAL 456,698, , , ,400 1,787,900 $2.06 COLLIERS INTERNATIONAL P. 3
4 MARKET REPORT RETAIL LOS ANGELES BASIN NET ABSORPTION BY MARKET NET ABSORPTION BY PROPERTY TYPE >> Five out of the six property types 350, ,800 recorded positive net absoprtion 313, , , , , , , ,000 >> Shopping center landlords continue 200,000 to try to keep up with shopper expectations 150, , , ,000 50, ,000 73, ,000 68, ,000 89,600-50, ,000 (77,200) 50,000 0 LOS ANGELES COUNTY OUTLOOK Per the Chapman Economic Forecast, real GDP growth is expected to surpass three percent in 2015, which is the first time on an annual basis since the recovery began in In California, the number of total payroll jobs is forecasted to increase by 395,000 in 2014 and 418,000 in 2015, an increase of 2.. As the job market continues to recover and consumers are able to increase their spending, retail sales are expected to improve throughout MARKET DESCRIPTION The Greater Los Angeles retail market is comprised of million square feet of multi-tenant shopping centers and single tenant properties. Community/neighborhood centers represent the most amount of space (3) among the different property types. The market attracts both affordable retailers and high-end stores due to a population that demands a wide variety of stores. High median income households and strong population growth contribute to make this region attractive to retailers. WEIGHTED AVERAGE ASKING LEASE RATES BY MARKET WEIGHTED AVERAGE ASKING LEASE RATES BY PROPERTY TYPE $ P PER MONTH (NNN) $2.75 $2.50 $2.25 $2.00 $1.75 $1.50 $1.25 $1.00 $1.51 $2.42 LOS ANGELES COUNTY $2.52 $ P PER MONTH (NNN) $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $1.46 $1.87 $1.93 $2.62 $3.10 $3.74 P. 4 COLLIERS INTERNATIONAL
5 MARKET REPORT RETAIL LOS ANGELES BASIN DEFINITIONS OF KEY TERMS USED IN THIS REPORT Anchor Tenant: A large national or regional retailer that serves as a primary draw for a shopping center. Capitalization (Cap) Rate: A calculation that shows the relationship between one year s net operating income and the current market value of a property. Is calculated by dividing the annual net operating income by the sales price. Community Center: Typically has a total square footage between 100, ,000 square feet. Often will have 2-3 large anchored tenants, which include supermarkets and drugstores. Other tenants may include retailers that sell items such as apparel, home improvement/furnishings, toys, electronics, or sporting goods. Direct Vacancy: Space in existing buildings that is vacant and immediately available during the quarter for direct lease, plus space that is vacant but not available for direct lease or sublease (for example, that is being held for a future commitment). Lifestyle Center: An upscale specialty store shopping center that has a total square footage between 150, ,000 square feet. The center usually has an outdoor setting with dining and entetainment. Neighborhood Center: Focuses on retailers that sell convenience items and personal services. The center will often have a supermarket as an anchor tenant. The size range is 30, ,000 square feet. Theme/Festival Center: Predominantly has a unifying theme based on tenants and architectural design. Focuses on restaurants and entertainment while appealing to tourists. The size range is 80, ,000 square feet. Single Tenant Free Standing Building: Retail building occupied by only one tenant. Space Added (Net): square feet added during the quarter via construction completions, including renovated space returned to market, less total square feet taken off-market due to demolitions or conversions. Strip Center: An attached row of stores or service outlets while usually being less than 30,000 square feet. Under Construction: Includes buildings that are in some phase of construction, beginning with foundation work and ending with the issuance of a Certificate of Occupancy. Weighted Average Asking Rental Rates: Weighted by the total square feet available for direct lease. Data is based on triple net rents, which excludes costs associated with taxes, insurance, maintenance, janitorial service and utilities. Reported on a monthly, per square foot basis. Technical Note: Colliers International is continuously refining its database. The data shown in the historical tables and graphics in this report have been adjusted to take into account these changes in the database. 482 offices in 62 countries on 6 continents United States: 140 Canada: 42 Latin America: 20 Asia Pacific: 195 EMEA: 85 $2 billion in annual revenue 1.12 billion square feet under management Over 13,500 professionals UNITED STATES: Greater Los Angeles Headquarters Office License No S. Figueroa Street, Suite 3500 Los Angeles, CA TEL FAX PUPIL, MARTIN President, West Region HOLLINGSWORTH, JOHN Executive Managing Director MUMPER, HANS Executive Managing Director RESEARCH ANALYSTS MATTESON, CAITLIN. Research Manager Research Services GALVIN, THOMAS R. Regional Analyst Research Services Power Center: The center often consists of several freestanding anchors with a minimum number of small tenants. The size of the property is typically between 250, ,000 square feet. The anchor tenants are usually discount department stores, off-price stores, and warehouse clubs. Regional/SuperRegional Mall: Provides shopping goods, general merchandise, apparel, and furniture. Often consists of multiple department stores. Regional Malls usually are between 400, ,000 square feet, and Super Regional Malls typically are greater than 800,000 square feet. This report has been prepared by Colliers International for general information only. Information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof. Colliers International does not guarantee, warrant or represent that the information contained in this document is correct. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This report and other research materials may be found on our website at Accelerating success.