1 RETAIL GREATER LOS ANGELES BASIN MARKET REPORT Continues To Witness Decreasing Vacancy Rates MARKET INDICATORS - VACANCY 6.0% NET ABSORPTION 1,605,200 CONSTRUCTION 2,111,970 RENTAL RATE $2.03 P NNN UNEMPLOYMENT LA 6. OC 4. IE 6. EXECUTIVE SUMMARY During the third quarter of 2015, the Los Angeles Basin retail market fundamentals continued to remain positive. The Los Angeles Basin retail market recorded positive net absorption of 1.6 million square feet (). All three counties within the Los Angeles Basin recorded positive tenant movement compared to last quarter. The Los Angeles County vacancy rate decreased 10 basis points to 4. recording 870,700 of net absorption, the Orange County vacancy rate decreased 30 basis points to 4. recording 600,100 and Inland Empire vacancy rate decreased 10 basis points to 9. recording 433,600 of net absorption. The vacancy rate for the overall region decreased to 6.0%, a drop of 30 basis points from the previous quarter. A longer historical perspective shows that the vacancy rate a year ago stood at 6.. The weighted average asking rental rate increased to $2.03 per square foot (P), per month, triple net (NNN) from the previous quarter s rate of $2.00 P NNN. Orange County continues to dominate the average asking rental rate in the region, recording at $2.52 P NNN as Inland Empire remains the lowest at an average asking rental rate of $1.42 P NNN. MARKET TRENDS - >> The overall total vacancy rate for the region decreased to 6.0% >> Weighted average asking rental rate increased to $2.03 per square foot NNN >> There was positive demand with 1,605,200 net absorption >> Construction completions increased to 1,009,400 HISTORICAL VACANCY VS RENTS Q $ P PER MONTH (NNN) RENTS VACANCY $2.45 $2.35 $2.25 $2.15 $2.05 $1.95 $1.85 $1.75 3Q11 3Q12 3Q13 3Q14 3Q15 % VACANT (TOTAL) HISTORICAL NET ABSORPTION & CONSTRUCTION COMPLETIONS Q ,400,000 1,000,000 () () (1,000,000) ABSORPTION CONSTRUCTION COMPLETIONS 3Q11 3Q12 3Q13 3Q14 3Q15 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: 18,577,818 (2015 Estimate) 19,348,242 (2020 Projection) 4.1 (Growth ) >> HOUSEHOLD INCOME: $80,493 (Average) $57,862 (Median) The Los Angeles County retail market recorded the largest amount of absorption in the LA Basin during third quarter at 870,700 causing vacancy to drop by 10 basis points to 4.. Asking rental rates increased by $0.06 to $2.50 P NNN. The average asking rental rate was brought up by increasing rates for all retail product type categories. Currently, there is a total of 905,570 of retail under construction in Los Angeles County. Village At Westfield Topanga - Phase I in Woodland Hills delivered to the market in third quarter adding 540,800 to the inventory base. The largest tenants located in the new Village At Westfield Topanga development are Costco, REI and Crate & Barrel. A lease transaction of note in the Los Angeles County market was Wal-Mart Stores, Inc. leasing 40,755 at S Diamond Bar Blvd in Diamond Bar. >> JOB GROWTH: 3. (past 12 months) >> UNEMPLOYMENT RATE: 6. (as of May 2015) movement as vacancy dropped 10 basis points to 9.. Overall positive net absorption recording 433,600 for the quarter. Average asking rents slightly increased, recording at $1.42 P NNN. Lifestyle/theme-festival centers had the highest average asking rental rate of $2.19 P NNN, while strip centers had the lowest at $1.28 P NNN. There is currently 159,800 of new retail inventory under construction in the Inland being built in Perris delivered to the market during third quarter. Also, leasing activity in third quarter of 2015 remained positive as Sports Authority leased 41,200 at Moreno St in Montclair and 24 Hour Fitness leased 40,038 at E Harriman St in San Bernardino. VACANCY BY PROPERTY TYPE 11% 12% 10% % VACANT % LIFESTYLE/THEME FESTIVAL CENTERS 11% 2. 2% 1% 1% 0% COLLIERS INTERNATIONAL 2% 0% % VACANT Inland Empire retail market activity witnessed Orange County absorption stayed positive recording at 300,900. vacancy decreased to 4. from last quarter s 4.. There was slight movement of asking rents in all categories. The overall average asking rental rate slightly decreased in third quarter to $2.52 P NNN from $2.54 P NNN last quarter. There is approximately 1,046,600 of retail space under P. 2 VACANCY BY MARKET challenges in securing any significant tenants. Empire. The 185,000 Walmart Supercenter LOS ANGELES BASIN construction in Orange County. The largest property currently being built is The Source Lifestyle Center in Buena Park, which includes 400,000 square feet of retail space. The project is expected to be completed by first quarter of However, this property has had initial
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 24,047, (71,200) 271, $ ,553, (5,000) (34,000) 0 0 $2.89 LIFESTYLE/THEME-FESTIVAL CENTERS 6,210, % 553, , ,800 0 $ ,639, , , , ,170 $ ,897, , ,100 22,000 14,000 $ ,402, % , ,000 5, ,400 $2.55 SUBTOTAL 232,752, ,700 1,739, , ,570 $ ,663, % 4. 93, , $3.94 7,718, % 4.0% 68, , ,000 $2.91 LIFESTYLE/THEME-FESTIVAL CENTERS 2,362, ,200 31, ,400 $ ,695, % 120, , ,800 $ ,337, % (9,200) 24, $ ,505, % 1.2% 1,800 65,400 3,300 5,400 $1.98 SUBTOTAL 102,282, , ,100 3,300 1,046,600 $ ,024, ,400 83, ,800 $ ,632, , ,600 86,600 0 $1.85 LIFESTYLE/THEME-FESTIVAL CENTERS 2,273, (6,000) (40,400) 0 0 $ ,187, % 14.0% 129, , ,700 64,200 $ ,450, (9,300) 21, ,000 $ ,967, % , ,600 33,900 57,800 $1.28 SUBTOTAL 132,535, , , , ,800 $1.42 LA BASIN TOTAL 45,734, % 43, , ,800 $ ,904, , ,900 86, ,000 $2.37 LIFESTYLE/THEME-FESTIVAL CENTERS 10,846, , , , ,400 $ ,522, , , , ,170 $ ,686, % 58, ,700 22,000 34,000 $ ,875, , ,000 42, ,600 $1.91 TOTAL 467,570, % 6. 1,605,200 3,141,800 1,009,400 2,111,970 $2.03 COLLIERS INTERNATIONAL P. 3
4 MARKET REPORT RETAIL LOS ANGELES BASIN NET ABSORPTION BY MARKET NET ABSORPTION BY PROPERTY TYPE >> Five 1,000,000 out of the six property types recorded positive net absoprtion 900, , , , , , ,000 >> Shopping center landlords continue to try to keep up with 500,000 shopper expectations 400, , , , ,600 LOS ANGELES COUNTY 400, , , ,600 73, , , ,500 LIFESTYLE/THEME - FESTIVAL CENTERS OUTLOOK Demand remains strong for retail product througout the Greater Los Angeles region as a number of large retail developments were delivered to the market in third quarter. As the e-commerce business continues to grow, landlords of large retail center want to provide consumers an experience they cannot obtain by making an online purchase. Restaurants, fitness, entertainment and health and wellness operations continue to be the core of demand. Consumers spending over the next six months is expected to remain at the same levels witness during mid-year. 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 $3.00 $4.50 $4.00 $ P PER MONTH (NNN) $2.75 $2.50 $2.25 $2.00 $1.75 $1.50 $1.25 $1.00 $1.42 $2.50 $2.52 LOS ANGELES COUNTY $ P PER MONTH (NNN) $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $1.80 $1.88 $1.91 $2.37 $2.69 LIFESTYLE/THEME - FESTIVAL CENTERS $3.21 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. 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. 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. 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 offices in 67 countries on 6 continents United States: 140 Canada: 31 Latin America: 24 Asia Pacific: 199 EMEA: 108 >> $2.3 billion in annual revenue >> 1.7 billion square feet under management >> Over 16,200 professionals UNITED STATES: Greater Los Angeles Headquarters Office License No S. Figueroa Street, Suite 3500 Los Angeles, CA TEL FAX CAUDILL, ROBERT Regional Director/Orange County PUPIL, MARTIN President, West Region HOLLINGSWORTH, JOHN Executive Managing Director MUMPER, HANS Executive Managing Director RESEARCH ANALYSTS MATTESON, CAITLIN Research Director GALVIN, THOMAS R. Regional Analyst WONG, CHRISTOPHER Regional Analyst Accelerating success.