Research & Forecast Report GREATER LOS ANGELES RETAIL Q1 2017 Accelerating success. >> Greater Los Angeles Retail Starts 2017 At A Slow Pace Greater Los Angeles Retail Market The Los Angeles Basin retail market started 2017 off slow by recording negative absorption recording at -439,800 square feet () for the quarter. This is the first time the Los Angeles Basin has witnessed negative absorption since year end of 2015. Both Los Angeles County (-307,900 ) and the Inland Empire recorded negative absorption (-133,900 ) with Orange County recording flat absorption (2,000 ) movement. The vacancy rate for the Greater Los Angeles region increased to 5.7%, up 30 basis points from last quarter. Although the vacancy rate increased, it is still lower then where it stood one year ago at 6.2%. Orange County recorded the lowest vacancy rate at 4.5%, an increase of 40 basis points. Los Angeles County followed, recording a vacancy of 4.7%, an increase of 20 basis points and Inland Empire recorded the highest vacancy rate at 8.6%, an increase of 10 basis points. The weighted average asking rental rate increased for the quarter to $1.98 per square foot (P) per month, triple net (NNN) from the previous quarter. Asking rents were lowest in the Inland Empire at $1.42 P NNN and highest in Los Angeles County at $2.44 P NNN. Super Regional Malls in Los Angeles County remain the most expensive space at $5.22 P NNN. According to the Chapman University Economic Research press release, California consumer sentiment increase in the first quarter, up nearly 6 points to 111.4. With the stock market continuing to post record breaking levels, it appears consumers are maintaining their optimism in their current settings. Consumers confidence for the future remains questionable. Market Indicators Relative to prior period Q1 2017 Forecast Vacancy Net Absorption Construction Rental Rate Unemployment: LA 4.8% Average Asking Rent ($/NNN) Change from Q4 16 ($) $1.98 P $0.04 Y.O.Y. Change (%) 0% 12-mo Employment Growth (%) 12-mo Actual Employment Change OC 3.7% IE 5.3% Summary Statistics Greater Los Angeles, Q1 2017 Asking Rents Greater Los Angeles, Q1 2017 Labor Force Greater Los Angeles, Q1 2017 Wholesale Trade Retail Trade Vacancy Rate 5.7% Change from Q4 16 (Basis Points) Net Absorption Construction Completions Under Construction +30 BPS -439,800 900,500 2,978,500 Leisure & Hospitality 1.8% 0.2% -0.3% 6,500 1,500-200
Los Angeles County The Los Angeles County retail market recorded negative -307,900 of absorption, making it the lowest amount of absorption in the Los Angeles Basin. This drop in absorption caused vacancy to increase by 20 basis points to 4.7%. Asking rental rates recorded at $2.44 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 1,269,700 of retail under construction in Los Angeles County. The largest project currently being built is The Vineyards in Porter Ranch, consisting of 214,800. The project is expected to be completed by mid-2018. A notable lease transaction in the Los Angeles County market was Albertsons leasing 57,100 at 28090 S Western Ave in San Pedro. Orange County Orange County absorption recorded flat at positive 2,000. vacancy increased to 4.5% from last quarter s 4.1%. The increase in vacancy mainly stems from The Source at Beach in Buena Park delivering and adding 170,000 of vacant space onto the market. The overall average asking rental rate remained flat in comparison from last quarter at $2.26 P NNN. Historical Vacancy v. Rents Q1 13-17 $ P PER MONTH (NNN) $2.45 9% $2.35 8% $2.25 7% $2.15 6% $2.05 5% $1.95 $1.85 4% $1.75 3% 1Q13 1Q14 1Q15 1Q16 1Q17 Net Absorption by Market Q1 2017 100,000 2,000 0 RENTS VACANCY % VACANT (TOTAL) There is approximately 654,700 of retail space under construction in Orange County. The largest property currently being built is the Laguna Hills Mall, which consists of 170,000 and is expected to be completed by third quarter 2018. (100,000) (200,000) (133,900) Inland Empire Inland Empire retail market activity witnessed an increase in vacancy by 10 basis points to 8.6% during the first quarter. Overall positive net absorption recorded -133,900 for the quarter. Average asking rents increased $0.01 P NNN from last quarter to end first quarter at $1.42 P NNN. There is currently 1,054,100 of new retail inventory under construction in the Inland Empire market. The largest project currently under construction is the Renaissance Marketplace located in Rialto at 260,765. The regional mall is expected to be completed by mid-2018. Recent leases signed at the Renaissance Marketplace include: Burlington, 24 Hour Fitness, Ross, Party City and Ulta. (300,000) (400,000) (307,900) LOS ANGELES COUNTY Weighted Average Asking Lease Rates by Market Q1 2017 $ P PER MONTH (NNN) $3.00 $2.75 $2.50 $2.25 $2.00 $1.75 $1.50 $1.42 $2.44 $2.26 $1.25 2 $1.00 LOS ANGELES COUNTY
Market Description The Greater Los Angeles retail market is comprised of 474 million square feet of multi-tenant shopping centers and single tenant properties. Community/neighborhood centers represent the majority of space (38%) 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 product. High median income households and strong population growth contribute to make this region attractive to retailers. Submarket Map Historical Net Absorption & Construction Completions Q1 13-17 Investment Trends 2010-2017 ABSORPTION CONSTRUCTION COMPLETIONS $400.00 8.0% 2,000,000 $350.00 7.0% 1,500,000 $300.00 $250.00 6.0% 5.0% 1,000,000 $200.00 4.0% 500,000 $150.00 3.0% - $100.00 $50.00 2.0% 1.0% (500,000) (1,000,000) 1Q13 1Q14 1Q15 1Q16 1Q17 $0.00 2010 2011 2012 2013 2014 2015 2016 2017 $/P Cap Rate 0.0% 3
RETAIL OVERVIEW Q1 2017 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 LOS ANGELES COUNTY SUPER REGIONAL/REGIONAL MALLS 26,243,700 2.6% 2.6% (7,700) (7,700) 0 153,000 $5.22 POWER CENTERS 14,342,000 7.1% 6.0% (151,800) (151,800) 0 313,600 $1.81 LIFESTYLE/THEME-FESTIVAL CENTERS 6,622,780 6.7% 4.3% (161,000) (161,000) 0 149,200 $3.23 COMMUNITY/NEIGHBORHOOD CENTERS 81,031,500 6.2% 5.9% (243,400) (243,400) 0 513,700 $2.15 STRIP CENTERS 31,466,900 4.8% 4.7% (9,600) (9,600) 35,400 43,400 $2.22 SINGLE TENANT BLDGS. 77,993,700 3.1% 2.9% 265,600 265,600 470,000 96,800 $2.49 SUBTOTAL 237,700,580 4.7% 4.5% (307,900) (307,900) 505,400 1,269,700 $2.44 SUPER REGIONAL/REGIONAL MALLS 10,592,800 0.7% 0.9% 21,500 21,500 0 170,000 $3.01 POWER CENTERS 8,435,500 3.4% 3.9% 39,900 39,900 0 10,600 $3.05 LIFESTYLE/THEME-FESTIVAL CENTERS 3,006,200 18.4% 13.7% 165,400 165,400 356,500 64,000 $2.59 COMMUNITY/NEIGHBORHOOD CENTERS 46,183,600 5.7% 5.5% (71,600) (71,600) 11,000 353,100 $2.14 STRIP CENTERS 10,389,000 5.0% 4.4% (60,100) (60,100) 1,800 0 $2.02 SINGLE TENANT BLDGS. 24,185,000 2.3% 1.9% (93,100) (93,100) 1,800 57,000 $2.22 SUBTOTAL 102,792,100 4.5% 4.1% 2,000 2,000 371,100 654,700 $2.26 SUPER REGIONAL/REGIONAL MALLS 11,448,000 6.9% 6.8% (8,100) (8,100) 0 279,400 $1.61 POWER CENTERS 11,756,900 9.2% 9.2% (1,800) (1,800) 0 20,000 $1.62 LIFESTYLE/THEME-FESTIVAL CENTERS 2,151,900 9.1% 6.2% (62,900) (62,900) 0 0 $1.78 COMMUNITY/NEIGHBORHOOD CENTERS 53,539,600 12.1% 12.1% 6,100 6,100 18,500 570,700 $1.37 STRIP CENTERS 12,693,900 9.1% 9.3% 24,200 24,200 0 78,200 $1.40 SINGLE TENANT BLDGS. 41,874,643 4.1% 3.9% (91,400) (91,400) 5,500 105,800 $1.35 SUBTOTAL 133,464,943 8.6% 8.5% (133,900) (133,900) 24,000 1,054,100 $1.42 LA BASIN TOTAL SUPER REGIONAL/REGIONAL MALLS 48,284,500 3.2% 2.8% 5,700 5,700 0 602,400 $3.28 POWER CENTERS 34,534,400 6.9% 5.5% (113,700) (113,700) 0 344,200 $1.87 LIFESTYLE/THEME-FESTIVAL CENTERS 11,780,880 10.2% 6.3% (58,500) (58,500) 356,500 213,200 $2.70 COMMUNITY/NEIGHBORHOOD CENTERS 180,754,700 7.8% 6.7% (308,900) (308,900) 29,500 1,437,500 $1.79 STRIP CENTERS 54,549,800 5.9% 5.5% (45,500) (45,500) 37,200 121,600 $1.89 SINGLE TENANT BLDGS. 144,053,343 3.3% 2.8% 81,100 81,100 477,300 259,600 $2.04 TOTAL 473,957,623 5.7% 5.4% (439,800) (439,800) 900,500 2,978,500 $1.98
Definitions of key terms 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 100,000-350,000 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 150,000-500,000 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 30,000-300,000 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 250,000-600,000 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 400,000-800,000 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 80,000-250,000 square feet. 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 www.colliers.com/ greaterlosangeles. 396 offices in 68 countries on 6 continents United States: 153 Canada: 29 Latin America: 24 Asia Pacific: 79 EMEA: 111 UNITED STATES: Greater Los Angeles Office License No. 01908231 865 S Figueroa St, Suite 3500 Los Angeles, CA 90017 > $2.6 billion in annual revenue > 2.0 billion square feet under management > Over 15,000 professionals TEL: +1 213 627 1214 FAX: +1 213 327 3200 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 offmarket due to demolitions or conversions. HANS MUMPER Executive Managing Director CAITLIN MATTESON Research Director Research Services JOHN HOLLINGSWORTH Executive Managing Director ROBERT CAUDILL Regional Director/O.C. 5