Research & Forecast Report GREATER LOS ANGELES RETAIL Accelerating success. >> Greater Los Angeles Retail Continues to Witness Declining Vacancy Greater Los Angeles Retail Market The Los Angeles Basin retail market remained on a positive note as second quarter overall net absorption recorded at 1.7 million square feet (). Similar to last quarter, all three counties within the Los Angeles Basin recorded positive tenant movement. The Los Angeles County vacancy rate decreased 40 basis points to 4.5% recording 1.2 million of net absorption. The Orange County market saw a decrease in vacancy by 20 basis points to 4.7%. Inland Empire vacancy remained unchanged at 9.5% from one quarter ago. The vacancy rate for the overall region decreased to 5.9%, down 40 basis points from last quarter. A longer historical perspective shows that the vacancy rate a year ago stood at 6.2%. The weighted average asking rental rate decreased to $1.95 per square foot (P) per month, triple net (NNN) from the previous quarer s rate of $1.98 P NNN. Orange County continues to dominate the average asking rental rate in the region, recording at $2.30 P NNN as the Inland Empire market remains the lowest at an average asking rental rate of $1.35 P NNN. According to the Chapman University Economic Research press release, California consumer sentiment dropped in the second quarter to 90.5 compared to 92.4 last quarter. In spite of a relatively strong job market, anemic real GDP growth, low housing affordability and higher rents seem to have negatively affected consumers attitudes in second quarter 2016. It is expected that consumers spending over the next six months will remain healthy, which puts retailers on solid footing moving into the second half of 2016. National retail and food services sales have increased by 2.7% from one year ago as of June 2016. Market Indicators Relative to prior period Average Asking Rent ($/NNN) Change from Q1 16 ($) $1.95 P -$0.03 Y.O.Y. Change (%) -2.5% 12-mo Employment Growth (%) 12-mo Actual Employment Change Wholesale Trade Retail Trade Forecast Vacancy Net Absorption Construction Rental Rate Unemployment: LA 4.9% OC 3.6% IE 5.3% Summary Statistics Greater Los Angeles, Asking Rents Greater Los Angeles, Labor Force Greater Los Angeles, Vacancy Rate 5.9% Change from Q1 16 (Basis Points) -40 BPS Net Absorption (, Thousands) 1,658.0 Construction Completions (, Thousands) 562.4 Under Construction (, Thousands) 1,640.3 Leisure & Hospitality 1.5% 1.9% 3.4% +5,400 +14,200 +28,800
Los Angeles County The Los Angeles County retail market recorded the largest amount of positive absorption in the Los Angeles Basin during second quarter at 1.2 million, causing vacancy to decline by 40 basis points to 4.5%. Asking rental rates recorded at $2.26 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 1,280,600 of retail under construction in Los Angeles County. The largest property currently being built is the 470,000 IKEA building located in Burbank. A notable lease transaction in the Los Angeles County market was Indian Style leasing 20,500 at 8650 Melrose Ave. in Hollywood. The building is currently under construction and expected to deliver by fourth quarter 2016. Orange County Orange County absorption recorded positive 350,600. vacancy decreased to 4.7% from last quarter s 4.9% due to move-in s in community/neighborhood centers. There was movement of asking rents in all categories except super regional/regional malls. The overall average asking rental rate decreased in second quarter to $2.30 P NNN from $2.37 P NNN last quarter. There is approximately 86,700 of limited retail space under construction in Orange County. The largest property currently being built is 3001-2135 Westcliff Dr. located in Newport Beach, which is retail and medical mixeduse consisting of 36,000. New retail construction is limited in Orange County with just 37,200 of space delivering during second quarter. Inland Empire Inland Empire retail market activity witnessed no movement as vacancy stayed the same from one quarter ago recording at 9.5%. Overall positive net absorption recording 93,800 for the quarter. Average asking rents slightly decreased from last quarter, recording at $1.35 P NNN. Lifestyle/theme-festival centers had the highest average asking rental rate of $2.22 P NNN, while single tenant buildings dropped to $1.17 P NNN. There is currently 273,000 of new retail inventory under construction in the Inland Empire market. The largest projects currently under construction are the neighborhood centers located at 9606 Foothill Blvd. in Rancho Cucamonga and 29914 Newport Rd. in Menifee, both consisting of 50,000. A leasing transaction to note is Hobby Lobby leasing 55,000 at 2663 Canyon Springs Pky. in Riverside. Historical Vacancy v. Rents Q2 12-16 $ P PER MONTH (NNN) Net Absorption by Market $2.45 $2.35 $2.25 $2.15 $2.05 $1.95 $1.85 $1.75 1,300,000 1,200,000 1,100,000 1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 RENTS VACANCY 2Q12 2Q13 2Q14 2Q15 2Q16 0 93,800 350,600 9% 8% 7% 6% 5% 4% 3% 1,213,600 INLAND EMPIRE ORANGE COUNTY LOS ANGELES COUNTY Weighted Average Asking Lease Rates by Market $ P PER MONTH (NNN) $3.00 $2.75 $2.50 $2.25 $2.00 $1.75 $1.50 $1.35 $2.26 $2.30 % VACANT (TOTAL) $1.25 2 $1.00 INLAND EMPIRE LOS ANGELES COUNTY ORANGE COUNTY
Market Description The Greater Los Angeles retail market is comprised of 472.0 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 Q2 12-16 Investment Trends 2010-2016 ABSORPTION CONSTRUCTION COMPLETIONS $350.00 8.0% 2,000,000 $300.00 7.0% 1,500,000 1,000,000 500,000 $250.00 $200.00 $150.00 6.0% 5.0% 4.0% 3.0% - $100.00 $50.00 2.0% 1.0% (500,000) (1,000,000) 2Q12 2Q13 2Q14 2Q15 2Q16 $0.00 2010 2011 2012 2013 2014 2015 2016 $/P Cap Rate 0.0% 3
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 LOS ANGELES COUNTY SUPER REGIONAL/REGIONAL MALLS 23,859,900 2.8% 3.7% 224,900 259,700 0 0 $4.73 POWER CENTERS 13,556,800 4.4% 4.6% 27,600 172,300 0 85,400 $2.05 LIFESTYLE/THEME-FESTIVAL CENTERS 6,326,300 5.5% 3.9% (98,100) (74,400) 0 77,400 $2.40 COMMUNITY/NEIGHBORHOOD CENTERS 79,886,500 6.6% 7.0% 434,500 653,000 97,700 587,800 $2.02 STRIP CENTERS 31,124,200 5.3% 5.9% 183,900 437,500 14,600 60,000 $2.13 SINGLE TENANT BLDGS. 80,844,000 2.5% 2.7% 440,800 357,700 278,400 470,000 $2.21 SUBTOTAL 235,597,700 4.5% 4.9% 1,213,600 1,805,800 390,700 1,280,600 $2.26 ORANGE COUNTY SUPER REGIONAL/REGIONAL MALLS 10,667,700 3.7% 3.9% 23,300 27,500 0 0 $2.92 POWER CENTERS 7,473,300 2.5% 2.4% (7,800) 10,200 0 9,000 $2.68 LIFESTYLE/THEME-FESTIVAL CENTERS 2,995,800 24.7% 29.2% 135,600 161,400 0 0 $2.83 COMMUNITY/NEIGHBORHOOD CENTERS 45,655,400 5.5% 5.8% 164,500 367,900 37,200 77,700 $2.16 STRIP CENTERS 10,366,700 5.4% 5.8% 46,500 81,900 0 0 $1.97 SINGLE TENANT BLDGS. 25,933,700 1.6% 1.6% (11,500) (65,100) 0 0 $1.86 SUBTOTAL 103,092,600 4.7% 4.9% 350,600 583,800 37,200 86,700 $2.30 INLAND EMPIRE SUPER REGIONAL/REGIONAL MALLS 11,266,500 9.2% 7.2% (223,600) (404,900) 0 0 $1.31 POWER CENTERS 10,487,700 11.8% 10.6% (122,300) (84,900) 0 20,100 $1.54 LIFESTYLE/THEME-FESTIVAL CENTERS 2,190,300 10.1% 10.4% 6,600 (8,500) 0 0 $2.22 COMMUNITY/NEIGHBORHOOD CENTERS 52,152,500 13.5% 13.7% 252,400 452,900 124,500 211,700 $1.35 STRIP CENTERS 12,583,200 10.6% 11.3% 98,900 85,400 10,000 41,200 $1.33 SINGLE TENANT BLDGS. 44,671,000 4.2% 4.4% 81,800 205,500 0 0 $1.17 SUBTOTAL 133,351,200 9.5% 9.5% 93,800 245,500 134,500 273,000 $1.35 LA BASIN TOTAL SUPER REGIONAL/REGIONAL MALLS 45,794,100 4.6% 4.3% 24,600 (117,700) 0 0 $2.70 POWER CENTERS 31,517,800 6.4% 6.5% (102,500) 97,600 0 114,500 $1.80 LIFESTYLE/THEME-FESTIVAL CENTERS 11,512,400 11.4% 6.9% 44,100 78,500 0 77,400 $2.61 COMMUNITY/NEIGHBORHOOD CENTERS 177,694,400 8.3% 8.6% 851,400 1,473,800 259,400 877,200 $1.73 STRIP CENTERS 54,074,100 6.6% 7.7% 329,300 604,800 24,600 101,200 $1.80 SINGLE TENANT BLDGS. 151,448,700 2.8% 2.6% 511,100 498,100 278,400 470,000 $1.73 TOTAL 472,041,500 5.9% 6.3% 1,658,000 2,635,100 562,400 1,640,300 $1.95
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. 554 offices in 66 countries on 6 continents United States: 153 Canada: 34 Latin America: 24 Asia Pacific: 231 EMEA: 112 UNITED STATES: Greater Los Angeles Office License No. 01908231 865 S Figueroa St, Suite 3500 Los Angeles, CA 90017 > $2.3 billion in annual revenue > 1.7 billion square feet under management > Over 16,100 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. 5 MARTIN PUPIL President, Western Region JOHN HOLLINGSWORTH Executive Managing Director CAITLIN MATTESON Research Director Research Services HANS MUMPER Executive Managing Director ROBERT CAUDILL Regional Director/O.C.