Research & Forecast Report MID-COUNTIES INDUSTRIAL Accelerating success. >> Asking Rents Increase As Space Remains Limited Key Takeaways > Average asking rents increased $0.02 Per Square Foot (P) Triple Net (NNN) over the prior quarter to $0.70 P NNN. Rates have surpassed their previous peak of $0.64 P NNN last seen in 2007. > The overall vacancy rate was 0.6%, unchanged from the previous quarter. Vacancy has remained below 1% for the last eight quarters. > Sales and leasing activity was 1,165,600 square feet () for the quarter, including one sale totaling 18,200 and 24 leases totaling 1,147,400. > Net absorption was positive at 104,900 for the quarter. Low building availability is limiting the amount of net absorption that can occur. Market Indicators Relative to prior period Forecast Vacancy Net Absorption Construction Rental Rate Summary Statistics Mid-Counties, Vacancy Rate 0.6% Change from Q1 17 (Basis Points) 0 BPS Net Absorption 104,900 Construction Completions 13,400 Under Construction 2,079,000 > Approximately 2,079,000 remains under construction. Asking Rents Mid-Counties, Mid-Counties Industrial Market Mid-Counties Industrial Market The Mid-Counties remains the tightest industrial market in Southern California, with a vacancy rate of only 0.6%. This has left limited options for firms looking to expand in the region. Average Asking Rent $0.70 P NNN Change from Q3 16 +$0.06 Y.O.Y. Change (%) +9.4% Labor Force Mid-Counties, 12-mo Employment Growth (%) 12-mo Actual Employment Change Construction Manufacturing Transportation, Trade & Utilities 8.1% -0.8% -0.7% +11,000-2,800-6,200
MID-COUNTIES INDUSTRIAL Vacancy > Vacancy remains at a record low, ending the quarter at 0.6%. > Currently 2,079,000 of space is under construction. > Forecast: Vacancy is expected to remain below 1% for the foreseeable future. Lack of space continues to hinder businesses from expanding in the Mid-Counties. Absorption and Leasing Activity > Positive net absorption reached 104,900 this quarter. Net absorption has been positive for the last 30 quarters. > Sales and leasing activity registered 1,165,600. Tight market conditions for quality buildings are limiting options for tenants looking to expand. > Forecast: Absorption is likely to be flat in future quarters until new buildings are brought to the market. Historical Vacancy v. Rents Mid-Counties Q3 13-17 $ PER PER MONTH (NNN) RENTS VACANCY 0.8 7% 0.7 6% 0.6 5% 0.5 4% 0.4 3% 0.3 2% 0.2 0.1 1% 0 0% 3Q13 3Q14 3Q15 3Q16 3Q17 Avg. Asking Lease Rates Mid-Counties Q3 17 % VACANT (TOTAL) Rental Rates > Rents increased to $0.70 P NNN, which is the highest average rental rate ever for this region. > Significant barriers to creating new supply and increased demand among tenants are putting continued upward pressure on rents. This will continue to make the Mid-Counties one of the most competitively priced markets in Southern California. > Forecast: Rents will continue to rise in future quarters and tenants can expect to pay a premium for all types of industrial space. Tenants who signed leases five years ago can expect their rents to increase significantly upon renewal. $P PER MONTH (NNN) $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.77 10,000-19,999 $0.75 $0.74 20,000-39,999 40,000-69,999 $0.72 70,000-99,999 $0.69 100,000-249,999 $0.69 250,000-499,999 $0.59 500,000+ Historical Sales & Leasing Activity Mid-Counties Q3 13-17 3,000,000 2,500,000 2,000,000 SQUARE FEET 1,500,000 1,000,000 500,000 0 3Q13 3Q14 3Q15 3Q16 3Q17 2
MID COUNTIES INDUSTRIAL Construction Historical Net Absorption & Construction Completions Mid-Counties Q3 13-17 > Deliveries totaled 13,400 this quarter and 2,079,000 of space remains under construction. 900,000 NET ABSORPTION CONSTRUCTION COMPLETIONS > Development opportunities are scarce and land prices for even marginal industrial parcels are seeing new highs. 800,000 700,000 > Forecast: Increasing rental rates and low vacancy rates may lead to older buildings being redeveloped into newer projects. 600,000 500,000 400,000 300,000 Investment Trends > Cap rates continue to remain tight in Los Angeles County, averaging 5% in the third quarter of 2017. > Class A product in the Mid-Counties traded at the low 4% range while Class B product was in the mid-5% range. > Forecast: Investor focus on fully leased industrial assets has increased in prime infill locations. Consequently, we expect further demand to drive up sales prices, further compressing cap rates. 200,000 100,000 0 3Q 2013 3Q14 3Q15 3Q16 3Q17 Investment Trends Chart Los Angeles County Q3 13-17 7.0% 6.0% 5.0% Average Price Per sf Average Cap Rate $180 $160 $140 $120 Outlook The Mid-Counties market has hit a record low vacancy rate of 0.6%. This is putting upward pressure on asking rates, which have hit a new market peak. Consequently, demand to purchase real estate assets rather than leasing them continued to be strong. 4.0% 3.0% 2.0% 1.0% 0.0% 3Q13 3Q14 3Q15 3Q16 3Q17 Unemployment Rate August 2017 $100 $80 $60 $40 $20 $0 4.8% 4.7% 4.6% 4.5% 4.4% 4.3% 4.2% 4.1% 4.0% 3.9% 3.8% 4.7% 4.4% 4.1% United States California Los Angeles County 3
MID-COUNTIES INDUSTRIAL Market Description The Mid-Counties represents 103.5 million square feet of industrial space located in cities that border Los Angeles and Orange Counties. It is at the geographic heart of Southern California, a strategic location in the middle of the largest industrial market in the nation. It has a mix of industrial property types, with 50 percent in big box space (100,000+ ) and the remaining balance in small- and medium-sized buildings. Businesses are attracted to the Mid-Counties due to its central location and proximity to the Ports of Long Beach and Los Angeles. Submarket Map RECENT TRANSACTIONS & MAJOR DEVELOPMENTS Mid-Counties Industrial Market SALES ACTIVITY PROPERTY ADDRESS SIZE SALE PRICE PRICE P BUYER SELLER 12803 Telegraph, Santa Fe Springs 86,800 $14.9 Million $172 P Terreno Realty Telegraph Springs LLC 13535 Marquardt, Santa Fe Springs 17,000 $2.8 Million $167 P WF Marquardt, LLC Mehta Family Trust 8322 Artesia, Buena Park 15,000 $2.8 Million $185 P Pro Merchandise Package Inc. Millennium Investment LLC LEASING ACTIVITY PROPERTY ADDRESS LEASED LEASE TYPE BLDG TYPE LESSEE LESSOR 14445 Alondra, La Mirada 199,600 Direct - New Distribution St. George Warehouse Overton Moore Properties 14000 183rd, La Palma 131,000 Direct - New Distribution Priority 1 Warehousing 183rd La Palma Investors 10810 Painter, Santa Fe Springs 110,800 Direct - New Distribution Tatum Logistics, LLC DCT 5600 Knott, Buena Park 110,600 Direct - New Distribution DX Supply Chain Crown Associates MAJOR DEVELOPMENTS PROJECT DEVELOPER SIZE SUBMARKET STATUS ESTIMATED COMPLETION 12588 Florence, Santa Fe Springs Goodman Birtcher 403,600 Mid Counties Under Construction Q4 2017 13943 Maryton, Santa Fe Springs Bridge Development 75,300 Mid Counties Under Construction Q4 2017 13915 Maryton, Santa Fe Speings Bridge Development 74,000 Mid Counties Under Construction Q4 2017 4
MID COUNTIES INDUSTRIAL INDUSTRIAL OVERVIEW MID-COUNTIES EXISTING PROPERTIES CONSTRUCTION VACANCY AVAILABILITY ACTIVITY ABSORPTION RENTS Submarket/ Building Size Bldgs Total Inventory Completions Current Qtr Under Construction Vacancy Vacancy Prior Qtr Availability Sales Number of Activity Sales Lease Activity Number of Leases Total Gross Activity Current Qtr Total Gross Activity YTD Net Absorption Current Qtr Net Absorption YTD Weighted Avg Asking Lease Rates MARKET TOTAL 10,000-19,999 740 10,320,200 13,400 14,000 0.6% 0.3% 2.7% 18,200 1 44,100 3 62,300 316,700-12,400-24,900 $0.77 20,000-39,999 519 14,138,700 0 53,400 0.0% 0.0% 1.8% 0 0 21,700 1 21,700 292,900 0 30,500 $0.75 40,000-69,999 317 16,256,700 0 90,000 0.3% 0.1% 1.5% 0 0 197,400 7 197,400 617,400-24,600-92,800 $0.74 70,000-99,999 133 10,578,100 0 223,500 0.9% 0.8% 2.0% 0 0 133,500 6 133,500 212,000-15,700-95,600 $0.72 100,000-249,999 219 32,599,300 0 0 1.4% 1.9% 2.3% 0 0 619,700 6 619,700 1,959,900 157,600 410,000 $0.69 250,000-499,999 51 15,713,000 0 1,191,600 0.0% 0.0% 4.4% 0 0 131,000 1 131,000 233,400 0 0 $0.69 500,000+ 6 3,901,100 0 506,500 0.0% 0.0% 32.5% 0 0 0 0 0 0 0 0 $0.59 TOTAL 1,985 103,507,100 13,400 2,079,000 0.6% 0.6% 3.6% 18,200 1 1,147,400 24 1,165,600 3,632,300 104,900 227,200 $0.70 5
MID-COUNTIES INDUSTRIAL Definitions of key terms in this report Total Rentable Square Feet: Industrial space in buildings with 10,000 or more of industrial space. Includes speculative as well as owner-occupied buildings. Excludes Research & Development (R&D) buildings (industrial buildings with at least 30% office build-out, 3/1000 parking ratio and a high level of finish). Excludes space that is under-construction or renovation. Vacancy: Space in existing buildings that is vacant and immediately available during the quarter for direct lease, for sublease or for sale, plus space that is vacant but not available for direct lease or sublease. Availability: All space that is being currently marketed for occupancy, includes space which may be currently occupied or which may be under construction or renovation. Net Absorption: Net change in occupied square feet from one period to the next (includes the impact of change in vacant space available for sublease). Gross Activity: Square feet sold and leased for all known transactions completed during the quarter. Excludes lease renewals. Excludes investment sale transactions. Weighted Average Asking Rental Rates: Weighted by square feet available for direct lease. Data is based on triple net rents, and excludes expenses such as taxes, insurance, maintenance, janitorial service and utilities. Reported on a monthly, per basis. Construction Completions: Total 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. 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: Commerce Office License No. 01908231 5100 S. Eastern, Suite 100 Commerce, CA 90040 > $2.6 billion in annual revenue > 2.0 billion square feet under management > Over 15,000 professionals TEL: +1 323 726 1200 FAX: +1 323 278 3000 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. HANS MUMPER Executive Managing Director Greater Los Angeles THOMAS GALVIN Research Analyst Research Services 6