LOS ANGELES COUNTY Economic Indicators Market Indicators (Overall, All Classes) Overall Net Absorption / Overall Asking Rent Overall Vacancy Q4 15 Q4 16 Los Angeles Employment 4.3M 4.4M Los Angeles Unemployment 6.1% 5.1% U.S. Unemployment 4.8% Q4 15 Q4 16 Vacancy 14.4% 14.1% Net Absorption 1.4M 264K Under Construction 1.8M 2.0M Average Asking Rent* $2.84 $3.01 *Rental rates reflect gross asking $ 1,500,000 1,000,000-500,000-1,000,000 25% 20% 15% 10% 500,000 5% 0 Net Absorption, MSF 5-Year Historical Average = 17.1% Asking Rent, $ PSF 0% 12-Month Forecast 12-Month Forecast $3.50 Economy Los Angeles continues on a steady employment growth path, which looks certain to continue. In fourth quarter 2016, the county s nonfarm employment increased by 65,300 jobs for a 1.5% annual growth. The educational and health services sector posted the largest gain with the addition of 21,200 jobs while the financial and professional & business services sectors added a combined total of 11,500 jobs. The outlook for the U.S. and the local economy remains positive as we enter a new era of fiscal and monetary policy. The labor market will tighten and wage growth will begin as the unemployment rate continues to fall. According to the LA EDC, county employment is projected to grow at an average annual rate of 1.5% over the next five years. Market Overview Greater LA office market fundamentals improved across most indicators as the overall vacancy rate continues to drop to 14.1%, 30 basis points (BPs) lower than a year ago. Overall asking rental rates increased for the 12 th consecutive quarter, surpassing per square foot per month () with Class A asking rates reaching $3.34. There has now been an average annual rent growth of 6.0% for the past three years. New leasing activity of 14 million square feet (MSF) in 2016 was on par with the 14.3 MSF leased in 2015. However, LA CBD leasing fell by 16.2% compared to the previous year as demand shifted to the LA Metro areas. There was also substantial increase in Class B space being leased, up 23% from the previous year. While a flurry of demand from tech and media tenants caused the LA West submarkets to outperformed all other LA markets in 2014 and 2015, South Bay emerged as new creative office hot spot in 2016, primarily in El Segundo. LA South leasing volume is up by 21.2% from 2015, while LA West fell by 13.1%. There s been a 12% increase in office construction from this time last year, however majority of the 2 MSF currently in the Greater LA construction pipeline will be delivering in 2017, signaling a slowdown of new projects. After a vigorous start to the year in sales, activity remained strong finishing with 16.5 MSF sold. This is an astounding 55.7% more than the 10.6 MSF sold in 2015. LA has moved up to fourth place as on the top cities for global real estate investors. Outlook Performance in most LA metro areas will continue to improve, particularly ones neighboring downtown. Asking rental rates in the downtown Non-CBD areas are already up 15.7% from a year ago. As investors pour into South Park and the Arts District, they re also starting to set their sights on Little Tokyo. Large adaptive re-use and other warehouse renovations have been largely successful and will continue to be in 2017. cushmanwakefield.com I 1
Los Angeles CBD The direct vacancy rate in LA CBD held steady over the year at 19.5%. An increase in sublease vacancies kept the overall vacancy rate at over 20% Despite softer leasing compared to 2015, landlord confidence remained high in 2016. Class A rental rates reached $41.20 PSF/YR, while asking rental rates for the Tier 1 trophy subset hit a new peak of $42.55 PSF/YR. The 91,556 SF of positive absorption recorded in 2016 marked the third consecutive year with positive occupancy gains following six years of losses from 2008 to 2013. Several significant lease transactions including those by American Realty Corporation, Tokio Marine, USCB America and UBS all helped the CBD overcome a sluggish start to the year. A 241,000-SF lease agreement between City National Bank and Two California Plaza in the fourth quarter helped push new leasing activity to 1.8 MSF for the year. Los Angeles West LA West overall vacancy is down 50 BPs from a year ago to 10.3%. As vacancies inch closer to pre-recession levels, asking rental rates continue to reach historical peaks. The direct asking rental rate of $4.33 represents an increase of 8% from the previous year. This is the strongest rental rate growth of any LA office market. Half of the top 20 leases signed in Greater LA this year were in LA West and majority of these top LA West deals were in Santa Monica. Santa Monica experienced occupancy losses in 2016, but the aforementioned leases will soon fill these large blocks. Westside demand is unlikely to be dampened even as nearby South Bay submarkets continue to offer similar creative office product at more desirable rates. There is currently over 1 MSF in the construction pipeline delivering in 2017, with the large projects in Playa Vista and Santa Monica projected to quickly lease up. These new speculative developments may cause vacancy to tick up in 2017, but appetite for new creative product will lead to more absorption and improved fundamentals in 2018. PSF/YR CENTRAL BUSINESS DISTRICT $50.00 $40.00 $30.00 $20.00 $10.00 $34.84 $35.03 $35.31 TRICITIES $38.25 $38.71 $40.50 LOS ANGELES WEST $5.00 $4.00 $4.00 $3.25 $3.34 $3.43 $3.64 $4.01 $4.33 TriCities TriCities market fundamentals held steady in 2016, as overall vacancy remained unchanged from a year ago at 13.8%. Overall asking rental rates exhibited similar characteristics, staying flat at $2.87, while direct rental rates fell slightly to $2.89. Universal/North Hollywood had the highest Class A rent growth, up 4.7% from last year, reaching $3.13. Building on a post-recession record amount of leasing volume by mid-year, TriCities surpassed last years activity by closing 2016 with 1.85 MSF of new leasing. Large deals executed by Entertainment Partners, Hasbro, WeWork, and Disney helped push new leasing in Burbank to 892,398 SF for the year, which makes up 48.2% of $2.68 $2.67 $2.70 $2.66 $2.95 $2.89 the TriCities total. cushmanwakefield.com I 2
San Gabriel Valley San Gabriel Valley (SGV) overall asking rental rates continue to climb reaching $2.14, an impressive 2.4% over the quarter. Rent growth was highest in the Covina/West Covina submarket, up 10.7% over the year, reaching $2.28. Renovation completions caused SGV vacancies to tick up, but the vacancy rate in El Monte dropped by 320 BPs from the previous year to 2.2%. Landlords have kept asking rents steady here at $1.73, the lowest in the SGV. Although El Monte is the smallest submarket with the lowest asking rent in SGV, demand has tremendously driven down the amount of available office space. New leasing volume of 734,272 SF in 2016 was 17.9% higher than the activity in 2015. Significant leases in the fourth quarter by Worley Parsons and the County of LA Department of Parks and Recreation were in Class B product demonstrating high demand for larger space at lower rates in the SGV. Los Angeles North LA North leasing activity slowed from last quarter to 533,906 SF, but on par from a year ago. The fourth quarter posted the highest net absorption reported in 2016 at 218,789 SF, bringing the total to 521,891 SF. Large move-ins cause overall vacancy to decline 20 BPs from a year ago to 10.9%. "The Mix" at Harman Campus completed its renovations, adding 142,420 SF of premium office space in Northridge. This addition of space brought asking average rental rates in Northridge to $2.75, a 32.2% increase from last quarter. Northridge now commands the highest asking rental rates in West Valley. LA North rental rates stayed flat over the quarter but still 5.7% higher than a year ago finishing at $2.40. Vacancy rates should start declining now that large renovations have completed followed by more robust rent growth. Los Angeles South The South Bay office market has now posted four years of positive growth, finishing 2016 with an overall net absorption of 464,660 SF. The year ended with an 18.5% overall vacancy rate, 160 BPs lower than last year and the lowest since 2008. Robust occupancy gains continue to demonstrate the high demand for creative space. With Westside tenants priced out of the market, migration has filtered into El Segundo with more properties slated for creative conversions in 2017 and 2018. New leasing activity was healthy in 2016 totaling 2.6 MSF, 21.2% higher than 2015. There has been significant upward pressure on rental rates and they have been consistently increasing for the last three years. Not only have rents increased by an annual rate of 5.5%, South Bay rents have now surpassed the level achieved at the peak of the previous cycle in 2008 by 8.5%. Overall leasing velocity is anticipated to remain relatively healthy and additional rental growth is expected. SAN GABRIEL VALLEY $2.01 $2.07 $2.14 LOS ANGELES NORTH $2.13 $2.20 $2.27 $2.40 LOS ANGELES SOUTH $2.14 $2.30 cushmanwakefield.com I 3
MARKET TOTAL BUILDINGS INVENTORY DIRECT VACANCY RATE VACANCY RATE YTD LEASING ACTIVITY YTD NET ABSORPTION UNDER CONSTRUCTION AVERAGE ASKING RENT (ALL CLASSES)* AVERAGE ASKING RENT (CLASS A)* Los Angeles CBD 53 27,104,752 19.5% 20.4% 1,777,392 91,556 356,141 $3.38 $3.41 Los Angeles Central (Non-CBD) 130 18,846,463 13.9% 14.0% 1,088,747 600,936 532,238 $2.64 $2.78 Los Angeles West 415 52,621,894 9.6% 10.3% 3,772,595 606,736 1,068,318 $4.29 $4.37 Los Angeles North 409 31,419,021 10.9% 11.3% 2,238,377 543,400 0 $2.40 $2.47 Los Angeles South 253 30,381,134 17.8% 18.5% 2,567,880 464,660 79,087 $2.29 $2.54 TriCities 204 24,737,805 12.7% 13.8% 1,850,739 (26,982) 0 $2.91 $3.07 San Gabriel Valley 171 12,628,238 13.6% 13.8% 734,272 205,640 0 $2.14 $2.40 GREATER LOS ANGELES TOTALS 1,635 197,739,307 13.5% 14.1% 14,030,002 2,485,946 2,035,784 $3.01 $3.31 *Rental rates reflect gross asking $ Key Lease Transactions 2016 PROPERTY SF TENANT TRANSACTION TYPE SUBMARKET 777 S. Santa Fe Avenue / Ford Factory 257,000 Warner Music Group New Lease Arts District 350 S. Grand Avenue / Two Cal Plaza 241,639 City National Bank New Lease Bunker Hill 400 S. Hope Street / Four Hundred Hope 238,035 O Melveny & Meyers Renewal Bunker Hill 2400 Broadway / Colorado Center - Bldg. D 159,310 Kite Pharma New Lease Santa Monica 777 S. Aviation / 701 Aviation 154,000 Federal Aviation Administration New Lease El Segundo 611 N. Brand Boulevard 141,711 Disney Renewal Glendale 101 N. Sepulveda Boulevard 134,586 Infineon Technologies Renewal El Segundo 865 S. Figueroa Street / 865 Figueroa 126,536 Quinn Emanuel Renewal Financial District 2950 N. Hollywood Way / Burbank Business 125,573 Entertainment Partners New Lease Burbank 5808 W. Sunset Boulevard / Icon 123,221 Netflix Expansion Hollywood Key Sales Transactions 2016 PROPERTY SF SELLER / BUYER PRICE / $PSF SUBMARKET 10880 & 10940 & 10960 Wilshire Boulevard 1100 Glendon Avenue & parking structure 1,725,501 Blackstone / Douglas Emmett $1,340,416,500 / $776 Westwood 444 S. Flower Street / Citigroup Center 914,343 Hines / Coretrust Capital $336,000,000 / $367 Bunker Hill 400 S. Hope Street 701,295 PNC Financial / CBRE Global $313,636,000 / $472 Bunker Hill 11601 Wilshire Boulevard 469,115 Blackstone / Hudson Pacific Properties $311,000,000 / $663 Brentwood 5900 Wilshire Boulevard 467,500 Ratkovich Company / PGIM Real Estate $245,000,000 / $524 Miracle Mile 55 S. Lake Avenue / Pasadena Towers II 439,650 Beacon Capital / CBRE Global $257,000,000 / $585 Pasadena 6500 Wilshire Boulevard 425,039 Lincoln Property Company / Cedars Sinai $295,000,000 / $694 Miracle Mile 101 N. Brand Boulevard / Glendale City Center 367,867 PGIM Real Estate / Beacon Capital $128,500,000 / $349 Glendale 12100 Wilshire Boulevard 343,421 Hines / Douglas Emmett $225,000,000 / $655 Brentwood 300 N. Sepulveda Boulevard 336,527 Divco West / Lincoln Property Company $120,000,000 / $356 El Segundo cushmanwakefield.com I 4
OFFICE SUBMARKETS Cushman & Wakefield 601 S. Figueroa Street 47 th Floor Los Angeles, CA 90017 For more information, contact: Eric Kenas, Market Director of Research Tel: +1 213 955 6446 eric.kenas@cushwake.com Vincent Chang, Senior Analyst Tel: +1 213 955 5125 vincent.chang@cushwake.com About Cushman & Wakefield Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. Our 43,000 employees in more than 60 countries help investors and occupiers optimize the value of their real estate by combining our global perspective and deep local knowledge with an impressive platform of real estate solutions. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $5 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter. Copyright 2017 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy. cushmanwakefield.com I 5