INLAND EMPIRE OFFICE THIRD QUARTER 217 QUICK STATS Direct Vacancy 11.4% Overall Vacancy 11.7% Lease Rate FSG $1.83 Gross Absorption Under Construction MARKET TRENDS Current Quarter 529,634 SF 45,24 SF Change from Last Quarter Year Overall Vacancy Rental Rates Gross Absorption Under Construction OFFICE SUMMARY & OUTLOOK The Inland Empire office market witnessed vacancy rates increase from 11.2% to 11.7%, during the quarter. Average asking rents increased 2.2%, year over year, moving from $1.79 FSG to $1.83 FSG. Gross absorption finished the quarter with 53, square feet of activity, while net absorption posted a loss of 158, square feet of occupied space. Under construction activity was unchanged during the quarter with 45, square feet currently underway. The labor market continues to see improvement as unemployment rates have declined from 6.% to 5.4%, year over year, but is still above California (4.7%) and the U.S (4.1%). The market remains more balanced with vacancy trending lower and rents rising at a more normalized rate. Job creation will remain the key to increased office demand. In September, non-farm employment grew by 2.5%, year over year, adding 35,1 new jobs, which should keep vacancy trending lower with only a small amount of new construction underway. The investment and sale market for office buildings in the Inland Empire continues to heat up, with median prices experiencing double-digit price growth in 216 and is up another 6.7% in 217. The capital markets remain solid with plenty of liquidity, but we do expect interest rates to rise in the coming year, which is expected to slow price growth. We expect market fundamentals to strengthen further as we move into the coming quarter, with vacancy trending lower, and rents expected to increase 2% to 4% for most submarkets in the coming year. VACANCY & NET ABSORPTION ECONOMIC STATS Current Month Previous Year Sep. 17 Sep. 16 Unemployment 5.4% 6.% Rate (MSA) Change in # +9,8 +35,1 Of Jobs (MSA) % Change for +.7% +2.5% Jobs (MSA) 5, 4, 3, 2, 1, (1,) (2,) (3,) 2.% 18.% 16.% 14.% 12.% 1.% 8.% 6.% 4.% 2.%.% Net Absorption SF Overall Vacancy
INLAND EMPIRE OFFICE THIRD QUARTER 217 VACANCY RENTAL RATES & TIME ON THE MARKET 18.% $1.85 25. 16.% $1.8 $1.75 2. 14.% $1.7 15. 12.% 1.% $1.65 $1.6 $1.55 1. 5. 8.% $1.5. Direct Vacancy Overall vacancy rates (including sublease space) increased during the quarter, moving from 11.2% to 11.7%. Of the three major submarkets within the Inland Empire market, the Greater Ontario Airport submarket ended the quarter with the lowest total vacancy of 1.4%, followed by the submarket at 1.9%, and the San Bernardino submarket finishing at 13.4%. Since the third quarter of 216, overall vacancy has decreased from 13.2% to 11.7%, and remains near its lowest level in more than a decade. ABSORPTION Overall Vacancy Avg. Rent (FSG) Time to Lease (Months) Average asking rates increased 2.2%, year over year, moving from $1.79 FSG to $1.83 FSG. Of the three submarkets within the Inland Empire market, the Greater Ontario Airport submarket ended the quarter with the highest average asking rate of $1.98 FSG, followed by the submarket at $1.96 FSG, and the San Bernardino submarket at $1.63 FSG. Average asking rates were unchanged during the quarter, holding at $1.83 FSG. The median time to lease decreased during the quarter from 15. months to 9. months. CONSTRUCTION ACTIVITY 1,, 8, 6, 2, 18, 16, 14, 12, 4, 2, (2,) 1, 8, 6, 4, 2, (4,) Net Absorption SF Gross Absorption SF SF Newly Completed SF Under Construction Gross absorption for the quarter totaled 53, square feet of activity, down 31% compared to the previous quarter, and lower by 5% compared to a year ago. Net absorption finished the quarter in negative territory, losing 158, square feet of occupied space, but has gained 448, square feet for the year. In 216, the market gained 397, square feet, after gaining 471, square feet during 215, +382, square feet in 214, and a gain of 53, square feet in 213. Overall demand still remains solid, as the market has recorded positive net absorption in eighteen of the past twenty quarters, totaling 2.5 million square feet. Under construction activity was unchanged during the quarter, with 45, square feet currently underway, as the market delivered 29, square feet of new space during 216. In 215, the market delivered 92,5 square feet of new space, after adding 168, square feet in 214, 77, square feet during 213 and 137, square feet in 212. During the past five years, the market has averaged approximately 73, square feet of new deliveries, annually. We expect new construction levels to remain at similar levels in the coming quarters, but could begin to rise if overall occupancy and rents continue to rise.
INLAND EMPIRE OFFICE THIRD QUARTER 217 MARKET SNAPSHOT Total Direct Direct Total Total Inventory Vacant Vacancy Vacant w/ Sublet Vacant w/ Sublet SUBMARKETS Square Footage Square Footage Rate Square Footage Rate Greater Ontario Airport 9,81,571 974,454 9.9% 1,18,74 1.4% 11,582,99 1,246,211 1.8% 1,266,45 1.9% San Bernardino 11,88,645 1,579,669 13.3% 1,593,771 13.4% Inland Empire Totals 33,274,26 3,8,334 11.4% 3,877,89 11.7% Office Market Inventory 16.% Office Vacancy Rates San Bernardino 36% Greater Ontario Airport 29% 14.% 12.% 1.% 8.% 6.% 35% 4.% 2.%.% Greater Ontario Airport Vacancy- Direct San Bernardino Vacancy w/ Sublease Rate Average Low-High Square Feet Square Feet Gross Absorption Asking Rent Asking Rent Built in Under Square Feet SUBMARKETS FSG Range FSG 217 Construction Current Quarter Greater Ontario Airport $1.98 $.8-$3.5 185,528 $1.96 $.75-$3.4 45,24 25,87 San Bernardino $1.63 $.75-$2.55 138,236 Inland Empire Totals $1.83 $.75-$3.5 45,24 529,634 Office Rental Rates New Construction Activity $2.5 5, $2. 45, 4, $1.5 35, 3, $1. 25, 2, $.5 15, 1, $. Greater Ontario Airport San Bernardino Inland Empire Totals 5, Greater Ontario Airport San Bernardino Inland Empire Totals Average Asking Rent FSG Square Feet Built in 217 Square Feet Under Construction
INLAND EMPIRE OFFICE THIRD QUARTER 217 SOUTHERN CALIFORNIA OFFICE BUILDING SALE TREND ANALYSIS TOTAL SALES TRANSACTIONS Market 28 29 21 211 212 213 214 215 216 217-3Q LA County 517 348 356 552 747 769 887 1,54 993 879 Orange County 247 13 151 25 294 347 334 426 391 39 Inland Empire 284 168 156 25 264 327 373 432 397 368 Ventura County 51 24 29 54 59 58 18 86 11 87 Totals 1,99 643 692 1,61 1,364 1,51 1,72 1,998 1,891 1,643 TOTAL TRANSACTION DOLLAR VALUE (MILLIONS) Bldg. SF 28 29 21 211 212 213 214 215 216 217-3Q LA County $2,663.7 $753.9 $1,162.5 $2,72. $3,238.3 $5,95. $7,352.4 $4,867. $9,624.7 $6,7.5 Orange County $725.3 $364.9 $521.9 $625.9 $783.3 $1,385.1 $1,596.8 $2,86. $2,51.5 $1,612.2 Inland Empire $356.9 $85.7 $96. $131.3 $166.7 $237.3 $336.9 $643.3 $457.2 $386.1 Ventura County $93.9 $29.6 $81.3 $56.4 $43.2 $57.1 $247.8 $164.5 $169.4 $17.7 Totals $3,839.8 $1,234.1 $1,861.8 $2,885.6 $4,231.4 $7,629.5 $9,534. $8,48.9 $12,752.8 $8,113.6 TOTAL SQUARE FEET SOLD Bldg. SF 28 29 21 211 212 213 214 215 216 217-3Q LA County 11,846,815 5,577,741 6,24,699 9,72,267 15,65,333 23,586,15 23,497,172 17,578,857 25,17,86 19,356,334 Orange County 3,283,77 2,31,918 3,58,113 3,865,353 6,76,68 7,299,964 8,172,286 12,259,97 11,85,393 6,881,526 Inland Empire 2,124,94 957,23 1,94,559 1,742,48 2,322,85 2,461,316 2,919,294 5,376,785 3,419,994 3,748,149 Ventura County 476,21 141,646 37,79 397,973 517,872 679,369 1,551,626 1,66,791 1,186,277 823,322 Totals 17,73,853 8,78,328 11,15,45 15,725,641 23,982,663 34,26,799 36,14,378 36,282,34 41,518,75 3,89,331 AVERAGE PRICE / SF Bldg. SF 28 29 21 211 212 213 214 215 216 217-3Q LA County $273.96 $226.31 $235.42 $256.11 $265.8 $281.44 $345.89 $36.4 $43.47 $378.55 Orange County $293.52 $194.5 $182.39 $192.7 $211.65 $28.43 $27.81 $259.92 $264.58 $26.17 Inland Empire $212.69 $181.29 $13.39 $121.93 $135.86 $13.38 $143.52 $141.42 $17.65 $154.6 Ventura County $27.86 $248.34 $328.13 $182.62 $13.87 $14.6 $29.36 $189.67 $181.55 $177.54 Averages $268.46 $214.3 $21.98 $223.8 $236.13 $251.32 $292.45 $262.81 $354.79 $319.49 MEDIAN PRICE / SQUARE FOOT Bldg. SF 28 29 21 211 212 213 214 215 216 217-3Q LA County $288.58 $259.74 $211.75 $24.94 $244.34 $233.33 $266.2 $285.71 $3.16 $291.41 Orange County $314.94 $224.41 $192.32 $216.15 $19. $24.49 $223.61 $246.57 $277.57 $259.58 Inland Empire $245.65 $187.29 $165.49 $134.45 $123.9 $125.42 $134.22 $132.88 $16.64 $171.44 Ventura County $253.62 $297.9 $22.17 $215.19 $183.47 $175.15 $18.41 $213.19 $19.56 $194.4 Median Average $287.38 $244.14 $2.83 $2.15 $217.51 $218.18 $242.11 $247.7 $279.11 $267.11 MEDIAN $ PSF INCREASE Bldg. SF 29 21 211 212 213 214 215 216 217-3Q LA County -1.% -18.5% -3.2% 19.2% -4.5% 14.% 7.4% 5.1% -2.9% Orange County -28.7% -14.3% 12.4% -12.1% 7.6% 9.4% 1.3% 12.6% -6.5% Inland Empire -23.8% -11.6% -18.8% -8.4% 1.9% 7.% -1.% 2.9% 6.7% Ventura County 17.1% -31.9% 6.4% -14.7% -4.5% 3.% 18.2% -1.6% 2.% Totals -15.% -17.7% -.3% 8.7%.3% 11.% 2.3% 12.7% -4.3%
Median Price PSF Annual Increase Square Footage Sold Average Price PSF Number of Transactions Transaction $ Volume (Millions) INLAND EMPIRE OFFICE THIRD QUARTER 217 SOUTHERN CALIFORNIA OFFICE BUILDING SALE TREND ANALYSIS Number of Transactions Transaction Volume $ 1,2 $12,. 1, $1,. 8 $8,. 6 $6,. 4 $4,. 2 $2,. 217-28 29 21 211 212 213 214 215 216 3Q LA County 517 348 356 552 747 769 887 1,54 993 879 Orange County 247 13 151 25 294 347 334 426 391 39 Inland Empire 284 168 156 25 264 327 373 432 397 368 Ventura County 51 24 29 54 59 58 18 86 11 87 3,, Square Footage Sold $. 28 29 21 211 212 213 214 215 216 217-3Q LA County $2,663.7 $753.9 $1,162.5 $2,72. $3,238.3 $5,95. $7,352.4 $4,867. $9,624.7 $6,7.5 Orange County $725.3 $364.9 $521.9 $625.9 $783.3 $1,385.1 $1,596.8 $2,86. $2,51.5 $1,612.2 Inland Empire $356.9 $85.7 $96. $131.3 $166.7 $237.3 $336.9 $643.3 $457.2 $386.1 Ventura County $93.9 $29.6 $81.3 $56.4 $43.2 $57.1 $247.8 $164.5 $169.4 $17.7 $5. Average Price PSF $45. 25,, $4. 2,, $35. $3. 15,, $25. 1,, $2. $15. 5,, $1. $5. 28 29 21 211 212 213 214 215 216 217-3Q 11,846,815 5,577,741 6,24,699 9,72,267 15,65,333 23,586,15 23,497,172 17,578,857 25,17,86 19,356,334 LA County Orange County 3,283,77 2,31,918 3,58,113 3,865,353 6,76,68 7,299,964 8,172,286 12,259,97 11,85,393 6,881,526 Inland Empire 2,124,94 957,23 1,94,559 1,742,48 2,322,85 2,461,316 2,919,294 5,376,785 3,419,994 3,748,149 Ventura County 476,21 141,646 37,79 397,973 517,872 679,369 1,551,626 1,66,791 1,186,277 823,322 Median Price PSF $. 28 29 21 211 212 213 214 215 216 217-3Q LA County $273.96 $226.31 $235.42 $256.11 $265.8 $281.44 $345.89 $36.4 $43.47 $378.55 Orange County $293.52 $194.5 $182.39 $192.7 $211.65 $28.43 $27.81 $259.92 $264.58 $26.17 Inland Empire $212.69 $181.29 $13.39 $121.93 $135.86 $13.38 $143.52 $141.42 $17.65 $154.6 Ventura County $27.86 $248.34 $328.13 $182.62 $13.87 $14.6 $29.36 $189.67 $181.55 $177.54 % Change Median Price PSF $35. $325. $3. $275. $25. $225. 3.% 2.% 1.% $2. $175. $15. $125. $1. $75. $5. $25. $. 28 29 21 211 212 213 214 215 216 217-3Q LA County $288.58 $259.74 $211.75 $24.94 $244.34 $233.33 $266.2 $285.71 $3.16 $291.41 Orange County $314.94 $224.41 $192.32 $216.15 $19. $24.49 $223.61 $246.57 $277.57 $259.58 Inland Empire $245.65 $187.29 $165.49 $134.45 $123.9 $125.42 $134.22 $132.88 $16.64 $171.44 Ventura County $253.62 $297.9 $22.17 $215.19 $183.47 $175.15 $18.41 $213.19 $19.56 $194.4.% -1.% -2.% -3.% -4.% 29 21 211 212 213 214 215 216 217-3Q LA County -1.% -18.5% -3.2% 19.2% -4.5% 14.% 7.4% 5.1% -2.9% Orange County -28.7% -14.3% 12.4% -12.1% 7.6% 9.4% 1.3% 12.6% -6.5% Inland Empire -23.8% -11.6% -18.8% -8.4% 1.9% 7.% -1.% 2.9% 6.7% Ventura County 17.1% -31.9% 6.4% -14.7% -4.5% 3.% 18.2% -1.6% 2.%
INLAND EMPIRE OFFICE THIRD QUARTER 217 MARKET REPORT OVERVIEW SOUTHERN CALIFORNIA MARKET MAP METHODOLOGY & TERMINOLOGY Methodology Non-owner occupied, office buildings that are 1, square feet and greater. Direct Vacant SF Space that is vacant and ready for occupancy by a user. The space is being offered for lease or sale directly from the landlord. Total Vacant W/ Sublet SF Space that is vacant and ready for occupancy by a user. The space is being offered for lease or sale by the landlord or for sublease by the current tenant. DAUM OFFICES LOS ANGELES, CALIFORNIA 81 S. Figueroa Street, Suite 6 Los Angeles, CA 917 213-626-911 LOS ANGELES NORTH, CALIFORNIA 2182 Burbank Boulevard, Suite 21 Woodland Hills, CA 91367 818-887-36 SANTA CLARITA VALLEY, CALIFORNIA 28494 Westinghouse Place, Suite 312 Valencia, CA 91355 661-75-2299 MID-COUNTIES, CALIFORNIA 1381 Cerritos Corporate Drive, Suite C Cerritos, CA 973 562-27-33 ORANGE COUNTY, CALIFORNIA 44 MacArthur Boulevard, Suite 95 Newport Beach, CA 9266 949-724-19 VENTURA & SANTA BARBARA, CALIFORNIA 751 Daily Drive, Suite 15 Camarillo, CA 931 85-987-8866 Direct Vacancy Rate Total vacant direct space (vacant space for lease or sale from the landlord or owner) divided by the total rentable square footage for existing buildings only. Vacancy W/ Sublet Rate Total vacant direct space and sublease space divided by the total rentable square footage for existing buildings only. Gross Absorption The total change in occupied space over a given period of time, counting space that is occupied but not space that is vacated by tenants. Gross absorption differs from leasing activity, which is the sum of all space leased over a certain period of time. SAN GABRIEL VALLEY, CALIFORNIA 13181 Crossroads Pkwy. N, Suite 1 City of Industry, CA 91746 562-695-7244 SOUTH BAY, CALIFORNIA 125 W. 19th Street, Suite 42 Gardena, CA 9248 31-538-67 INLAND EMPIRE, CALIFORNIA 3595 E. Inland Empire Boulevard, Bldg. 5 Ontario, CA 91764 99-98-1234 PHOENIX ARIZONA 172 E. Highland Avenue, Suite 12 Phoenix, AZ 8516 62-957-73 The information contained in this report has been obtained from sources deemed reliable and has incorporated third-party data which has not been independently verified by DAUM. While we do not doubt its accuracy, DAUM makes no guarantee or warranty as to its completeness or accuracy. Due to the dynamic (constantly changing) database which DAUM uses to compile and analyze markets contained in this report, previously published statistics may vary from the data published in this report. Statistics and data have been revised to reflect changes in the following categories: existing buildings being verified and added to the database, new or revised occupancy information gathered, new construction being added to the inventory, building demolitions and renovations, as well as other factors that would necessitate revisions to the data and the properties surveyed. This methodology allows us to present the most current and up-to-date information, trend analysis and comparative statistics for this report. Net Absorption The net change in occupied space over a given period of time, calculated by summing all the positive changes in occupancy (move ins) and subtracting all the negative changes in occupancy (move outs). Under Construction Planned buildings for which construction has started but have not yet been granted a Certificate of Occupancy. Planned buildings are not included. Completed in 217 New buildings with original construction completed in the year 217 and granted a Certificate of Occupancy. Renovated buildings are not included.