NAI CAPITAL Market Report Summer 212
1 Market Report Summer 212 NAI Capital is pleased to provide the following economic outlook to our clients. We understand the importance of timely, accurate data when making significant financial decisions. As such, we have taken every measure to verify the data contained in this report. We hope that the information contained in this report is helpful to you. Economic Trends Southern California's recovery continues weakly and unevenly. While some sectors are losing jobs, others are gaining jobs. As the pace of the national recovery slows, Southern California's economy will likely see even slower and more uneven growth. In the near term, Orange County appears to have the most potential for a relatively vigorous recovery. In the long run, the Inland Empire is likely to again be a leading source of vigorous Southern California economic activity. Part of the problem of determining when residential real estate markets will show real vigor again is to determine what a "normal" rate of foreclosures and notices of default (NODs) is, because once we are confident that we are near the normal rate, that source of downward price pressure will evaporate. We can also use that rate to determine how far we are from the eventual resumption of vigor. California is currently seeing about 6, NODs a quarter and 3, foreclosures. How far are we from normal? Most of the 2s data don't really help us. Until the collapse, signs of residential real estate stress were low and declining. In the case of NOD's 4, a quarter seems like an appropriate normal. If so, the current level of NODs is about 1.5 times what we need to see. The situation is not so sanguine when we look at actual foreclosures. The current rate of 3, a quarter is about three times what appears to be a reasonable estimate of normal, 1,. Although unemployment rates aren t steadily rising, they are not quickly declining, emphasizing little success in creating sustained jobs in California. The most recent increase in unemployment during the start of summer is discouraging, as fluctuation can represent uncertainty and speculation. Unemployment rates in Los Angeles County and the Inland Empire continue to remain above 1 percent. The unemployment rate in Ventura County is just below 1 percent while Orange County s unemployment rate stands at 8 percent. The persistence of these levels of unemployment stresses the lack of real growth in the labor market, and the economy as a whole. As markets continue to adjust, job growth depends on new business growth and expansion, but as long as speculation remains uncertain, unemployment will, at best, only continue to decrease at a low rate. The number of unemployed persons continues to slowly decrease year to year. Unemployed persons in Los Angeles County fell 8.3 percent last year, which is a steady improvement. Although the unemployment rate continues to decrease, it does so at a slow rate, prolonging economic market growth. Eight out of the twelve major industries within the Los Angeles basin experienced job growth over the past twelve months. The information sector turned around, experiencing solid growth. The volatility of the information sector can stem from movie production having long production times, and investment needs. Speculation, especially in the financial market, can cause movies to undergo periods of fast production, or cancelation. The construction and manufacturing jobs show loss, reflecting the short term uncertainty of housing and industry, coupled with long term speculation on recovery. Loss in construction jobs across the state is likely to persist, due to the housing market cooling off from high bubble demand levels. The professional sector continues to grow, coupled with leisure and hospitality. Advances in technology, along with growth in skilled labor are likely leading to growth in these industries, specifically healthcare. Job growth increasing in the majority of Los Angeles industries is a good sign that Los Angeles as a whole is recovering more from the recession. Although budget constraints are continuing the states decreasing government jobs, and the persistence of the housing crisis is hurting construction, other industries are showing encouraging signs. 16% 14% 12% Unemployment Rate by County Jan-7 Apr-7 Jul-7 Oct-7 Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Jul-1 Oct-1 Jan-11 Apr-11 Jul-11 Oct-11 1% 8% 6% 4% 2% % Los Angeles Orange Inland Empire Ventura Source: California Employment Development Department Change in Unemployed Persons May 212 - May 211 May 211 - May 21 Number % Change Number % Change Los Angeles (47,5) -8.1% (8,1) -1.4% Orange (15,1) -11.1% (9,3) -6.4% Inland Empire (21,) -9.% (13,8) -5.6% Ventura (3,5) -8.4% (2,8) -6.3% Total/Average (87,1) -9.2% (34,) -4.9% Source: California Employment Development Department Jan-12 Apr-12
2 Despite constant decreases in both NOD s and foreclosures, both levels remain persistently high, compared to historic values. The trend of small decrease mirrors that of California s unemployment rate, where other market factors are not putting much pressure on changing these levels. With continuing uncertainty in financial Government Other Services Leisure & Hospitality Educational & Health Services Professional & Business Services Financial Activities Information Transportation, Warehousing & Utilities Los Angeles Basin Job Growth May 211 to May 212 Retail Trade Wholesale Trade Manufacturing Construction Source: California Employment Development Department 45, -3-2 -1 1 2 3 4 5 Notices of Default markets, and budget constraints restricting the ability of policy, these levels will likely only improve at a slow rate. On average, NODs are approaching a normal level in California, across major counties. Foreclosures, however, still express high county to county volatility, revealing that certain areas are still much higher than average, and only show slow signs of improvement. California Ports World Trade, California Exports, and California Port activity all continue to be weak. First quarter merchandise trade growth of G7 and BRICS countries has remained slow. Merchandise imports grew one percent, while exports grew by.6 percent. Perhaps more interesting, trade slowed sharply in China, with exports contracting 4.2 percent (second consecutive quarterly contraction), and imports contracted 3.8 percent (the first import contraction since 29 Q1). California export dollar value year-on-year growth has remained slow for 2 quarters now, in the 6 to 7 percent range. California export declines to Canada, China, Japan, Mexico, Italy, Germany, and India were offset by export growth to Korea and Singapore. 4, 35, 3, 25, 2, 15, 1, 5, 15 1 5-5 -1-15 G7 and BRICS Merchandise Trade Growth percent change Source: DataQuick Foreclosures 25, 2, Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 21 211 212 Los Angeles Orange Riverside San Bernardino Ventura -2-25 Source: OECD Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 27 28 29 21 211 212 Export growth (q-o-q) Import growth (q-o-q) California Export Dollar Value: Total (year-over-year percent change) 15, 16.4 13.6 23.5 19.5 19.7 15.2 13.712.4 12 1, 5.2 5.5 8.1 6.6 1.2.2 6.8 6.3 5, -6. Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 21 211 212 Los Angeles Orange Riverside San Bernardino Ventura Source: DataQuick -19. -2.8-25.4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 27 28 29 21 211 212 Source: U.S. Census Bureau
3 Los Angeles and Long Beach port activity has slowed as well. Year-on-year growth in total container loadings at these ports went negative in 211 quarters 3 and 4, and was slightly positive in 212 quarter 1. April and May data indicate that 212 quarter 2 will likely be negative again. Since August 211, there has been a shift in traffic toward the LA port and away from the Long Beach port. Southern California Commercial Real Estate Southern California retail markets continue to be the regions weakest commercial market, by a long shot. The contrast with other Southern California commercial markets, and the weakness at this point suggest that something is going on beyond the typical cyclical changes. Some readers would say that it is obvious that what is going on is a shift to internet retail. That's certainly true. It is likely that we will need less retail space on a per-capita basis in the future, as internet sales continue to grow as a share of total retail sales. But, there is more than a switch to the internet going on here. Southern California retail sales are also suffering from California's changing demographics. The state is becoming older and richer and younger and poorer, as the middle, economically and in age, migrate to other states for opportunity. The people leaving, young people with young families, are people who are in their prime spending and borrowing years. The state is increasingly left with young poor, whose spending is limited by income and the inability to borrow, and the wealthy old, who certainly spend, but whose spending is composed of more service and less retail than a middle-class family. This effect is exacerbated by the middle class' difficulty in borrowing. This group has seen their primary asset, their home, take a huge drop in value, while their liabilities are little changed, making them more reluctant and weaker borrowers. The banks too, have increased their lending standards, making it ever more difficult to fund consumption by credit. Finally, policy is hurting Southern California retail markets. Higher retail taxes encourage the trend to internet purchasing and encourage travelers to purchase out of state. with strong absorption, falling vacancy rates, and firming rental rates. The current weakness probably reflects not only a particularly weak recover, particularly in California, but the weakness may be telling us something about the future. If so, it is disappointing news. Two geographies, Los Angeles County and Ventura County have seen particular weakness. Los Angeles County has seen rapidly increasing vacancy rates, and another quarter of negative absorption. One more quarter of negative absorption, and Los Angeles County's retail vacancy rate will exceed its 21 cyclical peak. Given the County's weak vacancy and absorption, rents remained surprisingly strong and were relatively unchanged. This will likely change if absorption remains negative. Los Angeles County's retail markets were almost universally weak. Only three sub-markets (Santa Clarita, Mid-Wilshire, and Southeast LA) showed any positive absorption, and that was very small. The Antelope remains Los Angeles County's weakest retail sub-market, with over 1 percent vacancy, continuing negative absorption, and the County's weakest retail rents. Ventura County's retail markets were weaker than those of Los Angeles County. Ventura County's retail vacancy, driven by massive negative absorption, soared to a new cyclical high. In 12% 1% 8% 6% 4% 2% % Q2 212 Los Angeles County Retail Vacancy Rates 1.2% 5.1% 7.% 4.5% 7.5% 6.9% 6.% Antelope Mid-Cities Mid-Wilshire Santa Clarita San Fernando San Gabriel South Bay 4.7% 4.9% 4.2% 5.7% 5.8% Southeast L.A. Tri-Cities West L.A. Los Angeles County Office markets are Southern California's strongest non-residential markets. This reflects employment trends. Employment has been strongest in professional services and healthcare. Both of these sectors are big office users. Southern California industrial markets remain soft to weak and volatile. This is mostly because of California's weak recovery. Our economic forecast suggests that this situation is likely to persist through at least the remainder of the year. 9% 8% 7% 6% 5% 4% Q2 212 Orange County Retail Vacancy Rates 7.7% 7.8% 7.4% 6.7% 6.2% 5.2% Retail Market Except for Orange County, Southern California s retail markets were extremely weak in the past quarter, with rising vacancy rates, negative absorption, and soft rental rates. At this point in a recovery, we would expect much stronger retail markets, markets 3% 2% 1% % OC Airport OC Central OC North OC South OC West Orange County
4 contrast with Los Angeles County, Ventura County retail rents continued their precipitous decline, to about the same low rates that prevailed in the recent cyclical low. South Ventura County retail markets are marginally stronger than North County retail markets, but the differences are small, and it is very difficult to find any good news in the data. Q2 212 Inland Empire Retail Vacancy Rates Orange County's retail markets have performed far better than other Southern California retail markets in the past quarter. Its vacancy rate, while distressingly high, fell a bit. Better yet, Orange County's absorption was very strong, the strongest the County has seen in the recovery. Lease rates did not show the same strength. They continued their slow decline. Only two (OC Airport and OC North) of Orange County's retail sub-markets saw negative absorption, and that was relatively Q2 212 Orange County Retail Net Absorption 12.% 1.% 11.1% 8.6% 1.3% 15, 1, 137,29 117,864 134,788 8.% 6.% 5, 4.% 2.%.% IE East IE West Inland Empire (32,816) (5,) (56,2) (1,) OC Airport OC Central OC North OC South OC West 6.9% 6.8% 6.7% Q2 212 Ventura County Retail Vacancy Rates 6.9% 6.8% 6.7% Q2 212 Inland Empire Retail Net Absoption 1, 5, 4,299 (5,) (1,) (15,) (2,) (25,) (3,) 6.6% Ventura North Ventura South Ventura County (35,) (4,) IE East (36,278) IE West Q2 212 Los Angeles County Retail Net Absorption Q2 212 Ventura County Retail Net Absorption 4, 2, 27,169 17,818 21,69 (1,) (2,) (4,) (6,) (8,) (1,) (12,) (94,577) (39,89) (6,97) (67,129) (15,441) (16,34) (2,) (3,) (4,) (5,) (6,) (53,377) (14,) (7,) (16,) (18,) Antelope (152,59) Mid Cities Mid Wilshire Santa Clarita San Fernando San Gabriel (15,93) South Bay Southeast L.A. Tri- Cities West L.A. (8,) (9,) Ventura North (8,763) Ventura South
5 small. The combined negative net absorption of those two submarkets (slightly less than 9, square feet) was less than the weakest positive absorption of the other three sub-markets, each of which saw in excess of 1, square feet net positive absorption. The Inland Empire's retail vacancy rates remain extraordinarily high, but absorption was only slightly negative, and the vacancy rate was basically unchanged in the second quarter. All of the negative absorption was in the Inland Empire's West sub-market, while the East saw almost insignificant net positive absorption. Q2 212 Los Angeles County Retail Rental Rates $3.5 $3.43 $3. $2.77 $2.5 $2. $1.8 $1.6 Q2 212 Ventura County Retail Rental Rates $1.84 $1.72 $1.52 $2. $1.5 $1.32 $2.1 $1.46 $1.9 $1.78 $1.68 $1.53 $1.5 $2.2 $1.96 $1.4 $1.2 $1. $1. $.5 $.8 $. Antelope Mid-Cities Mid-Wilshire Santa Clarita San Fernando San Gabriel South Bay Southeast L.A. Tri-Cities West L.A. Los Angeles County $.6 $.4 $.2 Q2 212 Orange County Retail Rental Rates $2.5 $2.8 $2.1 $2. $1.81 $1.85 $1.71 $1.58 $. Ventura North Ventura South Ventura County $1.5 $1. $.5 $. OC Airport OC Central OC North OC South OC West Orange County $1.5 Q2 212 Inland Empire Retail Rental Rates $1.45 $1.45 $1.4 $1.35 $1.35 $1.3 $1.3 $1.25 $1.2 IE East IE West Inland Empire
6 Los Angeles Basin Retail Market n Second Quarter 212 Vacancy Rate Average Asking Rental Rate 1 212 211 Difference Net Absorption (SF) 212 211 Difference Antelope 1.2% 9.6%.6% (94,577) $1.32 $1.46 $(.14) 5.1% 5.3% -.2% (39,89) $2.1 $2.11 $(.1) Mid Cities 7.% 6.7%.2% (152,59) $1.46 $1.53 $(.7) Mid Wilshire 4.5% 3.8%.7% 17,818 $2.77 $2.92 $(.16) Santa Clarita 6.9% 7.1% -.2% 27,169 $1.9 $1.93 $(.4) San Fernando 6.% 5.2%.8% (6,97) $1.68 $1.84 $(.17) San Gabriel 7.5% 6.7%.8% (67,129) $1.53 $1.52 $.1 South Bay 4.7% 4.3%.5% (15,93) $1.78 $1.73 $.5 Southeast LA 4.9% 6.% -1.1% 21,69 $1.5 $1.53 $(.2) Tri Cities 4.2% 5.% -.8% (15,441) $2.2 $2.13 $(.12) West LA 5.7% 5.4%.3% (16,34) $3.43 $3.29 $.14 Los Angeles County 5.8% 5.5%.3% (566,83) $1.96 $2. $(.5) OC Airport 5.2% 5.4% -.2% (32,816) $2.8 $2.11 $(.2) OC Central 7.7% 8.2% -.5% 137,29 $1.58 $1.58 $(.1) OC North 7.8% 6.8% 1.% (56,2) $1.71 $1.77 $(.6) OC South 6.2% 6.3% -.1% 117,864 $2.1 $2.7 $(.6) OC West 7.4% 4.9% 2.5% 134,788 $1.81 $1.83 $(.2) Orange County 6.7% 6.4%.3% 31,16 $1.85 $1.89 $(.3) IE East 11.1% 11.5% -.4% 4,299 $1.3 $1.46 $(.16) IE West 8.6% 9.2% -.6% (36,278) $1.45 $1.26 $.19 Inland Empire 1.3% 1.8% -.5% (31,979) $1.35 $1.4 $(.5) Ventura North 6.9% 6.5%.5% (53,377) $1.52 $1.65 $(.14) Ventura South 6.7% 6.5%.3% (8,763) $1.84 $1.99 $(.15) Ventura County 6.8% 6.5%.3% (134,14) $1.72 $1.87 $(.14) Total LA Basin 7.2% 7.1%.1% (431,816) $1.77 $1.82 $(.5) 1 Per SF per month, NNN. Total is weighted by rental base area. Data is for all Class A, B and C buildings 2, SF or larger. Excludes owner-occupied.
7 Office Market Southern California office markets are doing much better than the region's retail markets. Except for Los Angeles County we saw big improvements in absorption. Los Angeles County, though, is the region's largest market, and the weakness in its office markets is a bit sobering. Still, the strength outside of Los Angeles is very welcome, and may signal more gains to be made in the near future. Los Angeles County's absorption fell into negative territory after four consecutive quarters of positive absorption. As a consequence, the County's vacancy rate climbed almost unperceptively. Rents were a bright spot, though, as they showed a gain to the highest they've been in over a year and a half. was the weakest sub-market, with negative net absorption about a quarter million square feet. West Los Angeles had the strongest sub-market with almost a 1, square feet of positive net absorption and Los Angeles County's highest rents, by a margin of over 5 cents a foot. By contrast, Orange County saw its office vacancy rates decline, and return to a declining trend that has persisted, almost uninterrupted, since mid-21. The vacancy rate decline was a product of positive net absorption in all of the County's submarkets, except West Orange County. The airport was the County's leader by far, with an impressive net positive absorption of over 6, square feet. The pickup in absorption more than offset the first quarter's net negative absorption. Rental rates continued soft, and slipped a bit. The Inland Empire s big decline in vacancy rate is the most recent in a trend that has persisted for about a year and a half. It is mostly the result of over 4, square feet net positive absorption, almost all of which occurred in the East. The gains are more impressive because they were not accompanied by a significant decline in rental rates. 25% 2% 15% 1% 5% % 25% 2% 15% 1% Q2 212 Orange County Office Vacancy Rates 16.8% Q2 212 Inland Empire Office Vacancy Rates 16.4% 16.1% 2.1% 2.6% 15.8% 16.8% 16.8% OC Airport OC Central OC North OC South OC West Orange County 17.6% Southern California's peripheral markets, the Inland Empire and Ventura County, showed big vacancy-rate declines in the second quarter. These declines are welcome, but there is a long ways to go. Vacancy rates, even after solid declines, remain very high in these markets. 5% % IE East IE West Inland Empire Q2 212 Los Angeles County Office Vacancy Rates 25% 2% 2.% 2.% 16.7% 14.8% 15% 13.9% 1.7% 1% 5% 15.9% 14.9% 15.% 15.3% 12.% 9.4% 25% 2% 15% 1% Q2 212 Ventura County Office Vacancy Rates 2.4% 18.8% 11.7% % Antelope Mid-Cities Mid-Wilshire Santa Clarita San Fernando San Gabriel South Bay Southeast L.A. Tri-Cities West L.A. Los Angeles County 5% % Ventura North Ventura South Ventura County
8 Ventura County also saw a nice decline in office vacancy. The decline was associated with the largest net positive absorption we've seen in any quarter since the recession began, about 17, square feet, mostly in the North County. That's very good news, but there is more. Rental rates actually increased. Q2 212 Los Angeles County Office Rental Rates $2. $1.95 $1.9 Q2 212 Ventura County Office Rental Rates $1.98 $1.95 $3.5 $3. $2.5 $2. $1.95 $2.62 $1.94 $2.9 $2.41 $1.99 $1.87 $2.4 $1.8 $2.49 $3.18 $2.45 $1.85 $1.8 $1.83 $1.5 $1.75 Ventura North Ventura South Ventura County $1. $.5 $. Antelope Mid-Cities Mid-Wilshire Santa Clarita San Fernando San Gabriel South Bay Southeast L.A. Tri-Cities West L.A. Los Angeles County Q2 212 Inland Empire Office Rental Rates $1.66 $1.65 $1.65 $1.64 $1.63 Q2 212 Los Angeles County Office Net Absorption 15, 95,167 1, 75,88 5, 71 5,138 (14,358) (5,) (34,378) (35,722) (4,986) (56,133) (1,) (86,292) (15,) (2,) $1.62 $1.61 $1.6 $1.59 $1.58 $1.59 $1.61 (25,) (3,) (253,62) Mid Cities Mid Wilshire Clarita Santa San Fernando San Gabriel South Bay Southeast L.A. Antelope Tri- Cities West L.A. $1.57 $1.56 $1.55 IE East IE West Inland Empire 7, 6, Q2 212 Orange County Office Net Absorption 627,616 5, $2. $1.95 $1.9 $1.85 $1.8 $1.75 $1.7 Q2 212 Orange County Office Rental Rates $1.94 $1.91 $1.89 $1.87 $1.8 $1.72 4, 3, 2, 168,77 1, 81,637 17,853 (47,7) (1,) OC Airport OC Central OC North OC South OC West $1.65 $1.6 OC Airport OC Central OC North OC South OC West Orange County
9 4, Q2 212 Inland Empire Office Net Absoption 14, Q2 212 Ventura County Office Net Absorption 35, 356,425 12, 117,952 3, 1, 25, 2, 15, 1, 8, 6, 4, 47,895 5, 59,728 2, IE East IE West Ventura North Ventura South Los Angeles Basin Office Market n Second Quarter 212 Vacancy Rate Average Asking Rental Rate 2 212 211 Difference Net Absorption (SF) 212 211 Difference Antelope 16.7% 15.2% 1.5% (14,358) $1.95 $1.92 $(.2) 13.9% 13.2%.7% (253,62) $2.62 $2.47 $.15 Mid Cities 1.7% 11.3% -.6% 71 $1.94 $1.89 $.3 Mid Wilshire 14.8% 14.7%.1% (34,378) $2.9 $2.12 $(.2) Santa Clarita 2.% 21.8% -1.9% 5,138 $2.41 $2.41 $ San Fernando 15.9% 16.5% -.6% (56,133) $1.99 $2.8 $(.8) San Gabriel 12.% 11.7%.3% (86,292) $1.87 $1.85 $.2 South Bay 2.% 19.3%.6% (35,722) $2.4 $1.95 $.8 Southeast LA 9.4% 8.8%.6% (4,986) $1.8 $1.85 $(.6) Tri Cities 14.9% 15.7% -.8% 75,88 $2.49 $2.47 $.3 West LA 15.% 15.3% -.3% 75,88 $3.18 $3.11 $.7 Los Angeles County 15.3% 15.3%.% (344,837) $2.45 $2.39 $.5 OC Airport 16.8% 19.1% -2.2% 627,616 $1.94 $1.98 $(.5) OC Central 16.1% 15.6%.5% 17,853 $1.72 $1.78 $(.6) OC North 2.1% 21.1% -1.1% 81,637 $1.8 $1.79 $.1 OC South 15.8% 18.3% -2.4% 168,77 $1.91 $1.92 $(.2) OC West 16.8% 14.1% 2.7% 47,7 $1.89 $1.85 $.3 Orange County 16.8% 18.2% -1.4% 848,86 $1.87 $1.91 $(.3) IE East 16.4% 18.9% -2.5% 356,425 $1.59 $1.7 $(.11) IE West 2.6% 21.8% -1.3% 59,728 $1.65 $1.7 $(.5) Inland Empire 17.6% 19.7% -2.1% 416,153 $1.61 $1.7 $(.9) Ventura North 11.7% 17.% -5.4% 117,952 $1.83 $1.85 $(.2) Ventura South 2.4% 21.2% -.8% 47,895 $1.98 $1.99 $(.1) Ventura County 18.8% 2.4% -1.6% 165,847 $1.95 $1.96 $(.1) Total LA Basin 16.% 16.5% -.6% 1,85,969 $2.22 $2.2 $.2 2 Per SF per month, NNN. Total is weighted by available space. Data is for all Class A, B and C buildings 2, SF or larger. Excludes owner-occupied.
1 Industrial Market Southern California's industrial markets continue to experience high absorption volatility. This is consistent with our observations of California's economy, weak with a changing industrial composition. Los Angeles County industrial data are a bit mixed. The vacancy rate climbed on net-negative absorption, but lease rates improved. Part of the explanation is compositional as the highrent West Los Angeles sub-market was the only sub-market to see positive absorption. Orange County industrial markets remain much stronger than Los Angeles' industrial market. In fact, the region saw its eighth consecutive quarter of positive net absorption. The County's absorption has been volatile, but positive. Absorption was also widespread among sub-markets. Only one sub-market, Orange County West, saw negative net absorption, and that was an insignificant amount. As a result of its two-year positive net absorption, Orange County's vacancy rate continued its two-year declining trend. However, rents remained soft. The Inland Empire's vacancy rate continued to decline on positive-but-small net absorption. This regions absorption volatility is truly impressive. And, it is good to see that almost two-thirds of the absorption was in the high-vacancy Inland Empire East. The County's industrial vacancy rate climbed, to near cyclical heights. All of the negative absorption was in North Ventura County, as South County saw modest positive absorption. 9% 8% 7% 6% 5% 4% 3% 2% 1% % Q2 212 Orange County Industrial Vacancy Rates 8.4% 8.3% 6.5% 7.3% 4.9% 8.3% 6.6% 6.4% OC Airport OC Central OC North OC South OC West Orange County Q2 212 Inland Empire Industrial Vacancy Rates 8.33% 8.31% 8.32% As is the case with Orange County, the Inland Empire's absorption has remained positive for eight consecutive quarters. The past two quarters have seen small and declining positive net absorption. This is something to watch, as the economy's growth rate softens. Ventura County's industrial lease rates fell for the second consecutive quarter on another negative net absorption quarter. 8.2% 8.1% 8.% IE East IE West Inland Empire Q2 212 Los Angeles County Industrial Vacancy Rates 9% 8% 7% 6% 5% 4% 3% 2% 1% 7.7% 7.2% 6.8% 6.5% 6.7% 6.4% 6.5% 5.6% 5.1% 4.5% 3.4% 2.9% Q2 212 Ventura County Industrial Vacancy Rates 12% 1.7% 1% 8.2% 8% 6.8% 6% 4% % Antelope Mid-Cities Mid-Wilshire Santa Clarita San Fernando San Gabriel South Bay Southeast L.A. Tri-Cities West L.A. Los Angeles County 2% % Ventura North Ventura South Ventura County
11 Q2 212 Los Angeles County Industrial Net Absorption 2, 15,369 1, Q2 212 Ventura County Industrial Net Absorption 4, 29,714 2, (1,) (2,) (27,276) (4,728) (23,91) (64,456) (52,68) (133,116) (115,96) (184,38) (2,) (4,) (3,) (4,) (5,) (6,) (277,314) (571,874) (6,) (8,) (1,) (7,) Antelope Mid Mid Cities Wilshire Clarita Santa San Fernando San Gabriel South Bay Southeast L.A. Tri- Cities West L.A. (12,) (14,) (121,275) Ventura North Ventura South Q2 212 Orange County Industrial Net Absorption 14, 125,829 12, 1, 88,439 8, 6, 4, 2,352 2, 13,15 (2,612) (2,) OC Airport OC Central OC North OC South OC West Q2 212 Los Angeles County Industrial Rental Rates $2. $1.81 $1.8 $1.73 $1.6 $1.4 $1.2 $1. $.95 $.8 $.61 $.58 $.6 $.53 $.55 $.46 $.47 $.47 $.39 $.42 $.4 $.2 $. Antelope Mid-Cities Mid-Wilshire Santa Clarita San Fernando San Gabriel South Bay Southeast L.A. Tri-Cities West L.A. Los Angeles County Q2 212 Inland Empire Industrial Net Absoption 45, 4, 384,852 Q2 212 Orange County Industrial Rental Rates $.9 $.78 $.8 35, 3, $.7 $.6 $.63 $.6 $.58 25, 2, 216,131 $.5 $.4 $.49 $.48 15, $.3 1, $.2 5, $.1 IE East IE West $. OC Airport OC Central OC North OC South OC West Orange County
12 $.36 $.36 $.35 $.35 $.34 $.34 $.33 $.33 $.32 $.32 Q2 212 Inland Empire Industrial Rental Rates $.35 $.34 $.33 Q2 212 Ventura County Industrial Rental Rates $.7 $.65 $.6 $.6 $.5 $.5 $.4 $.3 $.2 $.1 $.31 IE East IE West Inland Empire $. Ventura North Ventura South Ventura County Los Angeles Basin Industrial Market n Second Quarter 212 Vacancy Rate Average Asking Rental Rate 3 212 211 Difference Net Absorption (SF) 212 211 Difference Antelope 3.4% 6.6% -3.2% (27,276) $.39 $.19 $.2 6.8% 5.6% 1.2% (277,314) $.46 $.48 $(.3) Mid Cities 5.6% 5.6%.% (571,874) $.53 $.53 $(.) Mid Wilshire 2.9% 4.2% -1.3% (4,728) $1.81 $1.65 $.16 Santa Clarita 5.1% 7.6% -2.4% (23,91) $.47 $.45 $.2 San Fernando 6.5% 6.3%.2% (133,116) $.61 $.59 $.2 San Gabriel 7.7% 7.%.7% (115,96) $.42 $.42 $. South Bay 6.7% 7.3% -.6% (64,456) $.58 $.58 $ Southeast LA 7.2% 7.2%.1% (52,68) $.47 $.44 $.3 Tri Cities 6.4% 5.6%.9% (184,38) $.95 $.81 $.13 West LA 4.5% 7.1% -2.6% 15,369 $1.73 $1.47 $.26 Los Angeles County 6.5% 6.6%.% (1,339,57) $.55 $.53 $.2 OC Airport 6.5% 9.8% -3.3% 2,352 $.63 $.62 $. OC Central 7.3% 8.4% -1.1% 13,15 $.49 $.51 $(.2) OC North 4.9% 6.4% -1.6% 88,439 $.48 $.47 $.1 OC South 8.3% 8.8% -.5% 125,829 $.78 $.79 $(.1) OC West 6.6% 4.5% 2.1% (2,612) $.6 $.64 $(.4) Orange County 6.4% 7.7% -1.3% 245,113 $.58 $.59 $(.1) IE East 8.3% 1.% -1.7% 384,852 $.33 $.32 $.1 IE West 8.3% 8.3%.% 216,131 $.35 $.33 $.2 Inland Empire 8.3% 9.1% -.8% 6,983 $.34 $.33 $.1 Ventura North 1.7% 8.6% 2.1% (121,275) $.5 $.55 $(.4) Ventura South 6.8% 8.6% -1.8% 29,714 $.65 $.65 $.1 Ventura County 8.2% 8.6% -.4% (91,561) $.6 $.61 $(.1) Total LA Basin 7.2% 7.7% -.5% (585,35) $.49 $.48 $.1 3 Per SF per month, NNN. Total is weighted by available space. Data is for all Class A, B and C buildings 2, SF or larger. Excludes owner-occupied.
13 Multifamily Market Southern California's multifamily markets have been the regions' sole booming market. That strength continued last quarter as it should, absent a new recession, continue at least through 213. In general, we continue to see low vacancies and rent increases across Southern California multifamily markets. In those rare instances that rents have declined, the rent declines are temporary and compositional, the result of a change in the mix of product weights. The multifamily strength is the result of a much needed trend from home ownership to renting. The key characteristic of the housing boom was a dramatic increase in homeownership rates, but the increase went too far. We ended up with an unsustainably high homeownership rate. Too many people owned their home and too few were renting. Many people needed to move from the single-family unit they owned to a rental unit. Unfortunately, governments, driven by politics and not economics, have systematically tried to slow down the necessary adjustment. The most efficient way to correct the housing boom's imbalance is to move people to multifamily housing. The result has been low vacancies and strong rents. These are exactly the signals to developers to build new product. So, we've seen that multifamily markets have been construction's strongest product outside of government projects. Rent in $ $2,5 $2, $1,5 $1, $5 $ Historical Average Monthly Rent in $ Combined County of Ventura Market Areas Studio 1 Bedroom 2 Bedroom 3 Bedroom Overall Apartment Unit Type January 21 July 21 January 211 January 211 January 212 Source: Dyer Sheenan Group, Inc. Rent in $ per sq. ft. $2.5 $2. $1.5 $1. $.5 $. Historical Average Monthly Rent in $ Per Sq. Ft. Combined County of Ventura Market Areas Studio 1 Bedroom 2 Bedroom 3 Bedroom Overall Apartment Unit Type January 21 July 21 January 211 January 211 January 212 Source: Dyer Sheenan Group, Inc. Historical Data - Combined County of Ventura Market Areas Unit Type Average Monthly Rent in $ Average Monthly Rent in $ per Sq. Ft. Jan-1 % ± to Jul-1 % ± to Jan-11 % ± to Jul-11 % ± to Jan-12 Jan-1 % ± to Jul-1 % ± to Jan-11 % ± to Jul-11 % ± to Jan-12 Studio $947.% $947 1.7% $963 3.% $992 2.3% $1,15 $1.9 -.1% $1.89 1.6% $1.92 2.6% $1.98 2.5% $2.2 1 Bedroom $1,174 2.7% $1,26.3% $1,21 3.4% $1,25.5% $1,256 $1.68 2.4% $1.72.3% $1.72 3.3% $1.78.4% $1.78 2 Bedroom $1,45 3.8% $1,56 -.4% $1,5 3.8% $1,557 -.9% $1,543 $1.5 3.7% $1.55 -.1% $1.55 3.7% $1.61 -.8% $1.6 3 Bedroom $1,811 4.3% $1,89 -.8% $1,875 5.1% $1,971-5.2% $1,868 $1.47 4.4% $1.53 -.4% $1.53 5.2% $1.61-5.5% $1.52 Overall $1,351 3.4% $1,396 -.1% $1,394 3.7% $1,446 -.8% $1,435 $1.58 3.1% $1.63.1% $1.63 3.6% $1.69 -.5% $1.68 Weighted Average Vacancy Rate for Dates Indicated Above: 5.24% 4.33% 4.16% 3.66% 3.43% Source: Dyer Sheenan Group, Inc.
Regional Offices COMMERCE (866) 739-9314 PALM DESERT (76) 346-1566 SIMI VALLEY (85) 522-7132 WEST LOS ANGELES (31) 44-85 ENCINO-Corporate Office (8) 468-2618 PASADENA (866) 716-529 SOUTH BAY (866) 716-528 WESTLAKE VILLAGE (85) 446-24 ORANGE COUNTY (866) 739-9315 ONTARIO (99) 945-2339 RIVERSIDE (866) 96-9979 SANTA CLARITA (661) 75-355 TEMECULA VALLEY (951) 491-759 VENTURA COUNTY (85) 278-14 CAL LUTHERAN UNIVERSITY Bill Watkins, Executive Director Center of Economic Research and Forecasting n 85 493 3788 www.clucerf.org www.naicapital.com Committed to Southern California. Connected to the World. Find us online: