LOS ANGELES OFFICE Q2 17 Q2 18 Los Angeles Employment 4,426k 4,478k Los Angeles Unemployment 4.8% 4.4% U.S. Unemployment 4.3% 3.8% *Average of first two months of Q2 2018 Q2 17 Q2 18 Vacancy 14. 15.4% YTD Net Absorption (sf) 417k 689k Under Construction (sf) 2.4M 2.0M Average Asking Rent* $3.18 $3.32 *Rental rates reflect gross asking $psf/mo 4-QTR TRAILING AVERAGE 1,500,000 12-Month Forecast 12-Month Forecast $4 The U.S. job growth accelerated in May with the addition of 223,000 jobs and the unemployment rate dropped to an 18-year low of 3.8%, a level last seen in April 2000. Locally, Los Angeles County s unemployment rate was 4.4 % in May, down from 4.8% one year ago. Over the last 12 months, the county added 63,900 jobs for a 1.4% annual growth. The professional and business services sector increased by 17,300 jobs while the educational and health services sector added 16,200 jobs. The unemployment rate is expected to decline slowly over the next two years, reaching 4.1% in 2019 as the county, similar to the state, starts to tick above full employment. Job growth will begin to level off throughout the remainder of the year, with only 47,800 jobs expected to be added in 2018 and 34,300 in 2019, according to a recent forecast by the LAEDC. Most office markets in Greater Los Angeles have stabilized, as average asking rental rates of $3.32 psf/mo remain unchanged from last quarter. Asking rental rates are up 4.4% year-over-year with strongest growth in LA South with an increase of nearly 14.. New inventory throughout Greater Los Angeles that delivered at the end of 2017 caused a year-over-year increase in overall vacancy of 100 basis points (bps). A significant rise in overall vacancy over the quarter was seen in South Park. Transamerica vacated 150,000 sf at 1150 S. Olive Street spiking vacancy rates in the submarket to 20.4%, a 7.9% surge from last quarter. 1,000,000 $3 500,000 $2 0-500,000 $1-1,000,000 $0 2011 2012 2013 2014 2015 2016 2017 2018 Net Absorption Asking Rent, $psf/mo 2 2 1 Previous 5-Year Average = 15.9% 1 2011 2012 2013 2014 2015 2016 2017 2018 Year-to-date leasing activity of 6.6 msf in the first half of 2018 is on track to outpace 2017 year-end leasing activity of 12.0 msf. LA West led the way and LA Central was not far behind with 1.6 msf and 1.4 sf respectively. Two of the top ten leases in Greater Los Angeles were in LA Central bringing two new and noteworthy tenants from the Westside to Downtown LA. Spotify inked the largest deal of the quarter for 109,706 sf and will be moving from West Hollywood to At Mateo in the Arts District. ARUP, an engineering firm from Playa Vista, signed for 66,201 sf at Wilshire Grand Center in the Financial District. Greater Los Angeles has now posted positive absorption for five consecutive quarters. Negative overall year-to-date absorption in LA North, SGV, and Tri-Cities is being counteracted by strong performances in both LA Central and LA West pushing overall year-to-date absorption in Greater Los Angeles to positive 689,206 sf up 65.1% from mid-year 2017. There are currently over 2.0 msf of major office projects under construction, half of which are in the LA West. Four of the key office sales transactions this quarter were in LA South. In terms of size, the largest trade was the Torrance Tech Campus, which was purchased by Platform & PMRG from FRM Associates for $216 psf. LA West continues to commands the highest psf pricing with the sale of 331 N. Maple Drive in Beverly Hills for $925 psf. Tri-Cities had the highest number of sales with seven transactions or 35. of the deals done across Greater Los Angeles. Despite some uncertainties around the length of the current cycle, Greater Los Angeles market fundamentals remain strong and healthy at mid-year 2018, with some fundamentals outperforming last year. cushmanwakefield.com I 1
$2.65 $2.59 $2.87 $2.87 $2.99 $3.01 $3.43 $3.61 $3.94 $4.29 $4.60 $4.64 $2.99 $3.18 $3.22 $3.38 $3.53 $3.52 The Central Business District (CBD) recorded a strong 191,666 sf of positive net absorption in second quarter. This was bolstered by Spaces adding an additional location at the Paul Hastings Tower and Metrolink occupying at Wilshire Grand Center. Year-to-date net absorption of 367,663 has already more than doubled the amount in 2017. Leasing activity in second quarter remained healthy with 352,687 sf of new deals. Westside tenants continue to show interest in the CBD as engineering firm ARUP, currently located in Playa Vista, committed to three floors totaling over 66,000 sf at Wilshire Grand Center. Serendipity Labs, a coworking company from Portland, signed 23,000 sf lease in the CBD, signifying that this submarket is becoming more of preferred option for office-using tenants in Los Angeles. The current overall vacancy rate of 20.3% represents a 90-bp decrease over the quarter and rents have been stable at $3.52 psf/mo. CBD landlords remain competitive and heightened interest from out-of-market office tenants will keep this office market healthy. CENTRAL BUSINESS DISTRICT 2 2 1 1 LOS ANGELES WEST New leasing of 1.6 msf year-to-date fell short of the activity posted this time last year, yet the LA West office market remains healthy with low vacancy and a 3.1% year-over-year increase in average asking rental rates to $4.64 psf/mo. Strongest rent growth occurred in Beverly Hills and Marina Del Rey / Venice, increasing by over 7. in the past year. Occupancy growth of 637,319 sf in 2018 has already more than doubled the 261,116 sf recorded for all of 2017. Although net absorption was positive for the fifth consecutive quarter at 308,325 sf. The 144,000 sf completion of Santa Monica Gateway Shift offset a larger decline in overall vacancy, dropping 10 bps in second quarter to 12.6%. The La Cienega Expo project at 5500 W. Jefferson Boulevard also delivered with Apple occupying the entire building, absorbing 85,000 sf in second quarter. Sublease activity has increased in the past few years, both in vacancies added to the market and in lease transactions. Construction completions peaked in 2017 and has a shrinking pipeline. This should keep supply more constrained and fuel more occupancy growth. $5.00 2 1 1 The last of the large move-outs at 800 N Brand Blvd in Glendale occurred with 125,000 sf of Nestlé's former headquarter space vacating. Sublease vacancies surpassed the 700,000 sf mark in Tri-Cities. Direct net absorption was positive with 16,777 sf, however overall net absorption year-to-date is now at negative -265,877 sf. Overall vacancy rose 50 bps to 14.2%, whereas direct vacancy dropped slightly to 11.3%, a 10 bps decrease from last quarter. The largest single move-ins were Stalwart Films occupying space at 3900 W Alameda for 19,902 sf and EPS-Cineworks at 2901 West Alameda for 17,790 sf. Burbank had the highest positive overall net absorption with 49,537 sf. Overall asking rates rose slightly to $3.01 psf/mo, while direct asking rates rose 3% to $3.17 psf/mo. With 41% of the Class A buildings in Burbank, Glendale and Pasadena trading hands over the past 24 months, asking rates continue to push and now surpass the previous peak pre-recessionary high in the first quarter 2008. Leasing activity yearto-date is above the quarterly average in 2017 by 3 with 610,000 sf, Bank of America signed for 51,056 sf at 611 Brand, making it the largest deal in Tri-Cities year-to-date. TRI-CITIES 2 1 1 cushmanwakefield.com I 2
$2.02 $2.13 $2.17 $2.29 $2.48 $2.71 $2.13 $2.21 $2.26 $2.40 $2.46 $2.48 $1.99 $2.05 $2.14 $2.15 $2.18 San Gabriel Valley (SGV) leasing activity slowed in the second quarter 2018 to 215,202 sf, but year-to-date leasing activity of 551,390 sf outpaced mid-year 2017 by 23.4%. The County of Los Angeles signed the largest lease in second quarter 2018, expanding 68,000 sf at 1000 South Fremont occupying later this year. With this expansion, the County of Los Angeles will occupy more than 185,000 sf at this location by year-end. Direct vacancy is down 180 bps year-over-year to 14. due to large tenants occupancy gains in fourth quarter 2017, but has since remained flat. The largest move-ins of the quarter were USC occupying their space at The Alhambra campus for 30,116 sf and Lereta moving into 2100 Alosta Avenue for 22,915 sf. SGV direct absorption closed the quarter slightly positive with 6,799 sf but overall absorption closed slightly negative at 14,315 sf with MH Express Pharmacy bringing 21,339 sf of sublease space to the market. The first half of the year depicts SGV market fundamental growth at a steady pace. The decline in vacancy, strong leasing activity, and stable rent growth strengthens the SGV market and will continue to improve in the second half of the year with larger tenants occupying space. Strong leasing in LA North brought the 2018 mid-year total to 1.3 msf, a 20.2% increase from mid-year 2017. The largest leases signed in second quarter were Amerihome Mortgage (80,671 sf), Inuit (53,116 sf), and TeamHealth (51,290 sf), which helped contribute to the 625,489 sf of new leasing recorded. These significant deals were also ranked in the key transactions in Greater Los Angeles. The overall vacancy in LA North increased 50 bps from last quarter to 13.3% in the second quarter, which is still significantly below the historical high of 21.1% in 2011. Occupancy losses were mainly smaller tenant move-outs closing out second quarter at negative 50,835 sf. The biggest move-outs in second quarter were Patriot Insurance vacating 23,332 sf from 21255 Burbank Blvd and US HealthWorks subleasing 22,850 sf at 25124 Springfield Ct. LA North Class A asking rates steadily increased 3.2% year-over-year to $2.60 psf/mo. The new supply will help push Class A rental rates even higher for premium space. In the upcoming months, larger tenants moving into their spaces should counterbalance the occupancy losses from the first half of the year. SAN GABRIEL VALLEY LOS ANGELES NORTH LOS ANGELES SOUTH 2 1 1 2 1 1 The South Bay office market rebounded from occupancy losses in the first quarter 2 with gains of 135,698 sf in the second. The overall vacancy dropped to 17., 90 bps lower than first quarter 2018 s rate. Torrance leads the South Bay in net demand with 119,249 sf of occupancy gains in the first half of the year. The largest lease of the quarter was also transacted here with Davita s 80,583-sf renewal/expansion in the 190 th Street Corridor submarket. Torrance continues to attract investors and has seen more office sales recently as it benefits from El 2 1 1 Segundo's strong market momentum. Leasing activity at mid-year totaled 1.2 msf, 27.6% higher than the same period a year ago is on track to far surpass 2017 s leasing total of 1.7 msf. With strong tenant demand, there has been significant upward pressure on rents in the South Bay. In the last year, South Bay s average rental rate of $2.71 psf/mo has increased by 13.9%. Class A rents posted a higher rate of appreciation with an annual increase of 14.4% while Class B rents climbed to $2.42 psf/mo for an annual growth of 11.. cushmanwakefield.com I 3
SUBMARKET INVENTORY SUBLET VACANT DIRECT VACANT VACANCY RATE CURRENT QTR NET ABSORPTION YTD NET ABSORPTION YTD LEASING ACTIVITY UNDER CONSTRUCTION AVERAGE ASKING RENT (ALL CLASSES)* AVERAGE ASKING RENT (CLASS A)* Los Angeles Downtown CBD 27,574,918 213,126 5,393,585 20.3% 191,666 367,663 838,917 0 $3.52 $3.60 Los Angeles Downtown (Non-CBD) 8,693,594 15,042 2,060,942 23.9% -28,876-21,804 370,639 145,311 $3.56 $4.10 Mid-Wilshire 11,714,043 27,785 1,749,599 15.2% 63,120 181,849 227,761 320,500 $2.67 $2.87 Los Angeles West 53,325,187 543,306 6,192,968 12.6% 308,325 637,319 1,600,511 931,749 $4.64 $4.75 Los Angeles North 31,571,002 141,917 4,055,402 13.3% -50,835-228,472 1,263,787 292,334 $2.49 $2.57 Los Angeles South 30,892,427 333,293 4,925,858 17. 135,698 34,954 1,171,008 130,998 $2.71 $3.02 Tri-Cities 24,303,894 702,543 2,739,751 14.2% -120,873-265,877 609,376 218,267 $3.01 $3.07 San Gabriel Valley 12,569,743 31,058 1,827,024 14.8% -14,315-16,426 551,390 0 $2.23 $2.46 GREATER LOS ANGELES TOTALS 200,644,808 2,008,070 28,945,129 15.4% 483,910 689,206 6,633,389 2,039,159 $3.32 $3.58 *Rental rates reflect gross asking $psf/mo Key Lease Transactions Q2 2018 555-581 Mateo Street / At Mateo 109,706 Spotify New Lease LA Central / Arts District 1 Baxter Way / The Oaks at Westlake 80,671 Amerihome Mortgage New Lease LA North / Westlake Village 19191 S. Vermont Avenue / Pacific Gateway II 80,583 DaVita New Lease LA South / Torrance 1000 S. Fremont Avenue / The Alhambra 68,000 County of Los Angeles Department of Health Service New Lease San Gabriel Valley / Alhambra 900 Wilshire Boulevard / Wilshire Grand Center 66,201 ARUP New Lease LA Central / Financial District 601 S. Figueroa / Figueroa at Wilshire 59,927 Denton US Renewal* LA Central / Financial District 21650 Oxnard Street / Warner Center Plaza III 53,116 Intuit New Lease LA North / Warner Center 9841 Airport Boulevard / Airport Center III 51,310 Fluor Enterprises New Lease LA South / LAX 8511 Fallbrook Avenue / Corporate Pointe at West Hills 51,290 TeamHealth New Lease LA North / Canoga Park 611 N. Brand Boulevard 51,056 Bank of America New Lease Tri-Cities / Glendale *Renewals not included in leasing statistics Key Sales Transactions Q2 2018 3100-3110 Lomita Boulevard / Torrance Tech Campus 573,167 Platform & PMRG / FRM Associates $124,000,000 / $216 LA South / Torrance 201 283 S. Lake Avenue / 4-Building Portfolio 571,651 UBS Realty Investors / Coretrust Capital Partners $254,000,000 / $444 Tri-Cities / Pasadena 2230 Imperial Highway 549,222 GI Partners & Calpers / Swift Real Estate Partners $167,500,000 / $304 LA South / El Segundo 2050 W. 190 th Street / Gramercy Plaza 157,641 Sares Regis / Preylock Real Estate $26,000,000 / $165 LA South / Torrance 1440 S. Bridge Gate / Bridge Gate Plaza 134,858 Camphor Partners / Niagara Bottling $30,950,000 / $229 San Gabriel Valley / Diamond Bar 1680 N. Vine Street / Taft Building 117,000 DLJ Real Estate Capital Partners / Ocean West Capital Partners $70,000,000 / $598 LA Central / Hollywood 110 W. Ocean Boulevard / Ocean Center Building 108,920 Levy Affiliated Holdings / Pacific6 $18,000,000 / $165 LA South / Downtown Long Beach 9171 Wilshire Boulevard / Palm Wilshire 101,968 John Hancock / Cruzan $69,250,000 / $679 LA West / Beverly Hills 520 N. Central Avenue / Central Building 93,644 Lincoln Property / Octane Realty & Development $27,500,000 / $293 Tri-Cities / Glendale 331 N. Maple Drive / Beverly Hills 89,642 Deutsche Bank / DivcoWest $83,000,000 / $925 LA West / Beverly Hills cushmanwakefield.com I 4
Explanation of Terms Total Inventory: The total amount of office space (in buildings of a predetermined size by market) that can be rented by a third party. Overall Vacancy Rate: The amount of unoccupied space (new, relet, and sublet) expressed as a percentage of total inventory. Direct Vacancy Rate: The amount of unoccupied space available directly through the landlord (excludes sublease space). Absorption: The net change in occupied space between two points in time. (Total occupied space in the present quarter minus total occupied space from the previous quarter, quoted on a net, not gross, basis.) Leasing Activity: The sum of all leases over a period of time. This includes pre-leasing activity as well as expansions. It does not include renewals. Under Construction: Industrial and office square footage that are being built and have not received certificates of occupancy (C of O). Projects which are beyond site preparation (concrete slab poured and construction is actively progressing). For C&W statistical purposes, these buildings will not be complete by the last day of the reporting quarter. Under renovation: Office and industrial buildings that are undergoing renovation, rehabilitation or conversion and require a certificate of occupancy to be habitable. Overall Weighted Asking Rents: Gross average asking rents weighted by the amount of available direct and sublease space in Class A, B and C properties. Class A Asking Rents: Gross average asking rents weighted by the amount of available Class A direct and sublease space. Cushman & Wakefield 900 Wilshire Blvd, 24 th Floor Los Angeles, CA 90017 cushmanwakefield.com For more information, contact: Eric Kenas, Market Director, Research Tel: +1 213 955 6446 eric.kenas@cushwake.com Vincent Chang, Assoc. Market Director Tel: +1 213 955 5125 vincent.chang@cushwake.com About Cushman & Wakefield Cushman & Wakefield is a leading global real estate services firm that delivers exceptional value by putting ideas into action for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with 48,000 employees in approximately 400 offices and 70 countries. In 2017, the firm had revenue of $6.9 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter. 2018 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources believed 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