RETAIL GREATER LOS ANGELES BASIN MARKET REPORT Witnessed A Slight Increase In Vacancy Rates MARKET INDICATORS - VACANCY 6.2% NET ABSORPTION -551,200 CONSTRUCTION 1,946,000 RENTAL RATE $1.96 P NNN UNEMPLOYMENT LA 5. OC 4.2% IE 6.1% EXECUTIVE SUMMARY The fourth quarter of 2015 saw the Los Angeles Basin retail market fundamentals took a slight dip at year end. The Los Angeles Basin retail market recorded negative net absorption of -551,200 square feet (). The LA Basin last recorded negative absorption in 3Q12. All three counties within the Los Angeles Basin recorded negative to flat tenant movement compared to last quarter. The Los Angeles County vacancy rate increased 20 basis points to 5.0% recording -517,500 of net absorption, the Orange County vacancy rate increased 20 basis points to 4. recording -15,200 of net absorption and Inland Empire vacancy rate decreased 10 basis points to 9. recording -18,500 of net absorption. The vacancy rate for the overall region increased to 6.2%, up 20 basis points from the previous quarter. A longer historical perspective shows that the vacancy rate a year ago stood at 6.. The weighted average asking rental rate decreased to $1.96 per square foot (P), per month, triple net (NNN) from the previous quarter s rate of $2.00 P NNN. Orange County continues to dominate the average asking rental rate in the region, recording at $2.37 P NNN as Inland Empire remains the lowest at an average asking rental rate of $1.37 P NNN. MARKET TRENDS - >> The overall total vacancy rate for the region increased to 6.2% >> Weighted average asking rental rate decreased to $1.96 per square foot NNN >> There was negative demand with -551,200 net absorption >> Construction completions decreased to 460,785 HISTORICAL VACANCY VS RENTS Q4 2011 - $ P PER MONTH (NNN) RENTS VACANCY $2.45 $2.35 $2.25 $2.15 $2.05 $1.95 $1.85 $1.75 4Q11 4Q12 4Q13 4Q14 4Q15 % VACANT (TOTAL) HISTORICAL NET ABSORPTION & CONSTRUCTION COMPLETIONS Q4 2011-1,400,000 1,000,000 600,000 200,000 (200,000) (600,000) (1,000,000) ABSORPTION CONSTRUCTION COMPLETIONS 4Q11 4Q12 4Q13 4Q14 4Q15 1 Colliers International continuously refines its database. As a result, data reflected in this report may not be consistent with data reported in previous quarters. www.colliers.com/greaterlosangeles
MARKET REPORT RETAIL LOS ANGELES BASIN GREATER LOS ANGELES DEMOGRAPHICS >> POPULATION: 18,577,818 (2015 Estimate) 19,348,242 (2020 Projection) 4.1 (Growth 2015-2020) >> HOUSEHOLD INCOME: $80,493 (Average) $57,862 (Median) LOS ANGELES BASIN >> JOB GROWTH: 2. (past 12 months) >> UNEMPLOYMENT RATE: 5. (as of November 2015) The Los Angeles County retail market recorded the largest amount of negative absorption in the LA Basin during fourth quarter at -517,500, causing vacancy to rise by 20 basis points to 5.0%. Asking rental rates recorded at $2.23 P NNN. The average asking rental rate was brought up by increasing rates for all retail product type categories except for single tenant buildings. Currently, there is a total of 827,600 of retail under construction in Los Angeles County. The largest property currently being built is the 470,000 IKEA building located in Burbank. A notable lease transaction in the Los Angeles County market was AutoNation, Inc. renewing 56,100 at 14614 Hindry Ave in Hawthorne. Inland Empire retail market activity witnessed movement as vacancy increased 10 basis points to 9.. Overall positive net absorption recording -18,500 for the quarter. Average asking rents decreased slightly, recording at $1.37 P NNN. Lifestyle/theme-festival centers had the highest average asking rental rate of $2.20 P NNN, while single tenant buildings had the lowest at $1.20 P NNN. There is currently 528,600 Inland Empire. The largest project currently Orange County absorption recorded negative at -15,200. vacancy increased to 4. from last quarter s 4.. There was movement of asking rents in all categories except super regional/regional malls. The overall average asking rental rate decreased in fourth quarter to $2.37 P NNN from $2.43 P NNN last quarter. There is approximately 589,800 of retail space under construction in Orange County. The largest property currently being built is The Source Lifestyle Center in Buena under construction is the neighborhood centers located at 9606 Foothill Blvd in Rancho Cucamonga and 29914 Newport Rd in Menifee, both consisting of 50,000. Leasing transactions to note are Harbor Freight Tools, who leasing 20,000 at 57980 Twentynine Palms Hwy in Yucca Valley and Viva Bargain Center, who renewed 18,400 at 5533-5549 Philadelphia St in Chino. VACANCY BY PROPERTY TYPE 11% 12% 10% 11% 10% 5. 6.1% 4.2% % VACANT 6. 7. 7. 8. 4. 3.0% 2% 1% COLLIERS INTERNATIONAL 0% LIFESTYLE/THEME FESTIVAL CENTERS 1% 2% 0% % VACANT P. 2 securing any significant tenants. of new retail inventory under construction in the VACANCY BY MARKET Park, which includes 425,000 square feet of retail space. The project is expected to be completed by first quarter of 2016. However, this property has had initial challenges in
MARKET REPORT RETAIL LOS ANGELES BASIN RETAIL OVERVIEW EXISTING PROPERTIES VACANCY ABSORPTION CONSTRUCTION RENTS Market/ Property Type Inventory Vacancy Vacancy Prior Qtr Net Absorption Current Qtr Net Absorption YTD Completions Current Qtr Under Construction Weighted Avg Asking Lease Rates 24,071,441 3. 3. (1,700) 269,700 0 0 $4.20 13,556,797 5. 5. 31,800 (2,200) 0 0 $1.57 LIFESTYLE/THEME-FESTIVAL CENTERS 6,210,994 4. 4. 4,300 126,600 0 241,000 $2.08 80,086,643 7.2% 6. (286,600) (71,700) 100,700 508,300 $2.02 30,897,776 6. 6. 7,900 211,400 8,500 44,800 $2.12 79,180,134 2. 2.2% (273,200) 146,000 8,640 33,500 $2.28 SUBTOTAL 234,003,785 5.0% 4. (517,500) 679,800 117,840 827,600 $2.23 10,663,311 3. 4.0% 8,300 163,500 0 0 $3.94 7,733,860 2. 3.1% 31,600 171,900 0 9,000 $2.73 LIFESTYLE/THEME-FESTIVAL CENTERS 2,536,419 14.2% 10. 79,900 111,500 190,445 400,000 $2.80 45,432,187 6.0% 5. (117,400) 66,200 0 175,000 $2.22 10,380,867 6.2% 6. 15,300 39,300 0 0 $1.89 25,789,109 1. 1.2% (32,900) 32,500 5,400 5,800 $1.90 SUBTOTAL 102,535,753 4. 4. (15,200) 584,900 195,845 589,800 $2.37 11,044,355 5. 5. 44,600 128,500 63,300 0 $1.42 10,664,175 10.1% 9. (15,700) 268,900 13,200 35,500 $1.62 LIFESTYLE/THEME-FESTIVAL CENTERS 2,191,331 9. 9. (200) (40,600) 0 368,500 $2.20 52,282,023 14.0% 14.1% 97,800 258,100 36,700 64,200 $1.35 12,463,912 11.1% 11. 66,500 88,100 0 34,400 $1.35 44,549,022 4. 4.1% (211,500) 81,100 33,900 26,000 $1.20 SUBTOTAL 133,194,818 9. 9. (18,500) 784,100 147,100 528,600 $1.37 LA BASIN TOTAL 45,779,107 4. 4. 51,200 561,700 63,300 0 $3.28 31,954,832 6. 6. 47,700 438,600 13,200 44,500 $1.71 LIFESTYLE/THEME-FESTIVAL CENTERS 10,938,744 7. 6. 84,000 197,500 190,445 1,009,500 $2.42 177,800,853 8. 8. (306,200) 252,600 137,400 747,500 $1.74 53,742,555 7. 7. 89,700 338,800 8,500 79,200 $1.82 149,518,265 3.0% 2. (517,600) 259,600 47,940 65,300 $1.75 TOTAL 469,734,356 6.2% 6.0% (551,200) 2,048,800 460,785 1,946,000 $1.96 COLLIERS INTERNATIONAL P. 3
MARKET REPORT RETAIL LOS ANGELES BASIN NET ABSORPTION BY MARKET NET ABSORPTION BY PROPERTY TYPE >> Five out 0 of the six property types recorded positive net absoprtion (100,000) (18,500) (15,200) 200,000 100,000 0 47,700 51,200 73,600 84,000-100,000 (200,000) >> Shopping center landlords continue to try to keep up with (300,000) shopper expectations (400,000) -200,000-300,000-400,000-500,000-600,000 (517,600) (306,200) (500,000) (600,000) (517,500) LOS ANGELES COUNTY LIFESTYLE/THEME - FESTIVAL CENTERS OUTLOOK According to the Chapman University Economic Forecast, consumer spending, which accounts for about 70% of the GDP, will be the major engine of growth for 2016. Gasoline prices are expected to remain low, debt levels are low and continued gains are expected in household wealth. It is expected that consumer spending will grow by in 2016. As of November, national retail and food services sales have increased by 2% from one year ago. These trends bode well for the retail market moving into 2016. MARKET DESCRIPTION The Greater Los Angeles retail market is comprised of 469.7 million square feet of multi-tenant shopping centers and single tenant properties. Community/neighborhood centers represent the most amount of space (3) among the different property types. The market attracts both affordable retailers and high-end stores due to a population that demands a wide variety of product. High median income households and strong population growth contribute to make this region attractive to retailers. WEIGHTED AVERAGE ASKING LEASE RATES BY MARKET WEIGHTED AVERAGE ASKING LEASE RATES BY PROPERTY TYPE $3.00 $4.50 $4.00 $2.75 $3.50 $3.28 $ P PER MONTH (NNN) $2.50 $2.25 $2.00 $1.75 $1.50 $1.25 $1.00 $1.37 $2.23 LOS ANGELES COUNTY $2.37 $ P PER MONTH (NNN) $3.00 $2.50 $2.00 $1.50 $1.00 $1.71 $1.74 $1.75 $1.82 $2.42 LIFESTYLE/THEME - FESTIVAL CENTERS P. 4 COLLIERS INTERNATIONAL
MARKET REPORT RETAIL LOS ANGELES BASIN DEFINITIONS OF KEY TERMS USED IN THIS REPORT Anchor Tenant: A large national or regional retailer that serves as a primary draw for a shopping center. Capitalization (Cap) Rate: A calculation that shows the relationship between one year s net operating income and the current market value of a property. Is calculated by dividing the annual net operating income by the sales price. Community Center: Typically has a total square footage between 100,000-350,000 square feet. Often will have 2-3 large anchored tenants, which include supermarkets and drugstores. Other tenants may include retailers that sell items such as apparel, home improvement/furnishings, toys, electronics, or sporting goods. Direct Vacancy: Space in existing buildings that is vacant and immediately available during the quarter for direct lease, plus space that is vacant but not available for direct lease or sublease (for example, that is being held for a future commitment). Lifestyle Center: An upscale specialty store shopping center that has a total square footage between 150,000-500,000 square feet. The center usually has an outdoor setting with dining and entetainment. Neighborhood Center: Focuses on retailers that sell convenience items and personal services. The center will often have a supermarket as an anchor tenant. The size range is 30,000-300,000 square feet. Power Center: The center often consists of several freestanding anchors with a minimum number of small tenants. The size of the property is typically between 250,000-600,000 square feet. The anchor tenants are usually discount department stores, off-price stores, and warehouse clubs. Regional/SuperRegional Mall: Provides shopping goods, general merchandise, apparel, and furniture. Often consists of multiple department stores. Regional Malls usually are between 400,000-800,000 square feet, and Super Regional Malls typically are greater than 800,000 square feet. Theme/Festival Center: Predominantly has a unifying theme based on tenants and architectural design. Focuses on restaurants and entertainment while appealing to tourists. The size range is 80,000-250,000 square feet. Single Tenant Free Standing Building: Retail building occupied by only one tenant. Space Added (Net): 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. Strip Center: An attached row of stores or service outlets while usually being less than 30,000 square feet. 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. Weighted Average Asking Rental Rates: Weighted by the total square feet available for direct lease. Data is based on triple net rents, which excludes costs associated with taxes, insurance, maintenance, janitorial service and utilities. Reported on a monthly, per square foot basis. 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. 502 offices in 67 countries on 6 continents United States: 140 Canada: 31 Latin America: 24 Asia Pacific: 199 EMEA: 108 >> $2.3 billion in annual revenue >> 1.7 billion square feet under management >> Over 16,200 professionals UNITED STATES: Greater Los Angeles Headquarters Office License No. 01908231 865 S. Figueroa Street, Suite 3500 Los Angeles, CA 90017 TEL +1 213 627 1214 FAX +1 213 327 3200 CAUDILL, ROBERT Regional Director/Orange County PUPIL, MARTIN President, West Region HOLLINGSWORTH, JOHN Executive Managing Director MUMPER, HANS Executive Managing Director RESEARCH ANALYSTS MATTESON, CAITLIN Research Director GALVIN, THOMAS R. Regional Analyst WONG, CHRISTOPHER Regional Analyst Accelerating success. www.colliers.com/marketname