LOS ANGELES - LONG BEACH INDUSTRIAL MARKET REPORT

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1 LOS ANGELES - INDUSTRIAL MARKET REPORT Q3 M A R K E T R E P O R T Q LOS ANGELES - INDUSTRIAL MARKET REPORT

2 INCREDIBLE GROWTH PERSISTS Q3 TRENDS AT A GLANCE Absorption 73,064 SF Average Rent $0.91 / SF Sales Transactions $ Million Vacancy 0.8% Under Construction 1,114,212 SF Average Sales Price $ / SF Source: AIR Commercial Real Estate Association ABOUT LEE & ASSOCIATES At Lee & Associates our reach is national but our expertise is local market implementation. This translates into seamless, consistent execution and value driven marketto-market services. Our agents understand real estate and accountability. They provide an integrated approach to leasing, operational efficiencies, capital markets, property management, valuation, disposition, development, research and consulting. We are creative strategists who provide value and custom solutions, enabling our clients to make profitable decisions. LOCAL EXPERTISE. INTERNATIONAL REACH. WORLD CLASS. LOS ANGELES - INDUSTRIAL MARKET REPORT Q

3 Incredible demand has outstripped the limited supply in the Los Angeles and Long Beach Industrial Real Estate Markets. The market has experienced four consecutive quarters of sub 1% vacancy. We have not seen this low of a vacancy rate over multiple quarters since This can be attributed to the LA and Orange County markets totaling over a trillion dollars of gross domestic product this past year. According to the Federal Government s recently released annual accounting of business output of the LA-OC region s gross domestic product, a broad measure of the value of all business done in a geographic region, GDP rose by $38 billion last year to $1.002 trillion. To put this in perspective, if LA-OC was its own state, its annual output would rank directly behind New York and Texas, just ahead of Florida in GDP. Globally, LA-OC is on par with the national outputs of Mexico and Indonesia. LA OC is beating the nation s 2.2 percent yearly pace with an average 3.1 percent annual growth. This fact has accelerated companies growth and investors dollars into the Los Angeles/Long Beach Industrial Real Estate Market and our vacancy rate is a key indicator. The direct industrial vacancy rate in the Los Angeles/ Long Beach marketplace remained relatively flat from 0.7% in the 2nd Quarter 2017 to 0.8% in the 3rd Quarter 2017, as more product was delivered and absorbed in the market place. Asking rents increased again in the 3rd Quarter to $0.91 PSF up from $0.88 PSF the previous quarter. We have seen over 8 quarters of positive rental growth. Rents have increased over 10% since the 1st Quarter of The vacancy rate this time last year was 0.7%, which despite the numerous construction projects in the pipeline and those delivered into the marketplace have not had an effect on the vacancy rate. The average sale price increased in the 3rd Quarter 2017 to $172 PSF. Sale volume has increased immensely throughout the year from $76.8 Million in the 1st Quarter to $316 Million for the 3rd Quarter. Lack of land sites had an effect on development activity in the Los Angeles/Long Beach region with 1.1 million SF under construction down from the previous quarter of 1.8 million SF. CAP Rates continue to be pushed downwardly as investors clamor for the limited quality investment projects in the area. Rexford Industrial acquired Rancho Pacifica Business Park, one of the largest industrial parks located in the South Bay. Constructed in the late 1980 s by Trammel Crow, this was one of the most successful projects that continually adapted to the increase in container traffic at the Ports. Rexford s investment flexibility allowed them to close the 1.17M SF Class A project in thirteen days for $210.5M. An early Q4 announcement: Toyota s Headquarters in Torrance consisting of 110AC of industrial, office and land was sold to Sares-Regis, a local commercial developer for $270M. According to Peter Rooney, President of Sares-Regis Commercial Development Division, we have no plans to do residential there given the location (is) next to the refinery (Toyota) will be occupying some of the building through the third quarter of 2018 They are keeping their distribution center on the site We re looking at all the buildings and assessing the (sites) Toyota occupied for 25 years. According to the Bureau of Labor Statistics, the California unemployment rate dropped 0.6 percentage points from 6.7% in July 2016 to 6.1% in July, Unemployment rate for the US was reported at 4.3%, down from 4.9% over the same time period. The Los Angeles / Long Beach / Glendale metropolitan statistical area job creation totaled 49,900 over the past year. Industrial jobs (industries include manufacturing, construction and trade transportation and utilities) remained flat from July 2016 to July LOS ANGELES - INDUSTRIAL MARKET REPORT Q

4 Looking forward Small and medium-sized businesses will continue to get squeezed by historically high lease rates. The demand for buildings continues to grow and shows no signs of leveling off. This trend should continue to be a great opportunity for property owners to capture these historically high values. Low interest rates will continue to encourage business owners to take advantage of the favorable market conditions. As seen last quarter, industrial properties for lease or sale will continue to be difficult to find while new facilities will be built to support ecommerce fulfillment centers and the shift towards electronic retailing. Please contact your local Lee & Associates market expert for more perspective on your submarket and guidance to fully leverage your situation. - Brandon Carrillo, Principal Garrett Massaro, Principal NET ABSORPTION 2m VACANCY 6.0% 1.5m 5.0% 1m 4.0% 500k 0 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 3.0% 2.0% -500k 1.0% -1m 0.0% 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 AVERAGE ASKING RENT BY QUARTER $0.95 ASKING PRICE PER SQ FT $200 $0.90 $0.85 $180 $0.80 $0.75 $160 $0.70 $0.65 $140 $0.60 $0.55 $0.50 $0.45 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Source: CoStar Property & AIR Commercial Real Estate Association $120 $ LOS ANGELES - INDUSTRIAL MARKET REPORT Q

5 So u r ce: C o St ar Pr o p er t y & A IR C o m m er cial R eal Est a te A s s oc i a ti on Q TO P LE AS E S PROPERTY ADDRESS CITY TYPE LEASE RATE SQUARE FEET LEASE TYPE W. WALNUT AVE. COMPTON $0.73 NET 219,575 SF DIRECT ALONDRA BLVD. LA MIRADA $0.72 NET 199,588 SF DIRECT 2131 W. WILLOW ST. $0.80 GRS 198,094 SF DIRECT 1660 E. 32ND ST. LAND $0.32 GRS 186,000 SF SUBLEASE ARTHUR ST. CERRITOS $0.52 NET 179,518 SF SUBLEASE Q TO P S ALE S PROPERTY ADDRESS CITY TYPE SALES PRICE SQUARE FEET REGION 2301 PACIFICA RANCHO DOMINGUEZ $ / SF 1,170,806 SF KINGSVIEW AVE. CARSON $ / SF 100,121 SF 1215 W WALNUT ST. COMPTON MFG $ / SF 57,664 SF 927 S SANTA FE AVE. COMPTON $ / SF 56,758 SF 3880 MCGOWEN ST. $ / SF 43,782 SF W WALNUT AVE COMPTON LEASED 2301 PACIFICA RANCHO DOMINGUEZ SOLD ALONDRA BLVD LA MIRADA LEASED KINGSVIEW AVE CARSON LO S A N G E L ES - LO N G B E AC H I N D U S T R I A L M A R K E T R E P O R T Q SOLD 2131 W WILLOW ST 1215 W WALNUT ST COMPTON LEASED SOLD 5

6 LOS ANGELES & PORT ACTIVITY The 3rd Quarter at both Ports experienced year-over-year gains and have Southern California tracking for new total volume records individually and combined. So far through the first 3 quarters, the Port of Los Angeles is higher by 8.2%, while the Port of Long Beach is up 8.9% with their 3rd Quarter posting the largest volume of any quarter in their history. For the Port of Long Beach, July was up by 13.06% and was the Port s busiest month ever. August also had gains with volumes higher by 8.01%. September s year-over-year comparison is an aberration as their largest tenant, Hanjin, filed bankruptcy in 2016 and volumes immediately declined. Having acknowledged this, September increased by 28.31% and even eclipsed their previous largest September by over 7%. Long Beach s July, August and September totals were up by 15.9% and combined for a total 2,114,306 TEUs. Our continuing recovery is due to our best in the industry customer service and the best terminals and infrastructure in the nation for shippers who need to rapidly transport cargo, said Port of Long Beach Executive Director Mario Cordero. We re expecting to have great numbers right through the end of the year and challenge 2007 for our highest annual container volume in history. Los Angeles set an extremely high bar in 2016 after breaking the Western Hemisphere s total TEU record. They plan to break their record again as July volumes surged by 15.83% with August and September posting significant, but smaller gains of 6.12% and 2.15% respectfully with the quarter ending at a total of 2,408,447 TEUs. Specifically, LA s September had 88 vessel berths with an average container count of 8,679 TEUs per ship representing a 22% increase from last year. This increase is an encouraging statistic with the Port of Los Angeles Director Gene Seroka stating, We continue to demonstrate the LA Advantage to cargo owners, with a strong focus on meeting big-ship needs, developing world class infrastructure, and delivering extraordinary customer service through innovation and efficiency. Looking forward to finishing the year, the National Retail Federation predicts October will be near records for imports throughout the US with Southern California receiving the lion s share. Exports of waste paper to China are expected to decrease due to trade policy changes and shippers are accommodating this change by sending more empties out of the US to other areas in the supply chain. Policy changes in scrap is not something that either local port can control, but what does send warning signs to their supply chain partners are seemingly inevitable disruptions with labor. Unfortunately, this latest issue occurred at the end of the 3rd Quarter when the APL terminal was shut down due to a new contract negotiation for management on behalf of the ILWU. Management joining the union is a new development for labor on the docks and will be something that Beneficial Cargo Owners (BCOs) will continue to monitor. Another huge announcement coming in 4th Quarter will be when the Ports issue updates to their historic 2006 Clean Air Action Plan (CAAP). When the CAAP was passed, BCOs knew they would be burdening the $4 billion that terminal operators for LA and Long Beach would have to invest to achieve zero emissions in cargo handling equipment by That is 20 years ahead of other polluting industries that are regulated by different Federal guidelines. These changes are expected to be released and then voted upon as our true peak season winds down in early November. While there is not much time in the year, the 4th Quarter seems to be promising to keep up its pace and will deliver an abundance of interesting news. - David Bales, Principal Ryan Endres, Senior Associate YTD SEPTEMBER 2017 Source: Combined Loaded Inbound Combined Loaded Outbound Total Containers San Pedro Port Complex 8,000,000 12,000,000 6,000,000 11,500,000 4,000,000 11,000,000 2,000,000 10,500, ,000, TEUs TEUs LOS ANGELES - INDUSTRIAL MARKET REPORT Q

7 LOS ANGELES & INDUSTRIAL MARKET MAP LAX 1 EL SEGUNDO GATE 710 DOWNEY 605 HAWTHORNE COMPTON 105 MANHATTAN BEACH 405 GARDENA 91 PARAMOUNT 91 REDONDO BEACH RANCHO DOMINGUEZ LAKEWOOD 605 TORRANCE BIXBY KNOLLS CARSON AIRPORT 405 ROLLING HILLS ESTATES LOMITA WILMINGTON RANCHO PALOS VERDES SAN PEDRO PORT OF PORT OF LOS ANGELES LOOK TO LEE & ASSOCIATES FOR SOLUTIONS Contact a Lee & Associates Broker who can provide you with the most comprehensive market knowledge and expertise in the business. We specialize in: Build-to-Suit For Lease For Sale Facility Specification Bidding & Design Build Construction Expansion Planning Fair Market Value Analysis Valuation of Land Valuation of Buildings and Other Improvements Financial Analysis of Alternatives Comparing Alternative Proposals Purchase vs. Lease Analysis Existing Building Search Site Search Site Selection Criteria Development & Analysis Sale-Leaseback Institutional Investors Private Investors Disposition of Existing Buildings Locally & Nationally REO & Distressed-Asset Valuation & Sales The information and details contained herein have been obtained from third-party sources believed to be reliable; however, Lee & Associates Los Angeles - Long Beach, Inc. has not independently verified its accuracy. Lee & Associates Los Angeles - Long Beach, Inc. makes no representations, guarantees, or express or implied warranties of any kind regarding the accuracy or completeness of the information and details provided herein, including but not limited to the implied warranty of suitability and fitness for a particular purpose.* Copyright 2017 Lee & Associates Los Angeles - Long Beach,Inc. All rights reserved. Contributed By: Brandon Carrillo Garrett Massaro David Bales Ryan Endres Bret Osterberg *Third-Party Data Sources: CoStar Group, Inc., AIR Commercial Real Estate Association, Beacon Economics, Port of Long Beach, Port of Los Angeles, and The Journal of Commerce. LOS ANGELES - INDUSTRIAL MARKET REPORT Q

8 LOCAL EXPERTISE. INTERNATIONAL REACH. WORLD CLASS. Los Angeles Office 1411 W. 190th Street, Suite 450, Gardena, CA Office: Fax: Long Beach Office 5000 E. Spring Street, Suite 600, Long Beach, CA Office: Fax: