2Q14 Ret MM

RetailResearch
M A R K E T
O V E R V I E W
Los Angeles County
Second Quarter 2014
Retail Recovery and Investors Head to East County

The Los Angeles retail market will gain momentum this year after operations reached a cyclical low during early 2013.
Since the end of the recession, retail fundamentals in Los Angeles have largely remained in neutral as new store openings
were offset by closing retailers across the county. However, some areas have fared better than others. The Westside Cities and
San Fernando Valley have enjoyed several quarters of improvement. Near the coast, expanding retailers have taken advantage
of rarely available storefronts in the densely populated communities with elevated household incomes to gain a foothold. In
the Valley, meanwhile, a resurgent housing market fueled by government subsidies and low interest rates has stabilized communities and boosted retailers confidence in the area. Leasing activity and fewer store closures should spill into other areas
of the market in the coming months as retail spending improves. Since the pre-recession peak, retail spending has climbed by
nearly 5 percent on a per-capita basis. As conditions tighten, asking rents will outpace inflation for the first time in six years.
The uneven recovery in retail operations is generating opportunities for investors with widely varying strategies. Cashheavy buyers seeking safety plays will focus on multi-tenant properties in the Beach Cities or Westside Cities, where the
spread between cap rates and interest rates is thin. Despite the softer returns, fluctuations in the real estate cycle tend to be
more measured in these areas, limiting long-term risk. Other capital preservation deals will involve single-tenant properties
net-leased to creditworthy retailers throughout the county. These assets begin at cap rates in the low-4 percent range for
best-in-class properties and drift into the low-5 percent area, depending on lease terms. Investors seeking higher yields will
consider multi-tenant listings in Santa Clarita or San Gabriel valleys, where fundamentals have significant upside. Average
first-year returns for these deals can breach 7 percent.
2014 Annual Retail Forecast

2.0%
increase in
total
employment
1.1 million
square feet
will be
completed
Employment: Employment growth will remain healthy this year, though the pace will be
somewhat lower than the national rate. Approximately 81,000 jobs will be created countywide
in 2014, lifting overall employment by 2 percent. Last year, 76,900 jobs were generated.
Construction: Builders will compete 1.1 million square feet of retail space in the county this
year, expanding inventory 0.3 percent. In 2013, less than 700,000 square feet came online.
60 basis
point
decrease in
vacancy
Vacancy: Retailers will continue expansion efforts during 2014, particularly in the eastern
stretches of the county. After a 30-basis point decline last year, vacancy will dip 60 basis points
to 4.9 percent this year.
2.9%
increase in
asking
rents
Rents: As vacancy ticks below the 5 percent threshold, operators will be more aggressive with
rent hikes. By year end, asking rents will climb to $25.91 per square foot, an annual increase of
2.9 percent. Average asking rents for available space advanced 0.9 percent in 2013.
Employment Trends
Metro
Thousands of Square Feet
Year-Over-Year Change
professional and business services sector. These white-collar employers generated60026,000 jobs, a 4.5 percent increase. Education and health services employers were close behind with 25,500 new positions, or 3.6 percent.
1%
0%
10
11
12
13
vice planes at the Boeing Commercial Airplanes Engineering Design Center.

0
South Bay/manufacturer
San Fernando Westsidewill
Downtown
Los Angelesjobs from Washington to facilities
The airplane
shift 1,000
Long Beach
Valley
Cities
LA
at Seal Beach in Orange County and Long Beach in Los Angeles County.
14*
Single-Tenant Sales Trends
by Submarket
Outlook:Vacancy
Employment
growth will remain healthy this year, though the pace
2014*
8%
will be somewhat lower than the national rate. Approximately 81,000 jobs will
$400
be created countywide in 2014, lifting overall employment by 2 percent. Last

6% 76,900 jobs were generated.
year,
$350
1,200
$325
900
$300
Vacancy Rate
$375
Construction by Submarket
2014*
4%
Construction
Developers put 750,000 square feet of retail space into service during the last
10
11
12
13
12 2%
months, expanding inventory by just 0.2 percent. In the previous period,
builders finished 610,000 square feet.
14**
0%
600
Construction by Submarket
Multi-Tenant Sales Trends
2014*
1,200
600
$200
300
$100
8%
South Bay/ San Fernando Westside

Long Beach
Valley
Cities
Vacancy by Submarket
2014*
0
6%$0 South Bay/ San Fernando Westside
11
12
Long 10
Beach
Valley
Cities
The
$40planning pipeline consists of 8 million square feet of retail space across the
8%
2%
6%
0%
4%
Outlook: Builders will complete 1.1 million square feet of retail space in the
Downtown Los Angeles

13
14**
LA
Vacancy by Submarket
2014*

Long Beach
Valley
Cities

LA

Long Beach
Valley
Cities

LA
Vacancy dipped 20 basis points in the first quarter to 5.3 percent, the lowest rate since the end of 2008. Year over year, vacancy has improved 70 basis
points in the county.
Multi-tenant vacancy in Los Angeles mirrored the overall rate at 5.3 percent
in the first quarter. The rate has remained in a narrow range between 5 percent
and 5.5 percent since the first quarter of 2009.
Asking Rents by Submarket

2014*
0%
$40 South Bay/ San Fernando Westside
Long Beach
Valley
Cities

LA
* Forecast
$30
Sources: CoStar
Group, Inc.
Asking
Rents
$30
$20
county this year, lifting inventory 0.3 percent. In 2013, less than 700,000
square feet came online.
Vacancy
2%
$50
$40
$10
county, which represents 2.3 percent of existing stock. At the end of the first
quarter,
the pipeline was on par with the level recorded one year ago.
$30
$10
4%
Vacancy Rate

LA
underway in the county. West Los Angeles and the Mid-Cities have the highest
concentration
of new by
construction
underway, though pre-leasing in these areas
Asking Rents
Submarket
is $50
collectively above2014*
70 percent.
Asking Rent per Square Foot
900
0
$300
At theLong
end
of the
nearly
750,000 square feet of retail space was
Beach
Valleyfirst quarter,
Cities
LA
300
$400
page 2
300
Boeing recently announced plans to centralize its customer support for in-ser-

g Rent per Square Foot
4**
2%
$50
$20
During the 12-month period ending in the first quarter, employers in Los
Angeles added 77,100 new positions, lifting payrolls 1.9 percent. The county
by Submarket
is still Construction
75,000 jobs below
the pre-recession level. Nearly 90 percent of the
2014* to the public sector.
1,200
shortfall
can be attributed
More
900 than one-third of the positions created during the past year were in the
3%
4**
14**
United States
4%
Thousands
of Square
Square Foot
FeetThousands of Square Feet
Average
Price Per
Average Price Per Square Foot
14*
Vacancy Rate
4*
Economy
by Submarket
2014*

Long Beach
Valley
Cities

LA
In the Mid-Wilshire submarket, vacancy retreated 70 basis points during the
last 12 months to 4.3 percent, one of the lowest levels in the county. The TriCities submarket recorded vacancy at 4.1 percent.
Outlook: Retailers will continue expansion efforts in the county this year,
particularly in the eastern stretches. After a 30-basis point decline last year,
vacancy will dip 60 basis points to 4.9 percent this year.
Marcus & Millichap
Retail Research Report
Vacancy Rat
$325
4%
2%
12
13
14**
0%
Rents

During the past year, asking rents inched up 0.3 percent to $25.11 per square
$400
$200
$14.05 per square foot over the past 12
months. One of the largest increases in
asking rents was 4.1 percent in Santa Clarita Valley.
$100
Average revenue has climbed 1.1 percent since the first quarter of 2013 as a
combination of higher occupancy and$0rents prevailed. This year, revenue is

10
11
12
13
14**
forecast to climb 3.6 percent.
Outlook: As vacancy ticks below the 5 percent threshold, operators will be
more aggressive with rent hikes. By year end, asking rents will climb to $25.91
per square foot, an annual increase of 2.9 percent. Average asking rents for
available space advanced 0.9 percent in 2013.
Single-Tenant Sales Trends**
During the most recent 12-month period, transaction velocity for single-ten-
ant properties in the county ticked down a modest 3 percent. Deal flow for
drugstores and convenience stores climbed, while both casual dining and fastfood restaurants changed hands less frequently.
Investors paid an average price of $884 per square foot for fast-food restaurants
during the period, up 23 percent from the previous year. Convenience store
prices inched up 8 percent to $548 per square foot.
Average cap rates for fast-food restaurants were in the high-4 percent range last
year, while casual dining restaurants averaged close to 6 percent. Overall, firstyear returns decreased 50 basis points in the past 12 months.
Outlook: Single-tenant properties remain highly sought-after deals across the
county as multifamily investors reposition their portfolios into less management-intensive assets for retirement.
Multi-Tenant Sales Trends**

Transaction velocity in the multi-tenant sector jumped by 21 percent during

the last year as investor confidence in the retail recovery improved. The number of strip centers that traded climbed by 28 percent.
Multi-tenant prices inched up over the most recent 12-month period to $334
per square foot. The average size of properties that changed hands during the
year increased by more than 50 percent, a further indication that risk aversion
among buyers is dissipating.
During the past year, average cap rates declined 80 basis points to the mid-6
percent range. First-year returns in the last six months were in the low-6 percent range as additional capital flowed into the segment.
Outlook: The tight single-tenant market will continue to funnel cash into the
multi-tenant arena as investors seek higher cap rates. Additionally, improving

multi-tenant fundamentals are pulling investors back into the market.
Marcus & Millichap
Leasing agents in Antelope Valley dropped asking rents by 10.1 percent to
$300

LA
Asking Rents by Submarket

2014*
$50

Price Per Square Foot
Average Price Per Square Average
Foot
foot, marking the fourth consecutive quarter of year-over-year growth. Average

asking rents remain more than 20 percent below the pre-recession peak.

Long Beach
Valley
Cities
$40
$30
Employment Trends
$20
Metro
United States
4%
$10
3% South Bay/ San Fernando Westside
Long Beach
2%
Cities

LA
Employment Trends
Metro
1%
4%
0%
3%
2%
Valley
10
United States
11
12
13
14*
$400
1%
$375
0%
10
11
12
13
14*
$350

$400
$325
$375
$300
$350
10
11
12
13
14**
$400
$325
$300
$300
10
11
12
13
14**
$200

$400
$100
$300
$0
10
11
12
13
14**
10
11
12
13
14**
$200
$100
$0
Thousands of Square Feet Thousands of Square Feet
11
Vacancy Rate
10
Vacancy Rate
$300
* Forecast
** Trailing 12-Month Period
Sources: CoStar Group, Inc., Real Capital Analytics
page 3

Average Price P
$350
Greater Downtown Los Angeles Retail Market
8%
6%
4%
10
11
12
13
Asking Rent Per Square Foot
Vacancy Rate
10%
2%
Asking
Rent DownTrends
Builders
completed
50,000
square feet of retail space in
the Greater
Downtown
Los
Angeles
Downtown
Los
Angeles
$800
town areaSingle-Tenant
during the past
12 months. In the previous
year, 80,000 square
feet
Multi-Tenant
$32
of space came online.
$625
$31
Only 90,000 square feet is under construction in the region, all of which
will come online by year end. The amount of planned space is down to just
$450
$30
120,000 square feet of retail space.
$275
$29
Retail vacancy increased 40 basis points to 5.9
percent over the past 12
months. Most of the increase occurred during the fourth quarter of last year.
$100
$28
11 vacancy
12
14** has tightened
Since10that time,
in 13
the region
20
points. 12
10 basis 11
13
14*
14*
Outlook: Development will remain limited this year as only 90,000 square
Sales Trends
Asking Rent Trends
feet comes online, slightly above the 80,000 square feet that was completed
Westside Cities
Westside Cities
in 2013. Single-Tenant
As retailers lease
dark space in the region,
$45 vacancy will fall 60 basis
$900
Multi-Tenant
points to 5.5 percent, nearly erasing the 80-basis point rise in 2013.
Vacancy
Westside Cities
$31
4%
12
13
14*
Vacancy
12
13
San Fernando Valley/Tri-Cities
14*
Asking Rent Trends
7%
Westside Cities
$45
6%
$44
5%
$800
$42
$625
$41
$450
6%
$275
$27
5%
$100
10
Sales
Trends
11
12
13

Single-Tenant
10
11
13
14*
Asking Rent Trends

11
12
13
**Trailing 12-month Period

Sales
Sources: CoStar
3% Group, Inc.
$25
$900
2%
$24
14**
Trends
Westside Cities
Single-Tenant
10
11
13
14*
page 4 $700
$23
$500
10
11
12
13
Rents are reversing course this year as$25conditions tighten and retailers are more aggressive with expansion. Operators are anticipated to lift
$24
average asking rents 2.9 percent to $31.45 per square
foot in 2014. Last year,
$200
asking rents retreated 0.4 percent.
Outlook:
$300
10
Asking11Rent 12
Trends13
$23
14**
10
11
12
13
14
Single-tenant deal flow dipped 8 percent during the most recent 12-month
period as listings remained scarce. Multi-tenant activity inched up modestly,
though overall transactions remain low.
$31
Sales Trends
Asking Rent Trends
South Bay/Long Beach
$30
Overall single-tenant prices climbed in the past year, asSouth
restaurants
sold for
$400
Bay/Long Beach
Single-Tenant
Multi-Tenant
more than $850 per square foot. Multi-tenant properties
traded
at
an
average
$24
price
of
$355
per
square
foot.
$29
$320
14*
$23
Single-tenant cap rates begin in the low-4 percent range and average in the
$28
$240
10 percent
11 area. 12
14*
mid-5
Average13multi-tenant
cap rates
are in the mid- to high-5
$22
percent range.
$160
Asking Rent Trends
$21
Outlook: Westside
The limited
supply of listings should support cap rate levels even
Cities
$80
$45
though
to climb
for loans.
10 interest
11 rates are
12 expected
13
14**

Multi-Tenant
12
$32
Vacancy
10
$27
14*
revenue
for all retail
properties in the Greater Downtown region deSingle-Tenant
Multi-Tenant
creased by 1.3 percent over the last four quarters as both occupancy and rents
$400
declined. Revenue remains 23 percent below the$26
previous peak.
SalesDowntown
Trends**
Los Angeles
Multi-Tenant
12
$500
Average
$100
14*
4%
* Forecast$26
14**
Valley/Tri-Cities
12
10
11vacancy
12 peaked
13 in the14**
Multi-tenant
first quarter of this10year at117.8 percent.
As13
a result, operators have reset asking rents at lower rates to attract new retailers.
During the past year, average asking rents dropped 4.6 percent to $27.32 per
Asking Rent Trends
square foot. Sales Trends
11
$29
4%
$43
$41
$100

10
$44
Asking rents for available space slipped 0.9 percent

during the most recent
$43
12-month period to $31.13 per square foot as operators attempted to rein in
vacancy. During the previous year, average asking
$42 rents advanced a modest
$300
1.1 percent in the region.

$500
3%
$30
$700
Rents

Average Price Per Square Asking

Foot Rent Per Square Foot
Vacancy Rate
ice Per Square Foot
Vacancy
Rate
Asking Rent Per Square
Foot
14*
$32
5%
Asking Rent Trends
$28 San Fernando

10
11
8%
14**
14**
6%
nt Per Square Foot

Vacancy Rate
7%
ities
nt
Construction
Vacancy
Salesand
Trends
Vacancy
$20
$44
$43
10
Marcus & Millichap
11
u
12
13
14
Average Pric
Vaca
2%
10
11
12
13
$275
$100
14*
Westside Cities Retail Market

Construction and Vacancy
Vacancy
Very little construction has been completed in the Westside Cities region during
the past year. Builders finished less than 10,000 square feet of space, down from
100,000 square feet during the previous year.
10
10
11
12
13
Rents
7%
6%
5%
4%
Asking rents declined 3 percent over the past year to Sales

$41.32 Trends
per square foot in
Westside Cities
the first quarter. The decrease can be attributed
to
the
quality
of available space
$900
Vacancy
Single-Tenant
Multi-Tenant
on the market rather than softening rents. In the previous year, asking rents for
Westside Cities
available space fell 2.8 percent.
Vacancy Rate Average Price Per Square Foot
Over the last 12 months, multi-tenant vacancy climbed 40 basis points to 3.4
Vacancy
$500
percent. As conditions remain tight, high-quality
space on the market is sparse,
which has lowered the average rent for available space. Asking rents for single10%
$300
tenant space have ticked down in the past
year.
8%
$100year contributed to a 2.1 percent reThe decline in asking rents during the past
10
11
12
13
14**
duction in revenue during the period. This6%year, average revenue should increase
10
11
12
13
14*
by 4 percent.
3%
$700
4%
Sales
Outlook:
Operators will gain additional leverage this year
as Trends
vacancy remains
Vacancy
among
the
lowest
in
the
county.
By
year-end
2014,
average
asking
rents for avail2%
$500 10
11
12 Multi-Tenant
13
14*
Single-Tenant
able
space
will
climb
to
$44.75
per
square
foot,
an
annual
rise
of
3.4
percent. In
8%
2013, rents were flat.
7%
5%
4%
$100
5%
4%
3%
4%
Average cap rates for single-tenant properties were in Sales

the mid-5
percent range
Trends
while multi-tenant
first-year
returns
were
in
the
high-5
percent
area.
South
Bay/Long
Beach
3%
Vacancy

6%
$300
12
13
10 foot range,
11
12
13
14**
changed
hands
in14*
the $800 per6%square
while
storefronts
traded for an average price of near $940 per square foot. Investors purchased
5%
multi-tenant properties for an average of more than $400 per square foot.
10 Restaurants
11
$400
Vacancy
During the most recent 12-month period, transaction velocity
in the single-tenWestside
Cities
ant arena ticked up 5 percent as buyers targeted
more storefronts.
Multi-tenant
$200
7%
deal flow remained modest.
Vacancy Rate
6%
Sales Trends**
10
$400
11
Single-Tenant
12Multi-Tenant
13
Outlook: Investors targeting properties in the Westside Cities will stretch to ac$320
quire assets in the sought-after area. Many
owners hold real estate for long periVacancy
ods regardless of real estate cycles, keeping sellers in a favorable positions.
Marcus & Millichap
$240
8%
$160
7%
10
11
12
13
14*
$30
$29 San
Vacancy
Fernando Valley/Tri-Cities
$50
8%
$28
14**
$100
7%
6%
10
11
$43
$800
13
14*
Asking Rent Trends

Westside Cities
$45
5%
$44
4%
12
10
11
12
13
2%
$31
3%
$300
Single-Tenant
Multi-Tenant
Vacancy
10
11
12
South Bay/Long
$275
5%
$27
$100
4%
$32
13
Beach
14*
Asking Rent Trends

10
11
12
13
14**
13
14*
$26
3%
Sales Trends
2%
$25
$900
Westside
Cities
11
12
10
Single-Tenant
10
12
13
14*
$300
$100
14*
$24
10
11
12
$30
$320
$29
$240
$28
$160
$45
Multi-Tenant
11
$31
$400
$80
$24
$700
$23
$500
$20
Sales Trends
$625
$450
6%
$30
$42
$41
$40
$10
14*
Rent Per
Square Foot
Average PriceAsking
Per Square
Foot
4%
Outlook: Construction will have little impact on operations this year as pre$275
leasing for the 240,000 square feet scheduled
for delivery in 2014 is more than
90 percent. As a result, vacancy will tighten further to 4.3 percent by year end, an
annual11 decrease
basis points.
$100
12 of 50 13
14*
$32
4%
Vacancy Rate
$450
Asking Rent Trends
5%
$500
13
Asking Rent Trends
6%
Vacancy dropped 30 basis points in the first quarter to 4.5 percent, the lowest
level since the beginning of the recession$625
at the end of 2007. Year over year, vacancy improved by 90 basis points.
Vacancy Rate
Asking
Average Price Per Square
FootRent Per Square Foot
Average Price Per Square
Foot Rent Per Square Foot
Asking
8%
10%
Multi-Tenant
6%
$700
$44
$43
$42
$41
14**
* Forecast
Sales Trends
$23
$500
$22
$400
$21
$300

Single-Tenant
$2
Multi-Tenant
page 5
Per Square Foot
Vacancy Rate
Nearly 240,000 square feet of retail space is under construction in the market,
Trends
including
the 200,000 square-foot Runway Playa Vista.Sales
The project
is completely
Vacancy
Downtown
Los
Angeles
pre-leased
and
scheduled
for
completion
in
the
second
half
of
this
year.
Single-Tenant
7%
$800
$900
Westside Cities
sking Rent Per Square Foot

Per Square Foot

Rate
Vacancy Rate
Vacancy Rate
Vacancy Rate
Vacancy Rate
4%
$2
$2
12
13
14*
12
13
14*
7%
Asking Rent Trends

Westside Cities
6%
$45
5%
$44
Sales
11 Trends
12
13
14*

Single-Tenant
Multi-Tenant
$41
$450
$275
11Vacancy
12
13
14*
6%
5% San
$100$27
10
Asking Rent Trends
Fernando Valley/Tri-Cities
11
12
13
14**
4%
$26
Sales Trends
3%
Westside Cities
$25
$900
2%
10
Single-Tenant
Multi-Tenant
11
12
13
14*
$24
$700
14**
$23
$500
10
11
12
13
14*
$300
$100
14*
14**
Asking
Rent Per
Square Foot
Average Price
Per Square
Foot
$24
11
12
$23
$500
13
Asking Rent Trends
14**
10
11
11
12
13
13
14*
14**
Square Foot
$320

Single-Tenant
A resurgent housing market has encouraged

$100
10
11
12
13
14**
Asking
Rent Trends
$23to expand operations during

retailers
10
11
12
13
the past 12 months. Vacancy plunged 130 basis points over the last year to 4.7
Downtown
Los Angeles
percent.
In this years
opening period, vacancy retreated 30 basis points.
14*
$24
$320
$29
Rents
$23
Available retail space was marketed at $25.85 per square foot in the first quarter,
$240
$28
representing
increase
from the same period
of last year. In the previ10
11 a 2.3 percent
12
13
14*
$22
ous 12-month period, asking rents inched up 1.6 percent.

$160
Asking Rent Trends

$21
Over theWestside
past year,Cities
multi-tenant operators lifted asking rents 2.4 percent to
per square
foot.
that
11
12 During
13
14**time, multi-tenant vacancy declined 100
basis points to 4.4 percent, providing leverage for $20
owners10to raise11rents. 12
13
$44
Average revenue surged 3.7 percent during the past 12 months as healthy rent
$43 growth and strong occupancy gains contributed to the increase. Despite the rise,
revenue remains more than 20 percent below the pre-recession peak.

$42
Outlook: As conditions tighten further this year, average rents for marketed
space will rise. Asking rents are projected to finish the year at $26.57 per square
$41
10 up 2.911percent12from year-end
13
14*
foot,
2013. During the pervious year, asking rents
moved up 2.6 percent.

San Fernando
Valley/Tri-Cities
During
the most recent
12-month period, single-tenant deal flow jumped 14 percent as buyers acquired a greater number of storefronts and restaurants. Multitenant velocity recorded a similar gain.
$26

The average price for restaurant deals was $530 per square foot, up 16 percent
year over year. Fast-food restaurants traded for $830 per square foot. Multi-tenant prices climbed 21 percent to $288 per square foot.
$25
$24
Sales Trends
$400
Only 15,000 square feet is underway in the market, and slightly more than 1 milsquare feet is planned for the area. The largest$25planned project is a 470,000
square-foot IKEA store in Burbank. Approval for the store was granted in the first
quarter and the project is slated for completion in$24
2016.
$200
lion
$300
Single-tenant cap rates were in the high-5 percent range during the past 12
while
deals garnered
interest at average first-year returns in
11 multi-tenant
12
13
14*
the high-5 to low-6 percent area.
$23months,
10
* Forecast
**Trailing 12-month Period
Sources: CoStar Group, Inc.
page 6
14*
$26
$27
Multi-Tenant
12
13
Outlook: Only 30,000 square feet of space will come online this year, signifiTrends
cantly lowerSales
than the
180,000 square feet that was completed in 2013. Absent
Asking
Trends
South Bay/Long
Beach
of supply-side
threats, vacancy
will tighten to 4.4 percent by
the endRent
of 2014,
an
$400
$30
Single-Tenant of Multi-Tenant
annual improvement
60 basis points.
$21
$300
10
12
Rent Trends
SalesAsking
Trends**
$22
$400
$20
$200
$400
$24.18
$45$80
10
Single-Tenant
11
Sales Trends
$100
14*
10
10
$31
Multi-Tenant
Outlook: Investors will pursue properties in the region for multiple reasons.
Namely, multi-tenant properties trade much more frequently than in other areas
and overall cap rates are modestly higher than in the coastal communities.
Asking Rent Trends
$24
re Foot
14*
10
$41
14**
Asking Rent Trends

Sanpast
Fernando
Valley/Tri-Cities
Developers
have beenValley/Tri-Cities
restrained in the region during the
12 months,
adding
San Fernando
$27
$500
only 160,000
square feetMulti-Tenant
of space in the traditionally high-construction area. In
Single-Tenant
the previous period, 115,000 square feet was completed.
$32
10
4%
$42
$625
ties
11
13
$42
Construction
and
Vacancy
Sales
Trends

10
12
$43
San Fernando Valley/Tri-Cities Retail Market
Vacancy
$29
11
11
10
10
$30
$43
$800
14**
$300
$100
3%
Asking Rent P
Average Price
4%
$31

Foot Rate
Vacancy
Vacancy Rate
5%
$32
$288%
14**
$500
Asking Rent Trends

Vacancy Rate
6%
$23
Marcus & Millichap
14*
$100
8%
10
11
12
13
14**
period 14*
ending in the first quarter, builders added 65,000
10 During
11 the year-long
12
13
6%
square feet of retail space in the region, amounting
to a 0.1 percent rise in inventory. In the previous year, 90,000 square feet was put into service.
Sales Trends
4%
Vacancy
San Fernando
Valley/Tri-Cities
More than
70,000 square feet of space is$500
under construction
in the
South Bay,
Single-Tenant
Multi-Tenant
2%
while another 2.1 million square feet is planned
One12of the most
sig10in the area.
11
13
14*
8%
nificant projects slated for delivery this year
is
the
second
phase
of
Storm
Plaza,
$400
7%
which will include 22,000 square feet.

5%

10
Outlook:
Developers
80,000 square
this year,
11
12
13will complete
14*
10 feet 11
12 slightly
13 above
14**
6%
the level during 2013. Retail tenant demand
will increase 0.7 percent, dragging
down the regions vacancy rate by 50 basis points to 4 percent. Last year, vacancy
5%
dipped 20 basis points.
RentsVacancy
5%

4%
3%

10
10
11
12
13
$100
4%
$26
14**
6%percent as occupancy and rents postYear over

year,12average13revenue
11
14*climbed 3.9
ed solid gains. Overall revenue in the region is 16 percent below the pre-recession
5% average of 23 percent.
peak, significantly better than the countywide
$700
$23
Average
10
11
5%
In the multi-tenant arena, deal flow was relatively stable, though overall transaction velocity remains subdued. The average4%price declined 12 percent to $243 per
square foot as investors targeted smaller buildings.
3%
In the past 12 months, single-tenant cap rates averaged in the high-5 percent
2%the mid-6 percent.
range and multi-tenant cap rates average in
10
11
12
13
14*
Outlook: The South Bay/Long Beach region attracts a wide variety of investors
due to the diversity of opportunities. Value-add buyers will target Long Beach
and Torrance, while long-term strategies will be employed in the Beach Cities.
u
12
13
$32
14*
Asking Rent Trends

10
11
12
13
14**
Sales Trends
10 Single-Tenant
11
12Multi-Tenant
13
10
12
13
Asking
11 Rent
12 Trends
13
14*

Single-Tenant
$44
$43
$42
$27
Multi-Tenant
10
11
12
13
14*
$200
$100
$160
$41
14**
$400
$21
$300
$20
$240
$28
Sales Trends
$23
$500
$22
$320
$29
$45
14*
$300
10
$400
$30
$80
Westside Cities
11
$31
$26
$25
$24
$23
10
11
12
13
14**
Sales Trends
Single-tenant deal flow jumped 14 percent during the past

year as buyers targeted
Vacancy
more storefronts and general purpose freestanding
buildings.
Restaurants
South
Bay/Long
Beachsold for
an average price of nearly $700 per square6%foot during the last 12 months while
fast-food restaurants changed hands for an average of $730 per square foot.
Marcus & Millichap
Multi-Tenant
Vacancy
Sales Trends**

$10
14*
$500
$24
Outlook: After a 1.4 percent increase last4%year,10rent growth

will
11
12 nearly13double14*
this year to 2.7 percent as asking rents for available space climb to $23.23 per
square foot by year end.
Single-Tenant
3%
$25
2%
$900
$24
13
$20
6%
$275
5%
$27
$100
Single-Tenant
Multi-Tenant
modestly
since the
end of
2011.14*
10
11
12
13
Over the past year, asking rents for available space advanced 3.5 percent to $22.82
$320
per square foot in the first quarter.
Vacancy
Multi-tenant vacancy is very tight in the$240
area.
rate declined
80 basis points
SanThe
Fernando
Valley/Tri-Cities
during the past year to 2.9 percent in the first
quarter,
the
lowest
rate
since 2008.
8%
As a result, operators pushed up average$160
asking rents 2.2 percent during the last
7%
12 months to $24.69 per square foot.
$80
$450
12
$400
Single-Tenant
Multi-Tenant
$24
$320
2%
Sales Trends
4%
$400
3%
growing
Vacancy RateAverage Price Per Square Foot
Average
rents inBeach
the region have been
South
Bay/Long
6%
7%
$100
Vacancy Rate
4%
$300
In the first quarter, vacancy dipped 10 basis points to 4.4 percent. The year-overVacancy
year decline is 40 basis points. Vacancy peaked in the third
quarter of last year at
$200
Westside Cities
4.9 percent.
6%
3%
$625
$41
11
Sales Trends

Construction and Vacancy
$800
$42
10
South Bay/Long Beach Retail Market
4%
$43
Vacancy

FootRate
Vacancy
V
$300
10%
Vacancy Rate
4%
$500
5%
$44

5%
Average Price Per Square Foo
6%
$700
Vacancy Rate
Vacancy Rate
Westside Cities
7%
$240
$160
$80
10
11
12
13
14**
$23
$22
$21
$20
* Forecast
.
page 7
Capital Markets
By WILLIAM E. HUGHES, Senior Vice President, Marcus & Millichap Capital Corporation
The Fed continues to feel confident about the economic recovery and projects
it will improve, notwithstanding the disappointing growth in this years first
quarter, which they believed to be impacted by the harsh winter weather. The
withdrawal of stimulus continues; at the end of April, the FOMC voted to
reduce its monthly bond purchases by an additional $10 billion. The yield
on the 10-year U.S. Treasury remained in the mid- to high-2 percent range
throughout
BLACK TEXT
VERSION the first quarter, and is projected to stay in this range over the next
few months.

COLOR LINE VERSION
Visit www.NationalRetailGroup.com or call:

Bill Rose
National Director
National Retail Group
Tel: (858) 373-3100
bill.rose@marcusmillichap.com
The national retail sector posted a solid performance in the first quarter this
Prepared and edited by
Stephen Hovland
Senior Analyst
Research Services
For information on national

retail trends, contact
John Chang
First Vice President, Research Services

(602) 687-6700
john.chang@marcusmillichap.com
year. The vacancy rate ticked down 20 basis points to 7.0 percent in the first
three months of this year as total employment and retail spending grew, genWHITE TEXT VERSION
erating new demand for retail space. Completions were also subdued, as only
BLACK TEXT VERSION
6.9 million square feet was brought online. This year, new demand will exceed
completions and support a further drop in the national vacancy rate.
Regional and local banks increased their share of lending on retail properties to
13 percent this year as they escalated lending throughout 2013. Greater liquidity enhanced
investors
to obtain loans for the purchase of small unanWHITE
TEXTability
VERSION
chored shopping centers. Across all lending institutions, the rising confidence
in the strengthening economy is generating an abundance of capital, which, in
turn, is providing more leverage in secondary and even tertiary markets.
Los Angeles Office:

Enrique Wong
Regional Manager
enrique.wong@marcusmillichap.com
515 South Flower Street, Suite 500
Los Angeles, California 90071
Tel: (213) 943-1800
Fax: (213) 943-1810
West Los Angeles Office:
Tony Solomon
Vice President, Regional Manager
tony.solomon@marcusmillichap.com
12100 West Olympic Boulevard, Suite 350
Los Angeles, California 90064
Tel: (310) 909-5500
Fax: (310) 909-5410
Long Beach Office:
Matt Kipp
Regional Manager
matthew.kipp@marcusmillichap.com
One World Trade Center, Suite 2100
Long Beach, California 90831
Tel: (562) 257-1200
Fax: (562) 257-1210
Encino Office:
Adam Christofferson
First Vice President, Regional Manager
adam.christofferson@marcusmillichap.com
First Financial Plaza
16830 Ventura Boulevard, Suite 100
Encino, California 91436
Tel: (818) 212-2700
Fax: (818) 212-2710
Price: $150
Marcus & Millichap 2014
www.MarcusMillichap.com
Submarket Vacancy Ranking

Rank Submarket
1
2
3
4
5
6
7
8
9
10
11
Tri-Cities
Mid-Wilshire
Westside Cities
Southeast Los Angeles
San Fernando Valley
San Gabriel Valley
Mid-Cities
Santa Clarita Valley
Antelope Valley
Vacancy
Rate
4.1%
4.3%
4.4%
4.5%
5.1%
5.4%
5.8%
6.2%
6.6%
8.2%
8.3%
Y-O-Y Basis
Point Change
-120
-70
-40
-90
-40
-140
-100
-20
-80
210
-80
Asking
Rents
Y-O-Y
% Change
$29.60 6.2%
$35.99 1.1%
$22.82
3.5%
$41.32
-3.0%
$20.72
0.2%
$21.77
-3.0%
$18.85
-1.7%
$19.55 3.1%
$21.72
4.1%
$24.34
-4.8%
$14.05
-10.1%
The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to
the accuracy or reliability of the information contained herein. Note: Metro-level employment growth is based on the last month of the quarter/year. Sales data includes transactions valued at $1,000,000 and greater unless otherwise noted. Triple-net
rents are used. Sources: Marcus & Millichap Research Services, Bureau of Labor Statistics, CoStar Group, Inc., Economy.com, Real Capital Analytics, TWR/Dodge Pipeline, U.S. Census Bureau.

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RetailResearch

Los Angeles County

Second Quarter 2014

Retail Recovery and Investors Head to East County

2014 Annual Retail Forecast

Thousands of Square Feet

vice planes at the Boeing Commercial Airplanes Engineering Design Center.

Single-Tenant Sales Trends

be created countywide in 2014, lifting overall employment by 2 percent. Last

South Bay/ San Fernando Westside

Downtown Los Angeles

South Bay/ San Fernando Westside

Downtown Los Angeles

South Bay/ San Fernando Westside

Downtown Los Angeles

Asking Rents by Submarket

Downtown Los Angeles

Downtown Los Angeles

Downtown Los Angeles

Asking Rent per Square Foot

South Bay/ San Fernando Westside

Asking Rent per Square Foot

South Bay/ San Fernando Westside

Downtown Los Angeles

In the Mid-Wilshire submarket, vacancy retreated 70 basis points during the

Retail Research Report

Multi-Tenant Sales Trends

combination of higher occupancy and$0rents prevailed. This year, revenue is

Outlook: As vacancy ticks below the 5 percent threshold, operators will be

Single-Tenant Sales Trends**

Outlook: Single-tenant properties remain highly sought-after deals across the

Multi-Tenant Sales Trends**

Transaction velocity in the multi-tenant sector jumped by 21 percent during

multi-tenant arena as investors seek higher cap rates. Additionally, improving

Marcus & Millichap

Retail Research Report

Leasing agents in Antelope Valley dropped asking rents by 10.1 percent to

Asking Rent per Square Foot

Downtown Los Angeles

Asking Rents by Submarket

Average Price Per Square Foot

Average Price Per Square Foot

foot, marking the fourth consecutive quarter of year-over-year growth. Average

South Bay/ San Fernando Westside

Downtown Los Angeles

Single-Tenant Sales Trends

Single-Tenant Sales Trends

Multi-Tenant Sales Trends

Multi-Tenant Sales Trends

Thousands of Square Feet Thousands of Square Feet

Asking Rent per Square Foot

Greater Downtown Los Angeles Retail Market

Asking Rent Per Square Foot

Average Price Per Square Foot

Downtown Los Angeles

Average Price Per Square Foot

San Fernando Valley/Tri-Cities

Asking Rent Trends

Downtown Los Angeles

Asking Rent Trends

San Fernando Valley/Tri-Cities

**Trailing 12-month Period

San Fernando Valley/Tri-Cities