2010 Spring Perspective LA

8/9/2019 2010 Spring Perspective LA

1/14

NAI CAPITALMarket Perspective | Spring 2010


2/14

NAI Capital is pleased to provide the following economic outlookto our clients. We understand the importance of timely, accuratedata when making significant financial decisions. As such, wehave taken every measure to verify the data contained in thisreport. We hope that the information contained in this report ishelpful to you.

Economic conditions in the Los Angeles Basin remain weak. Los

Angeles County, the basins largest county, managed to eke out

a small, .63 percent, increase in economic output during the

fourth quarter of 2009. This was the first increase in five quarters.

The same was true of Ventura County where economic output

increased 1.11 percent in Q4 2009. The increase in output

snapped Ventura Countys seven quarter decline.

Unfortunately, the gains in Los Angeles County are not likely to be

repeated. Significant weaknesses remain. In particular, the city

of Los Angeles faces a $530 million budget deficit in the coming

year. According to the Mayors office, 2,800 jobs could be lost.

A second area of concern is the recently announced increases in

electricity rates. To be fair, the city council rejected the Mayors

proposed increases. However, it seems likely that some increase

is coming. It may not be as large as the Mayor and DWP would

like but the odds favor a rate hike in the coming year. Increasing

costs to businesses and consumers during a period of weak

economic activity is surely not a remedy to stimulate growth.

The coming year looks a bit brighter for Ventura County. appears that the worst is over. The Countys economic output is

expected to increase slightly in 2010. The increase will not be

large by any measure but after seven quarters of decline any

increase is welcome news.

More broadly, Californias budget problems may negatively

impact the Los Angeles Basin. Several higher educationa

institutions in the Basin have instituted furloughs. Others have

instituted pay freezes. The same is true for many government secto

jobs as well as K-12 education. Further budget cuts from the State

are likely to be met by layoffs. Most of the fat has been trimmed.

As an indication of how severe Californias budget crises is, theStates Controllers Office estimates that California could run out of

cash as early as July 2010. There are essentially three ways the

State can prevent this. First, California could borrow more

money. This option seems unlikely given the States poor credit

rating and the associated high costs of borrowing. Second, taxes

could be raised. Again, this seems unlikely. Voters in California

have little appetite for more taxes. Finally, California can reduce

expenses. While difficult, this appears to be the most likely solu-

tion. Reduced expenses mean fewer government services and

more layoffs.

One of the most severe problems facing the Basin is unemploy-

ment. The bad news is February 2010 unemployment rates, thelatest month for which we have data, are higher than February

2009 numbers. The good news is unemployment rates, while

remaining tragically high, fell in February for each county, in part

at least because of workers leaving the workforce.

Economic Trends

2008Q1

2008Q2

2008Q3

2008Q4

2009Q1

2009Q2

2009Q3

2009Q4

2010Q1*

2010Q2*

2010Q3*

2010Q4*

Quarter-Over-Q

uarterChange

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

Ventura County GDP Growth

$3.2

$3.1 $3.0 $1.2

$6.3 $6.2

(-$0.2) (-$1.8)

(-$4.1)(-$6.4)

(-$12.9)

(-$13.7)(-$14.7)

$3.6$1.9

$7.3 $7.5

$0.4$0.5

(-$0.93)(-$2.5)

(-$7.4) (-$7.3)(-$7.6)

Californias General Fund Cash OutlookFor the Months of January-December 2010

Based on Department of Finance January 2010 Budget Data (In Billions of Dollars)

$10

$5

$2.5

$0

-$5

-$10

-$15

Billions

ofDollars

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Est. Min. Monthly CashBalance Assuming No Action

Est. Min. Monthly Cash Balance Assuming Full &Timely Adoption of Governors Proposed Budget(Excludes 2010-11 External Cash Flow Borrowing)

$2.5B Cash Cushion

* ProjectedSource: CERF Source: California Controllers Office

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

2008Q1

2008Q2

2008Q3

2008Q4

2009Q1

2009Q2

2009Q3

2009Q4

2010Q1*

2010Q2*

2010Q3*

2010Q4*

Quarter-Over-QuarterChange

Los Angeles County GDP Growth

* ProjectedSource: CERF


3/14

A one month decline is not indicative of a trend. Given the issues

outlined above, there is some concern that this trend will not

continue. With that said, it is important to recognize that any

decrease in unemployment should be perceived as a positive

sign. Even small decreases mean that employment opportunities

are increasing.

Unemployment rates in the Los Angeles basin (Los Angeles,

Orange, Riverside, San Bernardino, and Ventura counties) exhibiteda similar pattern in February 2010. The Inland Empire, Riverside

and San Bernardino counties, continues to have the highest

unemployment rate, 14.7 percent. Orange County has the lowest

unemployment rate, 9.7 percent, in the Basin.

As the unemployment rate increases so does the number of

unemployed persons. From February 2009 to February 2010 the

number of unemployed persons in the Los Angeles Basin increased

20.7 percent. While this is high, it is significantly better than last

years change when the Basins unemployed rose 80.5 percent.

The slowdown in the growth of unemployed persons can be

viewed with cautious optimism. It suggests that the labor marketis approaching the bottom. Unfortunately, the labor market is

likely to drag along the bottom for some time, as the economy

searches for solid footing. Based on the forecast above, this is

likely to take some time. We do not expect improvements in the

labor market during 2010.

All industries within the Los Angeles basin, save two, have los

jobs over the past twelve months. Education and Health Services

and Information Services were the only industries that gained jobs

from February 2009 to February 2010. Given the state of the

residential and commercial real estate markets it is no surprise that

the construction industry lost the most jobs in percentage terms.

The increase in Education and Health Services was due to an

increase in Health Services that was partially offset by declines inEducation. The States budget problems are impacting employment

at all levels of education. Given the troubles mentioned above, it

is likely that more Education jobs will be lost in 2010.

The increase in Health Services is primarily due to an aging

population. As individuals age they tend to demand more health

services. As baby boomers continue to age we expect more

employment opportunities in this sector.

To date job losses in the Government sector have been small

However, given Californias budget problems we expect this to

change in 2010. As we discussed above, budget cuts are the

most likely tool Sacramento will use to cut next years budgetdeficit. This implies that government employment will decline

because salaries are a very large component of government

costs. The lost jobs are likely to occur throughout California and

will affect a wide variety of government services.

Problems in the labor market continue to negatively impact the

housing market. Consumers concerned about future employment

are not likely to purchase a home. Those who have lost their jobs

are cutting back on everyday expenses in order to keep their

mortgages current. Regardless of employment status, home

owners who owe more than their home is worth are walking away

in record numbers, and the trend seems to be accelerating.

Notices of default and foreclosures remain extremely high relative

to their historic norms. On a positive note, foreclosures have fallen

from their 2008 peak. Unfortunately, the same is not true o

notices of default. There were more notices of default in 2009

6%

7%

8%

9%

10%

11%

12%

13%

14%

15%

Unemployment Rate by County

PercentageUne

mployed

Los Angeles Orange Inland Empire Ventura

FEB-

09

MAR-

09

APR-

09

MAY-09

JUN-

09

JUL-0

9

AUG-09

SEP-09

OCT-0

9

NOV-0

9

DEC-09

JAN-

10

FEB-

10

-19 -17 -15 -13 -11 -9 -7 -5 -3 -1 1

Construction

Manufacturing

Wholesale Trade

Retail Trade

Transportation, Warehousing & Utilities

Information

Financial Activities

Professional & Business Services

Educational & Health Services

Leisure & Hospitality

Other Services

Government

Los Angeles Basin Job GrowthFebruary 2009 to February 2010

Source: California Employment Development Department



Change in Unemployed Persons

Feb 10 - Feb 09 Feb 09 - Feb 08

Number Percent Change Number Percent Change

Los Angeles 66,700 12.5% 245,400 85.4%

Orange 34,200 27.0% 58,100 84.6%

Inland Empire 45,000 20.9% 96,500 81.3%

Ventura 8,800 22.5% 16,200 70.7%

Total/Average 154,700 20.7% 416,200 80.5%


4/14

than in 2008. The increase in notices of default suggests that

foreclosures may rise in 2010.

The historically high level of both notices of default and foreclo-

sures, increasing notices of default, and weak labor markets

suggest that the Basins residential real estate market remains

weak. It may be some time before we see some relief in the

residential real estate market.

Not all of the economic data is bad. In fact, two of the largest

sectors in the Los Angeles Basin are showing signs of improvement.

After months of decline, shipments through the Port of Long

Beach have recently increased. More importantly, the largest

increase occurred in February, the last month for which we have

data. These increases suggest that world trade is beginning to

improve and further support data that suggest that

manufacturing is improving.

This bodes well for the Basin. The Port and related industries

employ a significant number of local residents. A rebounding

manufacturing sector will also help the areas economy.

Although, we must note that manufacturings share of the Basins

economy is shrinking. Nonetheless, any improvement in

manufacturing will be welcome.

Finally, the entertainment industry had a banner year in 2009 as

measured by gross receipts. After declining in 2008, box office

receipts rose 10 percent in 2009. Increases in both ticket sales

and prices were responsible for the growth in gross receipts. Fo

the year, ticket sales increased 5.3 percent while the averageprice for a movie increased from $7.18 to $7.50.

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

2007 2008 2009

Notices of Default

DefaultNoticesPerCounty

LOS ANGELESCOUNTY

ORANGECOUNTY

RIVERSIDECOUNTY

SAN BERNARDINOCOUNTY

VENTURACOUNTY

Source: DataQuick

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Port of Long BeachChange in Container Trade

Perc

entageChange

FEB-

09

MAR-

09

APR-

09

MAY-09

JUN-

09

JUL-0

9

AUG-09

SEP-09

OCT-0

9

NOV-0

9

DEC-09

JAN-

10

FEB-

10

Source: Port of Long Beach

-6%

-8%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Gross Box Office Receipts

Annual%C

hange

2000 20082007200620052004200320022001 2009

Source: Box Office Mojo

Forclosures

Forclusures

PerCounty

LOS ANGELESCOUNTY

ORANGECOUNTY

RIVERSIDECOUNTY

SAN BERNARDINOCOUNTY

VENTURACOUNTY

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2007 2008 2009

Source: DataQuick


5/14

Retail Market

The decline in consumer spending has negatively impacted the

retail market. Retail sales in California have declined for eight

consecutive quarters and are likely to decline in 2010. High

unemployment, overleveraged consumers, increased internet

sales, and stagnant wages will all combine to keep local retail

sales subdued in the coming year.

The continuing decline will have numerous impacts. The twomost concerning are the impact on local government budgetsand the impact on the retail segment of the commercial market.Declining retail sales translated into fewer receipts for localgovernments. Financially strapped local governments will find itharder to balance their budgets in 2010.

Overall demand for retail space is likely to be limited in the nearfuture, due to declining retail sales. Discount retailers are oneexception. In difficult economic times discount retailers tend tooutperform traditional and upscale retailers as consumerssubstitute away from high priced items. Thus, we expect to seesome strength in this segment.

Problems in the retail segment are likely to persist throughout2009 and into 2010. Over-leveraged balance sheets, stagnant

wages and job security concerns will entice consumers to saverather than spend. Consumer debt will also play a role. In these try-ing economic times consumers are opting to paying down debtrather than spending their disposable income.

Relative to a year ago, retail vacancy rates are up. For the Basin

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

California Retail Sales

Pe

rcentAnnualChange

2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4

Source: CERF

0%

2%

4%

6%

8%

10%

12%

14%

Los Angeles County Retail VacancyFirst Quarter 2010

Vacancy

Rates

12.9%

4.6%

8.2%

3.2%

9.2%

5.8%

7.5%

4.8%

7.1%

4.8%

6.1% 6.1%

Antel

ope

Valley

Downtow

n

Mid-Cities

Mid-Wilsh

ire

Santa

Clarita

SanF

ernando

Valley

SanG

abriel

Valley

South

Bay

South

eastL.A

.

Tri-Cities

WestL.A

.

L.A.County

Source: CoStar

0%

1%

2%

3%

5%

7%

9%

10%

Orange County Retail VacancyFirst Quarter 2010

VacancyRates

4%

6%

8%

5.9%

6.8%

8.8%

6.7%6.3%

6.9%

OC Airport OC Central OC North OC South OC West Orange County

Source: CoStar

9.7%

9.8%

9.9%

10%

10.2%

10.4%

10.6%

10.7%

Inland Empire Retail VacancyFirst Quarter 2010

VacancyRates

10.1%

10.3%

10.5%

10.6%

10%

10.4%

IE East IE West Inland Empire

Source: CoStar

5.4%

5.6%

5.8%

6.2%

6.6%

7%

7.2%

Ventura County Retail VacancyFirst Quarter 2010

VacancyRates

6%

6.4%

6.8%

6.9%

5.9%

6.3%

Ventura North Ventura South Ventura County

Source: CoStar


6/14

as a whole, vacancy rates have increased 1.4 percent from thefirst quarter of 2009. Orange County experienced the largestincrease, 2 percent, while the increase in Ventura County wasbelow 1 percent.

Net absorption for the Basin was negative. In the first quarter of2010, nearly 1,000,000 square feet of net retail space wasreturned to the market. The lone bright spot was the Inland

Empire, which experienced a positive net absorption.

Increasing vacancy rates and negative net absorption combinedto reduce lease rates. On average lease rates declined $.11 pesquare foot per month in Q1 2010 compared to a year ago.Orange County experienced the largest decline as rates fell $.24per square foot per month. On a positive note, retail lease ratesdid not decline in Los Angeles County.

-450,000

-400,000

-350,000

-250,000

-150,000

-50,000

50,000

100,000

Los Angeles County Retail Net AbsorptionFirst Quarter 2010

-300,000

-200,000

-100,000

0

Antelop

e

Valley

Downt

own

Mid-Citie

s

Mid-Wils

hire

SantaCl

arita

SanF

ernando

Valley

SanGa

briel

Valley

SouthBa

y

South

eastL.A

.

Tri-Citie

s

WestL.A

.

(192,130)

(24,759)

7,299

62,741

(33,122)(66,759)

(14,494)

(63,335)

(22,054)

45,903

(381,695)

Source: CoStar

-70,000

-50,000

-30,000

-10,000

0

Ventura County Retail Net AbsorptionFirst Quarter 2010

-60,000

-40,000

-20,000

Ventura North Ventura South

(16,077)

(62,825)

Source: CoStar

-200,000

-150,000

-100,000

-50,000

50,000

100,000

Orange County Retail Net AbsorptionFirst Quarter 2010

0

OC Airport OC Central OC North OC South OC West

(41,654)

(121,569)

(19,754)

(152,655)

43,383

Source: CoStar

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

Los Angeles County Retail Rental RatesFirst Quarter 2010

Antel

ope

Valley

Downtow

n

Mid-Citie

s

Mid-Wilsh

ire

Santa

Clarita

SanF

ernando

Valley

SanG

abriel

Valley

South

Bay

South

eastL.A

.

Tri-Citie

s

WestL

.A.

L.A.County

$3.11

$2.74

$1.67

$3.19

$2.01 $1.87

$1.64

$2.46

$1.83

$2.33

$3.31

$2.33

Source: CoStar

-400,000

-200,000

0

200,000

300,000

Inland Empire Retail Net AbsorptionFirst Quarter 2010

-300,000

-100,000

100,000

IE East IE West

(148,680)

257,421

Source: CoStar

$0.00

$0.50

$1.50

$2.50

$3.00

Orange County Retail Rental RatesFirst Quarter 2010

$1.00

$2.00


$2.59

$1.68 $1.66

$2.08

$1.70

$1.99

Source: CoStar


7/14

$1.40

$1.45

$1.50

$1.55

$1.65

$1.75

Inland Empire Retail Rental RatesFirst Quarter 2010

$1.60

$1.70


$1.51

$1.73

$1.57

Source: CoStar

$1.69

$1.70

$1.72

$1.74

$1.76

$1.77

Ventura County Retail Rental RatesFirst Quarter 2010

$1.71

$1.73

$1.75


$1.72

$1.76

$1.74

Source: CoStar

Vacancy Rate Average Asking Rental Rate 1

2010 2009 Difference Net Absorption (SF) 2010 2009 Difference

Antelope Valley 12.9% 9.0% 3.9% (192,130) $3.11 $2.12 $0.99

Downtown 4.6% 3.9% 0.7% (24,759) $2.74 $1.90 $0.85

Mid Cities 8.2% 8.1% 0.1% 7,299 $1.67 $1.68 ($0.01)

Mid Wilshire 3.2% 2.8% 0.5% 62,741 $3.19 $3.54 ($0.36)

Santa Clarita 9.2% 7.3% 1.9% (33,122) $2.01 $2.48 ($0.47)

San Fernando Valley 5.8% 5.0% 0.8% (66,759) $1.87 $2.28 ($0.41)

San Gabriel Valley 7.5% 6.4% 1.2% (14,494) $1.64 $1.82 ($0.18)

South Bay 4.8% 4.2% 0.6% (63,335) $2.46 $1.92 $0.53

Southeast LA 7.1% 6.0% 1.1% (22,054) $1.83 $1.95 ($0.12)

Tri Cities 4.8% 4.6% 0.1% 45,903 $2.33 $2.48 ($0.15)

West LA 6.1% 3.2% 2.8% (381,695) $3.31 $3.56 ($0.25)

Los Angeles County 6.1% 5.1% 1.0% (682,405) $2.33 $2.33 $0.00

OC Airport 5.9% 4.0% 1.9% (41,654) $2.59 $2.44 $0.14

OC Central 6.8% 5.3% 1.5% (121,569) $1.68 $2.09 ($0.41)

OC North 8.8% 6.6% 2.2% (19,754) $1.66 $1.75 ($0.09)

OC South 6.7% 4.5% 2.3% (152,655) $2.08 $2.56 ($0.48)

OC West 6.3% 4.4% 1.9% 43,383 $1.70 $2.27 ($0.57)

Orange County 6.9% 4.9% 2.0% (292,249) $1.99 $2.24 ($0.24)

IE East 10.6% 8.4% 2.2% (148,680) $1.51 $1.60 ($0.09)IE West 10.0% 9.2% 0.8% 257,421 $1.73 $2.07 ($0.35)

Inland Empire 10.4% 8.6% 1.8% 108,741 $1.57 $1.74 ($0.17)

Ventura North 6.9% 6.0% 0.9% (16,077) $1.72 $1.79 ($0.07)

Ventura South 5.9% 5.4% 0.5% (62,825) $1.76 $2.02 ($0.26)

Ventura County 6.3% 5.6% 0.7% (78,902) $1.74 $1.93 ($0.19)

Total LA Basin 7.4% 6.1% 1.4% (944,815) $2.02 $2.13 ($0.11)

Los Angeles Basin Retail Market n First Quarter 2010

1Per SF per month, NNN. Total is weighted by available space.Data is for all Class A, B and C buildings 20,000 SF or larger. Excludes owner-occupied.Source: CoStar


8/14

Office Market

Conditions in the office market remain weak. Poor economic

conditions have forced many companies to cut back or

completely eliminate expansion plans. Corporate bankruptcies,

downsizing and consolidation are taking their toll on the office

market. Current economic conditions have negatively altered the

risk-reward profile for many companies. The risk of expansion

has increased while the reward has fallen.

Rather than looking for new space most companies are trying to

reduce the amount of space they lease. There are two reasons

for this. First, as layoffs grow the need for space is reduced.

Secondly, organizations are looking for ways to reduce expenses.

Consolidating operations is one way to accomplish this goal.

The end result of all this is high vacancy rates. The average

vacancy rate in the Los Angeles Basin is 16.1 percent. This rep-

resents a two percentage point increase from the first quarter of

2009. Orange County and the Inland Empire have the highest

vacancy rates in the Basin. Vacancy rates in these counties are

just below 20 percent. As a sign of the weaknesses in the office

market we note that every region within the Los Angeles Basinhas a vacancy rate above 10 percent.

Despite the all the bad news, there is one positive sign. Office

vacancy rates in the Inland Empire fell 0.5 percentage points

compared to the first quarter of 2009. Premier space offered at

the lowest lease rates in the Basin is bringing tenants to the Inland

Empire.

The lack of demand for office space has forced landlords to

reduce lease rates. Compared to the first quarter of 2009, averagelease rates have fallen $.18 per square foot per month in the Los

Angeles Basin. Orange County, home to numerous bankrup

mortgage companies, experienced the largest decline in lease

rates. The average asking lease rate for office space in the Los

Angeles Basin is now around $2.30 per square foot per month.

Given the weak economic conditions, net absorption during the

first quarter of 2010 was negative. Nearly 2 million square feet o

space was returned to the market. The lone bright spot was the

Inland Empire. Demand in this market appears to be strengthening

as net absorption was positive. As mentioned above, most of the

demand stems from low lease rates.

0%

2%

4%

6%

10%

14%

18%

20%

Los Angeles County Office VacancyFirst Quarter 2010

VacancyRates

8%

12%

16%

Antel

ope

Valle

y

Downtow

n

Mid-Citie

s

Mid-Wilsh

ire

Santa

Clarita

SanF

ernando

Valley

SanG

abriel

Valle

y

South

Bay

South

eastL.A

.

Tri-Citie

s

WestL

.A.

L.A.County

11.9% 12.2% 11.5%

12.9%

18.9%

16.5%

12.4%

16.9%

8.0%

14.3% 14.4% 14.1%

Source: CoStar

0%

5%

10%

20%

25%

Orange County Office VacancyFirst Quarter 2010

Vacancy

Rates

15%


21.2%

16.4%

22.4%21.4%

13.1%

19.9%

Source: CoStar

16%

18%

20%

22%

23%

Inland Empire Office VacancyFirst Quarter 2010

VacancyRates

17%

19%

21%


18.6%

21.9%

19.6%

Source: CoStar

0%

10%

20%

25%

Ventura County Office VacancyFirst Quarter 2010

VacancyRates

5%

15%


15%

19.1%

18.3%

Source: CoStar


9/14

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

Los Angeles County Office Rental RatesFirst Quarter 2010

Antel

ope

Valley

Downtow

n

Mid-Citie

s

Mid-Wilsh

ire

Santa

Clarita

SanF

ernando

Valley

SanG

abriel

Valley

South

Bay

South

eastL.A

.

Tri-Citie

s

WestL

.A.

L.A.County

$2.34 $2.45

$1.94

$2.20

$2.52

$2.07$1.96 $1.97 $1.90

$2.57

$3.24

$2.45

Source: CoStar

$1.75

$1.80

$1.95

$2.15

$2.20

Orange County Office Rental RatesFirst Quarter 2010

$1.85

$2.05

$1.90

$2.10

$2.00


$2.15

$1.91$1.89

$2.11

$1.93

$2.06

Source: CoStar

$1.88

$1.90

$1.94

$1.98

$2.06

$2.08

Ventura County Office Rental RatesFirst Quarter 2010

$1.92

$1.96

$2.02

$2.04

$2.00


$1.95

$2.06

$2.04

Source: CoStar

-500,000

-400,000

100,000

Los Angeles County Office Net AbsorptionFirst Quarter 2010

-300,000

-200,000

-100,000

0

Antel

ope

Valle

y

Downtow

n

Mid-Citie

s

M

id-Wilsh

ire

Santa

Clarita

SanF

ernando

Valley

SanG

abriel

Valle

y

South

Bay

Sou

theastL

.A.

Tri-Citie

s

WestL

.A.

2,815

(451,802)

(27,114)

(111,074)

14,837

(300,484)

(16,223)

(51,673)

32,342

(155,172)

(254,828)

Source: CoStar

$1.78

$1.80

$1.82

$1.84

$1.90

$1.96

Inland Empire Office Rental RatesFirst Quarter 2010

$1.86

$1.94

$1.88

$1.92


$1.95

$1.84

$1.91

Source: CoStar

-400,000

-300,000

-200,000

-100,000

100,000

200,000

Orange County Office Net AbsorptionFirst Quarter 2010

0


(345,131)

161,035

(60,570)

(323,402)

2,795

Source: CoStar


10/14

-150,000

-50,000

50,000

150,000

200,000

Inland Empire Office Net AbsorptionFirst Quarter 2010

-100,000

0

100,000

IE East IE West

135,291

46,209

Source: CoStar

-40,000

-30,000

-20,000

-5,000

0

Ventura County Office Net AbsorptionFirst Quarter 2010

-10,000

-35,000

-25,000

-15,000


(4,601)

(34,330)

Source: CoStar

Los Angeles Basin Office Market n First Quarter 2010




Antelope Valley 11.9% 14.3% -2.4% 2,815 $2.34 $2.37 ($0.03)

Downtown 12.2% 11.7% 0.5% (451,802) $2.45 $2.56 ($0.11)

Mid Cities 11.5% 8.0% 3.5% (27,114) $1.94 $2.02 ($0.08)

Mid Wilshire 12.9% 9.9% 3.0% (111,074) $2.20 $2.60 ($0.40)

Santa Clarita 18.9% 18.0% 0.8% 14,837 $2.52 $2.62 ($0.11)



South Bay 16.9% 16.0% 0.9% (51,673) $1.97 $2.00 ($0.03)

Southeast LA 8.0% 9.1% -1.1% 32,342 $1.90 $2.00 ($0.09)

Tri Cities 14.3% 10.2% 4.1% (155,172) $2.57 $2.73 ($0.17)

West LA 14.4% 11.8% 2.6% (254,828) $3.24 $3.56 ($0.31)

Los Angeles County 14.1% 12.2% 2.0% (1,318,376) $2.45 $2.63 ($0.18)

OC Airport 21.2% 18.1% 3.1% (345,131) $2.15 $2.40 ($0.25)

OC Central 16.4% 15.9% 0.5% 161,035 $1.91 $2.02 ($0.10)

OC North 22.4% 15.0% 7.4% (60,570) $1.89 $2.12 ($0.23)

OC South 21.4% 16.4% 4.9% (323,402) $2.11 $2.31 ($0.20)

OC West 13.1% 11.0% 2.1% 2,795 $1.93 $2.15 ($0.22)

Orange County 19.9% 16.6% 3.2% (565,273) $2.06 $2.27 ($0.21)

IE East 18.6% 18.6% 0.0% 46,209 $1.95 $2.02 ($0.08)IE West 21.9% 23.7% -1.8% 135,291 $1.84 $2.02 ($0.18)

Inland Empire 19.6% 20.1% -0.5% 181,500 $1.91 $2.02 ($0.11)

Ventura North 15.0% 15.1% -0.1% (4,601) $1.95 $1.95 ($0.00)

Ventura South 19.1% 18.9% 0.2% (34,330) $2.06 $2.24 ($0.19)

Ventura County 18.3% 18.1% 0.1% (38,931) $2.04 $2.18 ($0.15)

Total LA Basin 16.1% 14.1% 2.0% (1,741,080) $2.30 $2.48 ($0.18)


11/14

Industrial Market

Much like the other markets, industrial real estate remains weak.

Fortunately, there is good news regarding this segment. The

Institute for Supply Managements (ISM) factory index, a broad

measure of manufacturing activity in the U.S., rose in March

2010. This is the eighth consecutive month the index has risen.

As of March 2010 the index stood at 59.6, (a reading below 50

indicates contraction), suggesting that the manufacturing sector is

improving.

While this news is encouraging, it will take time for the increased

activity to be felt in the industrial real estate market. After the

devastating recession, business will expand cautiously. We

expect it will take at least six to nine months before we see

improvements in the industrial market. Until then the industrial

market will likely remain weak. We expect vacancy rates to

increase and lease rates to decrease throughout 2010.

Vacancy rates for industrial space are increasing in the Basin.

The average vacancy rate in the Basin is 10.6 percent. This is 1.6

percentage points higher than last years number. Only Los

Angeles and Ventura Countys have vacancy rates below 10 percent.At 14.8 percent the Inland Empire has the highest vacancy rate.

Ventura County has the lowest rate, 7.1 percent.

Net absorption for industrial space was negative for the first quarter

of 2010. Just over 5 million square feet of space was returned to

the market. Similar to the office market, demand for industria

space in the Inland Empire appears to be strengthening. In this

particular market, net absorption was positive.

As with the other markets, lease rates for industrial space have

fallen. Weak market conditions have forced landlords to reduce

rates in an effort to lure or keep tenants. We expect this trend to

continue but at a much slower pace. Lease rates are expected

to fall slightly in 2010. However, as manufacturing in the Los

Angeles Basin improves so will the industrial market.

0%

2%

4%

6%

10%

12%

Los Angeles County Industrial VacancyFirst Quarter 2010

VacancyRates

8%

Antel

ope

Valle

y

Downtow

n

Mid-Citie

s

Mid-Wilsh

ire

Santa

Clarita

SanF

ernando

Valley

SanG

abriel

Valle

y

South

Bay

South

eastL.A

.

Tri-Citie

s

WestL

.A.

L.A.County

9.3%

3.9%

7.8%

3.1%

11.4%

6.2%

10.8%

5.8%

8.6%

6.0%

9.6%

7.7%

Source: CoStar

0%

2%

6%

10%

12%

Orange County Industrial VacancyFirst Quarter 2010

Vacancy

Rates

4%

8%


11.4%

9.2%

10.7%11.0%

8.6%

10.5%

Source: CoStar

0%

10%

20%

25%

Inland Empire Industrial VacancyFirst Quarter 2010

VacancyRates

5%

15%


19.1%

11.0%

14.8%

Source: CoStar

0%

3%

7%

9%

Ventura County Industrial Vacancy

First Quarter 2010

VacancyRates

1%

5%

4%

8%

2%

6%


5.7%

7.9%

7.1%

Source: CoStar


12/14

$0.00

$0.20

$0.40

$0.60

$0.80

$1.20

$1.60

$1.80Los Angeles County Industrial Rental RatesFirst Quarter 2010

$1.00

$1.40

Antel

ope

Valley

Downtow

n

Mid-Citie

s

M

id-Wilsh

ire

Santa

Clarita

SanF

ernando

Valley

SanG

abriel

Valle

y

South

Bay

South

eastL.A

.

Tri-Citie

s

WestL

.A.

L.A.County

$0.67$0.53 $0.52

$1.41

$0.51

$0.66

$0.45

$0.73

$0.48

$0.79

$1.57

$0.60

Source: CoStar

$0.00

$0.10

$0.40

$0.90

$1.00

Orange County Industrial Rental RatesFirst Quarter 2010

$0.80

$0.20

$0.60

$0.30

$0.70

$0.50


$0.69

$0.54 $0.53

$0.87

$0.67$0.64

Source: CoStar

-1,400,000

-1,200,000

200,000

Los Angeles County Industrial Net AbsorptionFirst Quarter 2010

-1,000,000

-600,000

-200,000

0

-800,000

-400,000

Antel

ope

Valley

Downtow

n

Mid-Citie

s

Mid-Wilsh

ire

Santa

Clarita

SanF

ernando

Valley

SanG

abriel

Valley

South

Bay

South

eastL.A

.

Tri-Citie

s

WestL

.A.

(30,853)

38,850

(578,089)

(80)

(243,715)

(449,555) (453,743)

(764,385)

(1,216,514)

(38,993)

21,119

Source: CoStar

-800,000

-600,000

-400,000

-200,000

-700,000

-500,000

-300,000

-100,000

100,000

200,000

Orange County Industrial Net AbsorptionFirst Quarter 2010

0


(752,029)

(92,236)

(499,054)

101,015

(171,367)

Source: CoStar

-600,000

0

400,000

800,000

1,000,000

Inland Empire Industrial Net AbsorptionFirst Quarter 2010

-400,000

200,000

600,000

-200,000

IE East IE West

(528,344)

814,705

Source: CoStar

-250,000

-200,000

-50,000

0

Ventura County Industrial Net AbsorptionFirst Quarter 2010

-100,000

-150,000


(101,818)

(223,796)

Source: CoStar


13/14




Antelope Valley 9.3% 8.3% 1.0% (30,853) $0.67 $0.69 ($0.02)

Downtown 3.9% 3.9% 0.0% 38,850 $0.53 $0.67 ($0.13)

Mid Cities 7.8% 5.7% 2.1% (578,089) $0.52 $0.62 ($0.09)

Mid Wilshire 3.1% 1.1% 2.0% (80) $1.41 $2.01 ($0.61)

Santa Clarita 11.4% 8.1% 3.3% (243,715) $0.51 $0.63 ($0.12)



South Bay 5.8% 4.0% 1.8% (764,385) $0.73 $0.71 $0.02

Southeast LA 8.6% 4.8% 3.8% (1,216,514) $0.48 $0.55 ($0.07)

Tri Cities 6.0% 4.7% 1.3% (38,993) $0.79 $0.81 ($0.02)

West LA 9.6% 8.5% 1.1% 21,119 $1.57 $1.56 $0.01

Los Angeles County 7.7% 5.7% 2.0% (3,715,958) $0.60 $0.65 ($0.06)

OC Airport 11.4% 7.6% 3.8% (752,029) $0.69 $0.85 ($0.16)

OC Central 9.2% 7.4% 1.8% (92,236) $0.54 $0.61 ($0.07)

OC North 10.7% 6.7% 4.1% (499,054) $0.53 $0.59 ($0.07)

OC South 11.0% 8.9% 2.1% 101,015 $0.87 $1.02 ($0.15)

OC West 8.6% 3.9% 4.7% (171,367) $0.67 $0.82 ($0.14)

Orange County 10.5% 7.2% 3.3% (1,413,671) $0.64 $0.76 ($0.11)

IE East 19.1% 18.6% 0.4% 814,705 $0.33 $0.40 ($0.07)IE West 11.0% 10.8% 0.2% (528,344) $0.35 $0.43 ($0.08)

Inland Empire 14.8% 14.6% 0.3% 286,361 $0.34 $0.41 ($0.07)

Ventura North 5.7% 4.3% 1.4% (101,816) $0.56 $0.63 ($0.07)

Ventura South 7.9% 4.9% 3.0% (223,796) $0.60 $0.60 $0.00

Ventura County 7.1% 4.7% 2.4% (325,612) $0.59 $0.61 ($0.02)

Total LA Basin 10.6% 8.9% 1.6% (5,168,880) $0.51 $0.58 ($0.07)

$0.31

$0.36

Inland Empire Industrial Rental RatesFirst Quarter 2010

$0.32

$0.34

$0.35

$0.33


$0.33

$0.35

$0.34

Source: CoStar

$0.54

$0.56

$0.58

$0.60

$0.61

Ventura County Industrial Rental RatesFirst Quarter 2010

$0.55

$0.57

$0.59


$0.56

$0.60

$0.59

Source: CoStar

Los Angeles Basin Industrial Market n First Quarter 2010


14/14

WESTLAKE VILLAGE

(805) 446-2400

WEST LOS ANGELES(310) 440-8500

VENTURA COUNTY

(805) 278-1400

TEMECULA VALLEY

(951) 491-7590

SOUTH BAY

(866) 716-5208

SIMI VALLEY(805) 522-7132

SANTA CLARITA

(661) 705-3550

RIVERSIDE

(866) 906-9979

PASADENA

(866) 716-5209

PALM DESERT(760) 346-1566

ONTARIO

(909) 945-2339

NEWPORT BEACH

(866) 739-9315

ENCINO-Corporate Office

(800) 468-2618

COMMERCE(866) 739-9314

www.naicapital.

Regional Offices

CAL LUTHERAN UNIVERSITY

Kirk M. Lesh

Senior EconomistCenter of Economic Research andForecasting n 805 493 3788

Documents

2010 Spring Perspective LA