VACANCY AND ABSORPTION REPORT FOR BIG BOX RETAIL€¦ · • Flexible Store Formats • Flexible...

YEAR END 2011

VACANCY AND ABSORPTION REPORT FOR BIG BOX RETAILLOS ANGELES COUNTY

©2012 CBRE, Inc. N:\TEam-GRaphICs\maRkETING\TEam RIz\BIG Box REpoRT_2012\BIG Box FINal.INdd

FOR MORE INFORMATION PLEASE CONTACT:

Mitchell HernandezLic. 01875229T 310 363 4875 [email protected]

CBRE, Inc.Broker Lic. 004099872221 Rosecrans Ave., Suite 100El Segundo, CA 90245

Xan SaksLic. 01884636T 310 363 [email protected]

Richard RizikaLic. 01044064T 310 363 [email protected]

EXECUTIVE SUMMARY

Key 2011 End-of-Year Metrics ::

Market fundamentals for Big Box Retail improved in 2011 with the following:

• Vacancy (SF): 2.7 million square feet in total vacant Big Box Retail1, a reduction of 550,000 square feet over the prior year • Net Absorption: 500,000 square feet in negative net absorption2, an improvement of nearly 60% over the prior year• Vacancy Rate: 2.4% of Big Box Retail Vacancy, a reduction of 0.6% compared to the previous year • Market Lease Rate: $22.52 per square foot3 (PSF)/NNN4 Market Lease Base Rate5, an increase of 8.63% over the previous year • Major Liquidations: 900,000 square feet liquidated in Los Angeles County from Borders, A.J. Wright and Anchor Blue Stores

2012 Market Forecast ::

The lowest 10% to 15% of underperforming Big Box stores of individual retailers inventory will continue to close through subleasing, lease buyouts and lease expirations. Retailers will continue their focus on supply chain efficiency, flexible store formats and e-commerce integration.

ACTIVE 2011 RETAILERS

Antelope Valley 4.21%

Wilshire Corridor 6.92%

Tri-Cities 1.77%

TOP 5 SUB-MARKETS BY VACANCY

San Gabriel Valley 3.26%

South Bay 2.45%

WALMART

TARGET’s entry into Westwood

Village signifies how retailers are

re-defining their traditional real

estate requirements to reach their

guests more conveniently. While

TARGET remains one of the most

successful Big Box retailers, like

many large format retailers, its size

has made it difficult to penetrate

dense, developed markets such as

the Westside. The 90,000 square

foot CityTARGET is scheduled to

open 3rd quarter 2012.

BIG NEWS!TARGET COMING TO

WESTWOOD

YEAR END 2011








MARKET UPDATE

The total market vacancy at the end of 2011 was 2.7 million square feet. In addition, a minimum of 740,000 square feet is available for lease of shadow inventory—Big Box Retail stores that are currently occupied but available for lease—which accounts for 21% of the

total available square footage. We anticipate shadow inventory to continue to be a market trend in the retail industry as retailers are cutting costs and incorporating distribution channels like e-commerce to drive efficiency in brick and mortar stores.

Borders, A.J. Wright and Anchor Blue closed 46 stores in Los Angeles County in 2011 totaling more than 900,000 square feet. Fortunately the liquidation of these three retailers has not had the same adverse effect on the retail real estate market as other major liquidations had in recent years. For example, in 2008 Big Box Retail had 6.4 million square feet vacant with 3.2 million square feet available through the liquidation of Mervyn’s, Linens N Things and Circuit City alone. Prior to the end of 2011, approximately a third of the now vacant Borders, A.J. Wright and Anchor Blue stores had been absorbed.

Overall, Big Box Retail Rent for 2011 increased by 8.9% this year to $22.52 PSF/NNN in Los Angeles County. Considering Base Rents were slightly under $15.00 PSF/NNN in 2008, there is reason to be optimistic as rents have rebounded by 33%. Also, sub-markets such as the Wilshire-Corridor and West Los Angeles continue to see stability with a market Lease Rate of $31.73 and $28.85 respectively.

BIG BOX RETAIL ANNUAL COMPARISONS

ANCHOR SPACES AVAILABLE SQUARE FEET

Square Feet Vacant Big Box Stores Available

Vacancy Rate Lease Rate

2010 20103.2 M 97

2011 20112.7 M 97

2009 20094.5 M 100

2011 20112.4% $22.52

2010 20103.0% $20.73

2009 20094.2% $18.88

VACANCY RATE LEASE RATE

URBAN POWER CENTER COMING TO THE HEART OF

MID TOWN IN 2012

With over 500,000 people within three miles, CIM Group’s 370,000-square-foot Midtown Crossing development is close to becoming a reality. Over 10 years in the making, the project serves as a benchmark for creative development in an urban environment without sacrificing retail fundamentals. With grade changes from Pico to Venice Boulevard, the development allows a three-level project to transform into a Lowe’s-anchored center, complimented by 120,000 square feet of Big Box Retail and shop space restaurants.

MIDTOWN CROSSING UNDER CONSTRUCTION IN EARLY 2010

OPENING SUMMER 2012

YEAR END 2011








2012 FORECAST

We anticipate that Big Box Retailers will continue to operate more efficiently through cost-reducing initiatives and a greater dedication to focused brand penetration in 2012.

Relevant 2012 Key Market Trends ::

• Supply Chain Efficiency •

Retailers are reevaluating supply chain logistics. With the increase in multi-channel competition, the market is experiencing price compression as retailers are forced to lower prices to remain competitive. In order to maintain profit margins, retailers must become more effective in managing supply chain logistics. Three key trends to watch include: (i) real-time inventory tracking to optimize supply and demand; (ii) outsourcing supply chain management to third-party logistics (3PL) providers to ensure fixed costs; and (iii) direct store distribution to reduce overhead.

• Flexible Store Formats •

Flexible store formats allow retailers to penetrate dense, urban markets to get closer to the consumer, but in turn risk hurting the brand by compromising the customer shopping experience. That said, Retailers who will continue to illustrate success in 2012 include Target and T.J. Maxx. By reducing the number of SKUs in the new CityTarget concept they have been able to reduce their overall floor print by up to 45% while providing more relative products to customers in their respective trade areas. Another example includes, off-price department store, TJX is enjoying success on wall-street while leading the retail industry with its ability to offer a great selection of merchandise through three different brands. As retailers are becoming more efficient in their stores, they will drive higher sales per square foot and reduce overhead expenses.

• E-Commerce Integration •

With e-commerce integrating with brick and mortar, retailers are finding success by integrating with the customer virtually. E-commerce will not take over brick and mortar retail, but increase sales and create better brand recognition globally. Seven of the top eleven e-commerce sites have supporting brick and mortar stores including Staples, Apple, Best Buy, Wal-Mart and Sears. Consider, Apple who joined the brick and mortar industry a little over 10 years ago with their own Apple Stores, created to sell their brand.

RENDERING OF PROPOSED CITYTARGET CONCEPT

3-LEVEL APPLE STORE ON BOYLSTON STREET IN BOSTON, MA

2008 2009 2010 2011

AVG MARKET LEASE BASE RATE2011 VACANCY RATE VS.

AVG MARKET LEASE BASE RATEVACANCY RATE

0.0 %2.0 %

4.0 %6.0 %

$0.00$7.00

$14.00$21.00

VACANCY CONTINUES TO REDUCE AS MARKET RENT IS IMPROVING

SELF-SERVE CHECKOUT AT FRESH & EASY IN LOS ANGELES, CA

YEAR END 2011








According to Needham & Co., Apple’s leads the industry in retail per square foot sales of $4,406, but include online sales and that number jumps to $5,914 per square foot. Great retailers will continue to enhance their brand by providing a complementary and compelling e-commerce strategy.

Big Box Retail will continue to close the lower 10% to 15% of its underperforming stores through subleasing, lease buyouts and expiring leases.

2012 FORECAST CONTINUED

METHODOLOGY : This analysis was based upon contiguous available retail space of 20,000 square feet or larger within shopping centers in Los Angeles County with a minimum of 50,000 square feet of gross leasable area. This also includes single-tenant general freestanding retail space of 20,000 square feet or larger.

1 Big Box Retail - Stores over 20,000 square feet within Shopping Centers or Freestanding retail space of 20,000 square feet or larger. 2 Net Absorption - The change in occupied square feet from one period to the next. 3 Per Square Foot (PSF) - The total rent charged per year divided by the number of square feet rented out. 4 NNN (Net-Net-Net Lease) - Lease agreement that designates the lessee (the Tenant) as being solely responsible for all the costs related to the asset being leased. 5 Base Rent - The amount of rent assessed before inclusion of additional expenses or other factors that increase the amount of rent to be paid. 6 Shadow Inventory - Big Box Retail stores that are currently occupied but that are available for Lease.

BIG BOX SUB MARKET COMPARISON

DIRECT VACANCY RATE VS. ASKING VACANCY RATE

LOS ANGELES COUNTY2.44%

19.30

SOUTH BAY

SANTA CLARITA VALLEY

SAN GABRIEL VALLEY

SAN FERNANDO VALLEY

MID-COUNTIES

DOWNTOWN LOS ANGELES

ANTELOPE VALLEY

WILSHIRE-CORRIDOR

WEST LOS ANGELES

TRI-CITIES

2.45%

20.55

1.58%

10.24

3.26%

12.56

2.03%

23.44

1.25%

11.79

1.78%

12.89

4.21%

11.42

6.92%

42.43

1.66%

31.20

1.77%

22.67

ASKING VACANCY RATEDIRECT VACANCY

LOS ANGELES COUNTY BY SUB-MARKET

VACANCY AND ABSORPTION REPORT FOR BIG BOX RETAIL€¦ · • Flexible Store Formats • Flexible...

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