Inland Empire Retail Market Overview U.S
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2017 2017 Inland Empire Retail Market Overview U.S. GDP in Seventh Year of Expansion GROWTH MODERATE BUT PICKING UP IN 2017 GDP Growth Consumer Confidence 10% 140 Consumer Confidence Index Consumer Confidence 5% 105 0% 70 -5% 35 Annualized Quarterly Percent Change Percent Annualized Quarterly -10% 0 * Forecast GDP; consumer confidence through 1Q Sources: Marcus & Millichap Research Services, BEA, The Conference Board National Employment Rank by Metro Y-O-Y PERCENT CHANGE THROUGH FEBRUARY 2017 Top 10 Absolute Percent Bottom 10 Absolute Percent Metros Change Change Metros Change Change Orlando 51,200 4.3% Milwaukee -2,300 -0.3% Nashville 38,600 4.1% Cleveland 6,900 0.7% Atlanta 97,800 3.7% Houston 21,900 0.7% Charlotte 39,500 3.5% Chicago 39,500 0.9% Dallas-Fort Worth 118,000 3.4% Baltimore 15,000 1.1% Salt Lake City 38,100 3.3% Northern New Jersey 23,900 1.1% Las Vegas 29,900 3.2% Orange County 19,000 1.2% Inland Empire 44,100 3.2% San Jose 17,400 1.6% Tampa 39,200 3.1% Los Angeles 75,500 1.7% Seattle-Tacoma 56,300 2.9% New York 75,300 1.7% U.S. Total 2,350,000 1.6% U.S. Total 2,350,000 1.6% Sources: Marcus & Millichap Research Services, BLS Inland Empire Employment Growth vs. 8% 4% U.S. Employment Growth 0% Y-O-Y Percent Change Inland Empire -4% -8% Trailing 12 Months Job Growth Inland Empire: +44,100 * Through February1991 Sources: Marcus & Millichap1 9Research92 Services, BLSUnited States: +2,350,000 1993 United States 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017* Wage Growth Advancing Ahead of Inflation Positive Driver for Retail Wage Growth Inflation 8% 6% 4% 2% Y-O-Y Percent Change Percent Y-O-Y 0% -2% 6 016 198 1991 1996 2001 2006 2011 2 Sources: Marcus & Millichap Research Services, BLS Total Population Growth Trends 1970s 1980s 1990s 2000s 2017*-2021* 8% 6% 4% Average Annual Average Change 2% +0.8% +0.7% 0% Inland Empire United States 2017*-2021*: 179,400 11,500,000 * Forecast Sources: Marcus Millichap Research Services, U.S. Census Bureau National Retail Rank by Metro Y-O-Y VACANCY RATE CHANGE Top 10 4Q 2016 Y-O-Y Bps Bottom 10 4Q 2016 Y-O-Y Bps Metros Vacancy Change Metros Vacancy Change West Palm Beach 4.5% -160 San Jose 5.4% 110 Detroit 8.1% -110 Milwaukee 7.0% 40 San Diego 4.0% -110 Salt Lake City 4.5% 40 Cincinnati 6.1% -100 Northern NJ 5.1% 20 Indianapolis 5.2% -100 Orange County 4.2% 20 Nashville 3.3% -100 Oakland 3.8% 10 Las Vegas 9.4% -90 Miami 3.6% 10 Fort Lauderdale 5.4% -90 Sacramento 8.2% 0 Dallas-Fort Worth 5.3% -90 Houston 5.4% 0 Inland Empire 8.5% -80 San Francisco 2.4% -10 U.S. Total 5.5% -50 U.S. Total 5.5% -50 Sources: Marcus & Millichap Research Services, CoStar Group, Inc. Sales Transactions Shopping Centers Total Sales in 2016: 1,140 2016 Average Sales Price: $2.5 MM 2016 Average Cap Rate: 6.3% 2016 Average Price Per Square Foot: 122.00 Single-Tenant Net Lease Total Sales in 2016: 1,123 2016 Average Sales Price: $3.4 MM 2016 Average Cap Rate: 6.1% 2016 Average Price Per Square Foot: 123.00 U.S. Retail Buyer Composition 100% 18% 19% 19% 21% 18% 19% 27% 37% 6% 7% 10% 75% 11% 9% 11% Institutional 10% 8% Foreign 30% 18% 10% 22% 10% 26% 25% 50% Public Listed/REITs 16% 57% Private 52% 43% 49% 25% 41% 42% 43% Percent of Total Dollar Volume Percent of Total 33% User/Other 8% 5% 4% 4% 0% 3% 3% 3% 3% 2009 2010 2011 2012 2013 2014 2015 2016 Includes sales $2.5 million and greater Sources: Marcus & Millichap Research Services, Real Capital Analytics Inland Empire Retail Transaction Activity 400 300 200 Number of Transactions 100 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16* * Trailing 12-months through 3Q Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics $400 $300 Retail Pricing Trends $200 Inland Empire Average Price per SF $100 $0 Includes sales $1 million and greater Sources: Marcus & Millichap Research Services 2000 United States 2001 2002 2003 2004 2005 2006 , CoStar Group, Inc.,2007 Real Capital Analytics $341 2008 2009 2010 $182 2011 2012 2013 2014 2015 2016 12% 10% Retail Cap Rate Trends 8% Inland Empire Average Cap Rate 6% 4% Includes sales $1 million and greater Sources: Marcus & Millichap2000 Research Services United States 2001 2002 2003 2004 2005 2006 , CoStar Group, Inc.,20 Real07 Capital Analytics 2008 2009 2010 2011 2012 6.3% 2013 6.0% 2014 2015 2016* Lease Transactions Multi Total leases in 2016 6,336,916 Gross Total SF Available – beginning of the year 13,058,912 Total SF Available – end of the year 11,634,818 Total Absorption 1,705,233 Net 2016 Average Lease Rate 1.39 Single Total leases in 2016 1,704,788 Gross Total SF Available – beginning of the year 3,654,332 Total SF Available – end of the year 3,181,035 Total Absorption 296,946 Net 2016 Average Lease Rate 1.47 Retail Sales Growth by Store Type eCOMMERCE GAINING SHARE OF RETAIL SALES February 2017 Y-O-Y Growth Electronic Shopping as % of Retail Sales Change from Feb. 2016 to Feb. 2017 14% Nonstore Retailers 13.0% 12% Building Materials 7.3% Health/Personal 7.0% 10% Restaurants/Bars 3.7% Miscellaneous 3.6% 8% Grocery 2.2% 6% Apparel 1.6% Percent of Sales General Merchandise 1.5% 4% Furniture & Electronics -0.5% Sporting Goods -3.6% 2% 9 1 3 5 7 3 5 * -10% -5% 0% 5% 10% 15% 9 0 1 1 7 00 00 00 01 1995199719 20 2 2 2 2009201120 20 2 * Through October 2016 Excludes auto and gas sales Sources: Marcus & Millichap Research Services, U.S. Census Bureau Consumers Spend More on Dining Out Than on $60 Groceries for the First Time Ever $50 $40 Millennials Eat Out at LeastGrocery Once Per Stores Week: $30 Gen X Total Sales (Billions) Boomers $20 $10 1992 * Through February Bars and Restaurants Sources: Marcus & Millichap1993 Research “Outlook on the Millennial Consum 1994 35% 1995 43% 49% 1996 1997 1998 1999 2000 er 2014” report, The Heartman Group, Services, U.S. Census20 Bureau,01 2002 2003 2004 2005 2006 2007 2008 Pew Research, Morgan Stanley2009 2010 2011 2012 2013 2014 2015 2016 2017* Retailers: Closing, Downsizing and Resizing $230.3 Bil. $165.5 Bil. Annual Department Store Retail Sales ? Peaked 1999 2015 2016 Auto Parts and Bank Branches Auto Parts The Four Largest Retailers: – Advance Auto Parts ‒ NAPA Auto Parts ‒ AutoZone ‒ O’Reilly Auto Parts Sales to do-it yourself customers are slowing Vehicles are becoming increasingly complex Industry generated roughly $56.3 billion in revenue last year and has grown at an annual rate of 1.9% over the past 5 years, has now slowed according IBIS World. Bank Branches Shift to mobile distribution as the main interaction with customer means the need for fewer banks. Bank of America to close 50 to 60 branches. Opening 50 to 60 branches about a quarter of the typical size with more technology. Wells Fargo closing over 400 branches JP Morgan Chase closing 300 branches Mall Retailers Closing 131 236 LOCATIONS LOCATIONS SINCE 2013 830 LOCATIONS 32 171 LOCATIONS LOCATIONS 140 LOCATIONS 120 LOCATIONS 185 LOCATIONS 60 LOCATIONS 250 LOCATIONS 60 LOCATIONS Shopping Center Retailers Closing 88 LOCATIONS 3 SELL DISTRIBUTION SINCE 2013 865 CENTERS 830 LOCATIONS LOCATIONS TO CLOSE 20 LOCATIONS TO CLOSE SHOP HOUSE 185 LOCATIONS CHAIN TO CLOSE 150 TO 255 LOCATIONS FILED 9 BANKRUPTCY LOCATIONS 70 LOCATIONS Millennials Cornerstone of Economic Outlook U.S. 2016 Population by Age Total Spending Power* Millennials $2.5T 5.0 66.3 Million Boomers $3.0T 4.5 4.0 Population (Millions) 3.5 3.0 Age * As of 2015 Note: Total Baby Boomer Population 75 million. Total Millennial Population 80 million Sources: Marcus & Millichap Research Services, U.S. Census Bureau, Oracle Financial Services, CIO.com Millennials Frictionless experience, customization – “Built It For Me” Omnipresent social/consumer Retailer interaction socially Gamified loyalty – connecting gaming experience and playfulness with retail marketing and message Connected to their devise Wants them to improve the experience Streamlined User-friendly process Photo sharing, for example Starbucks is winning over millennial consumers with their mobile wallets Source: Ketongolabl.com June 2016, Forbes 01/23/2017 Omnichannel Retailers need to adopt the omnichannel marketing strategy, otherwise risk losing their customers. Consumers want an integrated experience to buy products through a variety of channels. Retailers who only offer a “single channel” experience will be outperformed. Cyber Monday – $3.45 billion exceeded Black Friday $3.34 billion for first time in 2016. Amazon – Amazon Go and Amazon Books Outlet. $$ Online $$ $$ “Brick & Mortar” Store Store $$$$$$ Complex Forecasting Contributing factor that make it forecasting complex Healthcare Sector Trade Policy Immigration Policy Environmental Policy Inland Empire Logistics Taxation Policy Infrastructure Policy Minimum Wage Rate Increases Taxation eCommerce Automation Active Retailers Experience and Entertainment Create vibrant environment and interesting public spaces and incorporate entertainment. Big Al’s – Open in Ontario California Round One – Puente Hills Mall, Moreno Valley KidZania moving into U.S.