1. Colliers International | Accelerating success. | www.colliersTAS.com
TENANT OUTLOOK Report
SAN DIEGO COUNTY
WINTER 2013 | OFFICE
TENANT ADVISORY SERVICES
VACANCY BY SPACE TYPE
Q4 2012 Q3 2012 CHANGE
Direct 13.67% 14.17%
SUBLEASE 0.70% 0.55%
TOTAL 14.37% 14.73%
VACANCY BY CLASS
Q4 2012 Q3 2012 CHANGE
CLASS A 12.30% 12.78%
CLASS B 16.83% 17.34%
CLASS C 12.92% 12.60%
OFFICE VACANCY RATES
Q4 2012
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
VacancyRate
SF(Millions)
Net Absorption New Supply Vacancy
NEW SUPPLY, ABSORPTION AND VACANCY RATES
17.4%
10.7%
12.3%
19.8%
13.6%
14.4%
0% 5% 10% 15% 20% 25%
Downtown
Suburban
S.D. County
All Classes Class A
OFFICE VACANCY RATES
Q4 2012
59.5%
27.1%
8.4%
3.2%
1.8% <= 2,000 SF [367]
2,001 - 5,000 SF [167]
5,001 - 10,000 SF [52]
10,001 - 20,000 SF [20]
>= 20,001 SF [11]
OFFICE LEASING ACTIVITY BY TENANT SIZE
Percentage of Total Leases Completed in Q4 2012
$2.00
$2.10
$2.20
$2.30
$2.40
$2.50
$2.60
$2.70
$2.80
$2.90
$3.00
$3.10
$3.20
$3.30
Q4
07
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
Q3
09
Q4
09
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
Q3
11
Q4
11
Q1
12
Q2
12
Q3
12
Q4
12
$/SF/Month(FS)
Class A All Classes
HISTORICAL RENTAL RATE TRENDS
Class A & Overall Office Rates
Quarterly Average Asking Rate Per SF Per Month (Full Service)
Continued Class A Office Demand Causing Rents to Rise
MARKET OVERVIEW
Office demand continues to improve causing rents to rise and vacancy to fall in Class A office
space. Demand in the San Diego County office market recorded 267,000 SF of positive net
absorption. Most companies still desire Class A office space even though the “flight-to-quality”
trend is transforming into “flight-to-value”.
San Diego’s unemployment dipped to 8.1% in December the lowest since December 2009, which
was 7.4%, according to the State’s Employment Development Division. The biggest contributor to
the net gain in jobs (+/- 20,300 jobs) came from the professional and business sector.
The technology sector continues to show employment strength as Qualcomm (wireless technology),
Service Now (cloud-based services), Mitek Systems (mobile imaging), XIFIN (revenue-cycle
management services) and other prominent tech companies continue to expand. With Qualcomm
leading the charge followed by Nokia, Intel, Broadcom and many others, San Diego is becoming
known as the “Wireless Capital of North America.” Software engineers continue to be in “hot”
demand with hundreds of job positions waiting to be filled. Furthermore, the healthcare and
financial service sectors also show strength.
However, our defense sector is “treading water” until a decision is made by Congress regarding
our future budget. Like most defense contractors around the country SAIC is bracing for
sequestration (automatic federal spending cuts that have a delayed trigger date of March 2013)
by cutting jobs at its Campus Point location in UTC. Lockheed Martin is also reducing its office
footprint by attempting to sublease two buildings (comprising 122,000 SF) at Bridge Point. Local
defense industry sources predict sequestration cuts could result in a loss of up to 30,000 jobs in
San Diego unless Congress comes up with another plan.
NET ABSORPTION and VACANCY
Countywide Class A space continued to outperform the other classes in Q4 with 206,000 SF of
positive net absorption, bringing the total 2012 Class A net absorption to 578,000 SF. Class B
office space experienced 72,000 SF of positive absorption during Q4, while totaling 130,000 SF for
the year.
Economic and election uncertainties during 2012 kept many tenants, users and investors waiting
for the right time to initiate any substantial real estate decisions. Year 2013 may see more activity
as these issues get resolved.
Downtown San Diego (CBD) posted positive net absorption of 30,000 SF in Q4 for a total of
45,000 SF for the year. Overall demand in the CBD still continues to be stagnant with a trend
toward law firms relocating to suburban submarkets of central San Diego County (North City
West). This trend will most likely continue over the next few years. However, much of that space
is being re-occupied by internet related companies, schools and a variety of other industries that
are steadily building a more diversified tenant base in downtown.
The overall suburban office market and CBD market vacancy rates were 13.6% and 19.8%,
respectively. The suburban office submarkets of Scripps Ranch (30.2%) and Carlsbad (22.3%)
continue to maintain the highest vacancy rates in the county and the best leasing values.
Countywide Class A office vacancy dropped to 12.3% while Class B office decreased to 16.8%
OPPORTUNITIES | NEW SUPPLY
With attractive lease rates and concessions being offered over the last few years, Class A office
space in North City West (Carmel Valley, Sorrento Mesa and UTC) became the choice for many
firms large and small. However that window of opportunity has closed with very few options for
large blocks of space over 30,000 SF and with Class A rental rates rising by 10-20% over the last
12 months. The opportunity lies in the Class B market where many landlords are remodeling /
sprucing up their buildings to attract the next wave of value hunters.
Economic and political uncertainties are causing a strong appetite for institutional ownership of
Class A trophy office properties as several high profile properties have recently been purchased
such as DiamondView Tower overlooking Petco Park.
Virtually no new construction was completed in Q4 2012. However, new development is picking
up in 2013 and into 2014. Construction on the 250,000 SF build-to-suit for the FBI and a 250,000
SF expansion of Qualcomm – both in Sorrento Mesa – will be completed in 2013. Additionally,
construction is underway on the 40,000 SF third phase at the Torrey Reserve project in Carmel
Valley and 33,000 SF at Quail Gardens Corporate Center in Encinitas. Finally, the 415,000 SF
build-to-suit for LPL Financial in UTC will be completed in 2014.
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2. Average rental rates are defined as the average asking monthly rate per square foot normalized to a “full service gross” basis.
TENANT OUTLOOK Report
SAN DIEGO COUNTY
WINTER 2013 | OFFICE
TENANT ADVISORY SERVICES
Submarket / Class Bldgs
Total
Inventory
SF
Direct
Vacancy
Rate
Sublease
Vacancy
Rate
Total
Vacancy
Rate
Prior Qtr
Vacancy
Rate
Net Abs
Current Qtr
SF
Net Abs
YTD
SF
DOWNTOWN
A 20 7,254,266 16.8% 0.6% 17.4% 17.7% 21,659 (18,334)
B 25 2,232,115 23.2% 0.5% 23.7% 23.2% (10,652) 42,315
C 13 663,591 33.9% 0.0% 33.9% 36.9% 19,441 21,010
TOTAL 58 10,149,972 19.3% 0.5% 19.8% 20.1% 30,448 44,991
MISSION VALLEY
A 13 2,008,118 11.4% 0.3% 11.7% 11.9% 4,195 102,961
B 62 3,383,045 13.9% 1.2% 15.1% 13.9% (44,576) (106,764)
C 67 1,603,958 9.5% 0.3% 9.8% 10.3% 8,125 (4,188)
TOTAL 142 6,995,121 12.2% 0.7% 12.9% 12.5% (32,256) (7,991)
KEARNY MESA
A 19 2,271,526 5.7% 0.2% 5.9% 6.2% 6,417 28,704
B 102 4,747,240 10.8% 0.8% 11.6% 11.2% (31,880) 60,750
C 92 1,892,337 17.4% 0.0% 17.4% 17.9% 6,177 5,886
TOTAL 213 8,911,103 10.9% 0.5% 11.4% 11.4% (19,286) 95,340
UTC
A 20 3,088,798 9.2% 0.3% 9.6% 11.7% 76,230 276,279
B 12 1,105,799 7.4% 0.0% 7.4% 8.7% 17,243 186,954
C 6 320,381 4.3% 0.0% 4.3% 6.0% 5,638 12,869
TOTAL 38 4,514,978 8.4% 0.2% 8.7% 10.5% 99,111 476,102
SORRENTO MESA
A 21 3,320,902 3.5% 0.7% 4.1% 4.2% 7,243 (6,144)
B 51 3,904,509 9.6% 0.5% 10.1% 13.7% 21,130 45,717
C 42 866,617 17.6% 0.7% 18.4% 15.1% (23,007) (36,686)
TOTAL 114 8,092,028 8.0% 0.6% 8.6% 10.1% 5,366 2,887
CARMEL VALLEY
A 41 3,582,193 8.9% 2.5% 11.4% 13.8% 98,272 97,721
B 26 1,299,977 25.8% 4.1% 29.8% 25.5% (56,404) (111,849)
C 1 13,914 0.0% 0.0% 0.0% 0.0% 0 0
TOTAL 68 4,896,084 13.3% 2.9% 16.2% 16.9% 41,868 (14,128)
RANCHO BERNARDO
A 19 2,232,431 7.3% 0.3% 7.6% 8.2% 3,419 15,191
B 58 2,647,973 12.1% 1.0% 13.1% 14.1% 35,872 (19,248)
C 25 490,093 8.0% 0.0% 8.0% 8.0% 272 28,097
TOTAL 102 5,370,497 9.8% 0.6% 10.3% 11.1% 39,563 24,040
CARLSBAD
A 44 2,000,467 22.3% 1.1% 23.4% 23.0% 19,620 36,371
B 109 2,988,291 22.1% 0.1% 22.2% 23.4% 36,689 3,016
C 36 512,229 17.7% 0.7% 18.4% 15.1% (8,601) (16,422)
TOTAL 189 5,500,987 21.8% 0.5% 22.3% 22.4% 47,708 22,965
SAN DIEGO COUNTY OFFICE
A 276 30,672,513 11.5% 0.8% 12.3% 12.8% 206,124 577,506
B 963 34,871,203 16.1% 0.8% 16.8% 17.3% 72,299 129,965
C 1,148 15,424,380 12.6% 0.3% 12.9% 12.6% (12,295) (16,025)
TOTAL 2,387 80,968,096 13.7% 0.7% 14.4% 14.7% 266,128 691,446
San Diego County Office Market�
VACANCY NET ABSORPTIONEXISTING PROPERTIES
OFFICE OVERVIEW
Q4 2012
Colliers International | Accelerating success. | www.colliersTAS.com

3. Colliers International
4660 La Jolla Village Drive, Suite 100 San Diego, CA 92122 | USA
tel +1 858.677.5363
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• $68 billion in annual revenue
• 1.25 billion square feet under
management
• Over 12,300 professionals
This report has been prepared by Colliers International for general information only. Information contained herein has been obtained from sources deemed reliable and no representation is made
as to the accuracy thereof. Colliers International does not guarantee, warrant or represent that the information contained in this document is correct. Any interested party should undertake their
own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes
all liability for loss and damages arising there from.
Accelerating success.
TENANT OUTLOOK REPORT | WINTER 2013 | OFFICE | SAN DIEGO COUNTY
Tenant Advisory Services
www.ColliersTAS.com
> Only represent tenants in their
office lease and purchase
negotiations
> Provide objective conflict-free
advice with full service
resources
> Increase profitability &
mitigate risk
RON MILLER
Senior Director
Tenant Advisory
Services
858.677.5363
LIC # 00874868
Ron Miller is a tenant advisory
specialist. His expertise encompasses
relocation / expansion / contraction
strategies, lease renewal and
restructuring, market analysis, and
user purchase opportunities. With
his extensive career experience
in representing both tenants
and landlords, Ron offers a
unique perspective and valuable
insight to his tenant clients.
31.2
25.5
21.4
25.0
15.5
26.4
18.5
28.1
26.9
26.0
18.1
21.4
14.9
24.2
21.2
32.8
25.1
25.0
29.9
20.2
21.1
17.6
21.1
24.2
28.4
25.9
25.4
0
6
12
18
24
30
36
Downtown Mission
Valley
Kearny
Mesa
UTC Sorrento
Mesa
Carmel
Valley
Rancho
Bernardo
Carlsbad San Diego
County
Months
Class A Class B All Classes
OFFICE SPACE TIME-ON-THE-MARKET
Average Months by Submarket and Class
TIME ON MARKET
Time-on-the-market for Class A office space is averaging 26.9 months countywide.
59.5%
27.1%
8.4%
3.2%
1.8% <= 2,000 SF [367]
2,001 - 5,000 SF [167]
5,001 - 10,000 SF [52]
10,001 - 20,000 SF [20]
>= 20,001 SF [11]
OFFICE LEASING ACTIVITY BY TENANT SIZE
Percentage of Total Leases Completed in Q4 2012
$2.00
$2.10
$2.20
$2.30
$2.40
$2.50
$2.60
$2.70
$2.80
$2.90
$3.00
$3.10
$3.20
$3.30
Q4
07
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
Q3
09
Q4
09
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
Q3
11
Q4
11
Q1
12
Q2
12
Q3
12
Q4
12
$/SF/Month(FS)
Class A All Classes
HISTORICAL RENTAL RATE TRENDS
Class A & Overall Office Rates
Quarterly Average Asking Rate Per SF Per Month (Full Service)
RENTAL RATES
For four years, the average
asking rental rate in all office
classes had been steadily
decreasing and bottomed out
at $2.10/SF/month “full
service gross” at the end of
2011. However, for the last
four quarters, the average
rate for all classes increased
has remained level at $2.11/
SF. The Class A rate of
$2.65/SF increased $0.02
in Q4.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
2010 2011 2012
VacancyRate
Vacancy
RATES
59.5%
27.1%
8.4%
3.2%
1.8% <= 2,000 SF [367]
2,001 - 5,000 SF [167]
5,001 - 10,000 SF [52]
10,001 - 20,000 SF [20]
>= 20,001 SF [11]
OFFICE LEASING ACTIVITY BY TENANT SIZE
Percentage of Total Leases Completed in Q4 2012
$2.00
$2.10
$2.20
$2.30
$2.40
$2.50
$2.60
$2.70
$2.80
$2.90
$3.00
$3.10
$3.20
$3.30
Q4
07
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
Q3
09
Q4
09
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
Q3
11
Q4
11
Q1
12
Q2
12
Q3
12
Q4
12
$/SF/Month(FS)
Class A All Classes
HISTORICAL RENTAL RATE TRENDS
Class A & Overall Office Rates
Quarterly Average Asking Rate Per SF Per Month (Full Service)
LEASING ACTIVITY
A total of 617 leases were
completed in Q4 totaling 1.9
million square feet. This
equated to a 13% increase
in lease transactions
compared to the previous
quarter. In terms of square
footage, the increased
leasing activity equated to a
3% rise over Q3 2012 but
was 13% less than a
year-ago in Q4 2011.
Absorption should be
similar or slightly higher in
Q1 2013.
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Colliers International | Accelerating success. | www.colliersTAS.com