Market overview of the Fall Quater

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TENANT OUTLOOK REPORT
SAN DIEGO COUNTY
FALL 2014 | OFFICE
TENANT ADVISORY SERVICES
VACANCY BY SPACE TYPE
Q3 2014 Q2 2014 CHANGE
DIRECT 12.21% 12.67% 
SUBLEASE 0.73% 0.63% 
TOTAL 12.94% 13.30% 
VACANCY BY CLASS
Q3 2014 Q2 2014 CHANGE
CLASS A 12.73% 12.84% 
CLASS B 13.83% 14.34% 
CLASS C 11.30% 11.80% 
OFFICE VACANCY RATES
Q3 2014
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
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Q3
VacancyRate
SF(Millions)
Net Absorption New Supply Vacancy
NEW SUPPLY, ABSORPTION AND VACANCY RATES
16.1%
11.7%
12.7%
18.5%
12.2%
12.9%
0% 5% 10% 15% 20%
Downtown
Suburban
S.D. County
All Classes Class A
OFFICE VACANCY RATES
Q3 2014
55.8%
29.3%
9.3%
3.5%
2.1% <= 2,000 SF [299]
2,001 - 5,000 SF [157]
5,001 - 10,000 SF [50]
10,001 - 20,000 SF [19]
>= 20,001 SF [11]
OFFICE LEASING ACTIVITY BY TENANT SIZE
Percentage of Total Leases Completed in Q3 2014
$2.00
$2.10
$2.20
$2.30
$2.40
$2.50
$2.60
$2.70
$2.80
$2.90
$3.00
$3.10
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
Q1
13
Q2
13
Q3
13
Q4
13
Q1
14
Q2
14
Q3
14
$/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)
Absorption of Office Space Continues at a Sizzling Pace
MARKET OVERVIEW
San Diego’s office market continues to strengthen with 294,000 SF of absorption in Q3 2014, increasing
the YTD total to 1,140,000 SF, causing office vacancy to drop below 13% for the first time since 2006.
North City West, consisting of Carmel Valley (7.8%), Sorrento Mesa (8.4%) and UTC (5.6%) continues
to outperform the market with a combined 7.3% direct Class A vacancy. Other “tight” Class A office
markets include Mission Valley (7.7%), Kearny Mesa (7.0%) and Rancho Bernardo (7.8%). As a result,
rental rates for these markets are increasing. However, opportunities can be found with “under
the radar” sublease space and Class B office where the difference between Class A and B rates can
reach 30%.
In September 2014, San Diego’s unemployment rate fell to 5.9%. The job gains were led by healthcare and
the high-paying professional STEM fields (Science, Technology, Engineering, & Math). Health care has
become one of the largest job sectors in San Diego, employing more than 121,000 representing 9% of the
country labor force. Venture Capital (VC) investment in startup companies remains high. According to
the PricewaterhouseCoopers Money Tree Report, 27 local companies raised $238.5 million in Q3. Most
notably were BioNano Genomics ($31M), Epic Sciences ($30M), Tracon Pharmaceuticals ($27M), Acutus
Medical ($20.6M) and Astute Medical ($20M).
NET ABSORPTION AND VACANCY
The Class B office segment saw the most demand during Q3 with 180,000 SF of net absorption. Class
A office absorbed 36,000 SF while Class C gained 78,000 SF. UTC (+107,000 SF) and Kearny Mesa
(+78,000 SF) recorded the most positive net absorption in Q3. For the first nine months of the year, Class
A demand was the healthiest of all office classes, making up over 52% of the net demand – equating to
600,000 SF. Since 2010, both market segments have performed well with Class A demand reaching
nearly 3.1 million SF and Class B at nearly 840,000 SF.
In Sorrento Mesa, Entropic Communications leased 132,000 SF. In UTC, Intercept Pharmaceuticals leased
47,000 SF at BridgePoint while Cubist Pharmaceuticals subleased 19,000 SF at La Jolla Commons. In the
I-15 Corridor, Intel leased 45,000 SF in the former Nokia building expanding their total size to 88,000 SF.
The biggest recorded vacancy in Q3 occurred when Active Network relocated from their headquarters
at Seaview Corporate Center in Sorrento Mesa to Dallas, Texas. As of the end of Q3, they had vacated
approximately 82,000 SF.
Countywide Class A ($2.95/SF) and Class B ($2.30/SF) rates increased. For Class A asking rates, Carmel
Valley averages $3.80/SF; UTC averages $3.45/SF; Sorrento Mesa averages $3.20/SF; Mission Valley
averages $2.80/SF and Downtown (CBD) averages $2.75/SF.
LARGE TENANT ACTIVITY AND OPPORTUNITIES
The largest signed lease transactions include: AMN (175,000 SF) renewal in Carmel Valley; State of
California’s Attorney General (120,000 SF) at One America Plaza in Downtown; Lytx (76,000 SF) at
Ocean Pointe in UTC; Jenny Craig (56,000 SF) renewal in Carlsbad; SERCO (29,000 SF) in Kearny Mesa;
and Moss Adams (24,000 SF) at La Jolla Commons in UTC.
Future CBD absorption may be affected as the new landlord at 625 Broadway is planning to convert their
223,000 SF office building into residential units while other landlords are evaluating repurposing their
office buildings to other product type.
NEW SUPPLY
Nearly 600,000 SF has been completed over the past ten months of the year with over 1.4 million SF
currently under construction. Construction is underway in Sorrento Mesa on a 410,000 SF build-to-suit
for Qualcomm on Pacific Heights Blvd. along with an extensive renovation of the 205,000 SF two-building
Enclave Sorrento project on Barnes Canyon Rd. In Carmel Valley’s Torrey Reserve, American Assets
has three buildings totaling 45,000 SF under construction. Additionally, Kilroy has broken ground at The
Heights Del Mar project that will add 75,000 SF of Class A office in Q4 2015.
The Irvine Company is well underway on One La Jolla Center in UTC, a 306,000 SF Class A office building
targeted for completion in mid-2015. Cisterra’s 320,000 SF build-to-suit office tower for Sempra Energy
in Downtown is expected to be completed in late-2015.
Finally, the MAKE project in Carlsbad consists of a complete renovation of the former Floral Trade Center
from an industrial building to nearly 178,000 SF of creative office space fronting the I-5 freeway.
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TENANT ADVISORY SERVICES

2. Average rental rates are defined as the average asking monthly rate per square foot normalized to a “full service gross” basis.
FALL 2014 | OFFICE
TENANT ADVISORY SERVICES TENANT OUTLOOK REPORT
SAN DIEGO COUNTY
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 7,257,266 14.9% 1.2% 16.1% 16.4% 22,318 73,979
B 25 2,231,597 20.5% 0.4% 20.9% 21.4% 12,602 (10,912)
C 13 683,662 36.2% 0.0% 36.2% 34.7% (10,718) (74,611)
TOTAL 58 10,172,525 17.6% 0.9% 18.5% 18.7% 24,202 (11,544)
MISSION VALLEY
A 13 2,017,208 7.7% 0.8% 8.5% 7.4% (22,718) (20,787)
B 64 3,459,528 9.9% 0.4% 10.4% 9.7% (22,520) 44,647
C 67 1,606,324 8.9% 0.1% 9.0% 8.4% (8,220) (11,554)
TOTAL 144 7,083,060 9.0% 0.5% 9.5% 8.8% (53,458) 12,306
KEARNY MESA
A 15 1,858,959 7.0% 0.2% 7.2% 7.6% 6,911 (10,062)
B 106 5,226,307 12.5% 0.1% 12.5% 13.6% 53,213 159,320
C 91 1,876,082 16.6% 0.0% 16.6% 17.6% 18,064 60,007
TOTAL 212 8,961,348 12.2% 0.1% 12.3% 13.2% 78,188 209,265
UTC
A 21 3,504,970 5.6% 0.4% 6.0% 6.7% 25,640 446,425
B 12 1,105,799 15.0% 0.0% 15.0% 22.3% 80,645 13,128
C 6 320,381 3.1% 0.0% 3.1% 3.4% 844 1,426
TOTAL 39 4,931,150 7.6% 0.3% 7.8% 10.0% 107,129 460,979
SORRENTO MESA
A 23 3,819,784 8.4% 0.9% 9.4% 9.3% (4,521) (77,177)
B 51 3,878,029 7.9% 0.4% 8.3% 8.7% 15,077 (36,030)
C 42 866,951 9.2% 0.6% 9.7% 8.3% (12,014) 7,991
TOTAL 116 8,564,764 8.3% 0.6% 8.9% 8.9% (1,458) (105,216)
CARMEL VALLEY
A 44 3,787,819 7.8% 4.2% 12.1% 10.9% (45,853) 148,925
B 25 1,253,709 14.1% 3.0% 17.1% 17.7% 6,361 8,273
C 1 13,914 0.0% 0.0% 0.0% 0.0% 0 0
TOTAL 70 5,055,442 9.4% 3.9% 13.3% 12.5% (39,492) 157,198
RANCHO BERNARDO
A 19 2,232,431 7.8% 0.8% 8.6% 8.4% (5,245) (6,796)
B 58 2,651,871 13.3% 0.0% 13.3% 13.6% 7,309 (104,703)
C 25 490,093 6.7% 0.3% 6.9% 9.1% 10,698 18,846
TOTAL 102 5,374,395 10.4% 0.4% 10.8% 11.0% 12,762 (92,653)
CARLSBAD
A 44 2,000,467 19.3% 1.1% 20.4% 21.2% 17,016 7,794
B 108 2,939,858 14.8% 1.4% 16.2% 16.5% 9,771 33,831
C 36 512,717 12.1% 0.4% 12.5% 16.8% 21,846 22,538
TOTAL 188 5,453,042 16.2% 1.2% 17.4% 18.3% 48,633 64,163
SAN DIEGO COUNTY OFFICE
A 271 31,061,696 11.5% 1.2% 12.7% 12.8% 35,744 598,966
B 972 35,507,332 13.3% 0.5% 13.8% 14.3% 180,076 446,028
C 1,145 15,455,276 11.1% 0.2% 11.3% 11.8% 77,836 98,270
TOTAL 2,388 82,024,304 12.2% 0.7% 12.9% 13.3% 293,656 1,143,264
San Diego County Office Market
VACANCY NET ABSORPTIONEXISTING PROPERTIES
OFFICE OVERVIEW
Q3 2014
Colliers International | Accelerating success. | www.colliersTAS.com

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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.
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TENANT OUTLOOK REPORT | FALL 2014 | 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.
17.9
20.1
20.5
10.7
10.8
17.7
13.9
18.3
16.5
23.7
15.8
23.1
14.1
16.5
22.1
9.7
13.8
16.0
15.9
13.8
20.6
11.6
14.0
21.4
10.6
15.8
15.4
0
5
10
15
20
25
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 16.5 months countywide.
55.8%
29.3%
9.3%
3.5%
2.1% <= 2,000 SF [299]
2,001 - 5,000 SF [157]
5,001 - 10,000 SF [50]
10,001 - 20,000 SF [19]
>= 20,001 SF [11]
OFFICE LEASING ACTIVITY BY TENANT SIZE
Percentage of Total Leases Completed in Q3 2014
$2.00
$2.10
$2.20
$2.30
$2.40
$2.50
$2.60
$2.70
$2.80
$2.90
$3.00
$3.10
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
Q1
13
Q2
13
Q3
13
Q4
13
Q1
14
Q2
14
Q3
14
$/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 the last two years, the
countywide average asking
rental rate has steadily
increasing from a low of
$2.10/SF on a “full service
gross” basis. Q3 2014 was
the 11th consecutive quarter
where the rate has either
increased or remained flat
with the current rate of
$2.27/SF exhibiting a $0.03
increase during the quarter.
The Class A rate also posted
a quarterly increase of
$0.02 to $2.88/SF.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
011 2012 2013 2014
Q3
VacancyRate
Vacancy
Y RATES
55.8%
29.3%
9.3%
3.5%
2.1% <= 2,000 SF [299]
2,001 - 5,000 SF [157]
5,001 - 10,000 SF [50]
10,001 - 20,000 SF [19]
>= 20,001 SF [11]
OFFICE LEASING ACTIVITY BY TENANT SIZE
Percentage of Total Leases Completed in Q3 2014
$2.00
$2.10
$2.20
$2.30
$2.40
$2.50
$2.60
$2.70
$2.80
$2.90
$3.00
$3.10
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
Q1
13
Q2
13
Q3
13
Q4
13
Q1
14
Q2
14
Q3
14
$/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 536 leases were
completed in Q3 2014. This
equated to a 14% decrease in
total leases compared to Q2
2014. Leasing volume will
likely continue to be robust in
2014, allowing vacancy to
continue to decrease while
fueling rental increases due to
the accelerated demand.
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Colliers International | Accelerating success. | www.colliersTAS.com