Office space projections for 2012

1. WINTER 2012 | OFFICE | TENANT ADVISORY SERVICES
SAN DIEGO COUNTY
TENANT OUTLOOK Report
Momentum Increasing In 2012
As Firms Continue To Absorb Office Space
MARKET OVERVIEW
We had positive net absorption of 68,000 SF and approximately 1.5 million SF of leasing activity in 2011. The
large disparity between net absorption and leasing activity indicates that most of the leasing activity was
concentrated in lease renewals with significantly less new tenant or expansion activity.
As we head into February 2012 we are seeing a rise in the index of our nation’s leading economic indicators,
NEW SUPPLY, ABSORPTION AND VACANCY RATES consumer confidence index, and a surge in the help wanted index prompting many firms to begin
a rise in the
VACANCY BY SPACE TYPE hiring. This will result in more office space needed which will equate to lower vacancy rates and higher rents.
HISTORICAL RENTAL RATE TRENDS
3.0 Q4 2011 Q3 2011 CHANGE 20% Class A & Overall Office Rates
So far in 2012 San18% Diego’s economic recoveryAverage Asking Rate Per SF Per Month (Full Service) job creation and declining
Quarterly is gathering momentum with rising
2.5
Direct 14.51% 14.73% unemployment. San Diego had the second fastest hiring pace in the state with a 2.6% jump in jobs behind
2.0
Silicon Valley with technology alone increasing by 4.2%. New jobs are coming from the same sectors that
16% $3.30
SUBLEASE 0.90% 0.76% created jobs in recent years such as technology, secondary education, health care, Biotech, and professional
14% $3.20
$3.10
1.5
TOTAL 15.40% 15.49% services. However, our defense sector will likely undergo downsizing as our national defense budget gets cut.
12%
Vacancy Rate
SF (Millions)
$3.00
$ / SF / Month (FS)
1.0 10% $2.90
Several local employers have committed to large blocks of space including LPL who pre-leased the second
$2.80
0.5 phase of La Jolla Commons in UTC for 415,000 SF, and TD Ameritrade who signed a lease in Sorrento Mesa
8% $2.70
for 110,000 SF. Qualcomm, San Diego’s largest technology company is searching for over 250,000 SF with
6% $2.60
0.0
multiple requirements. What is significant$2.50point out is the willingness of many firms to commit to longer
4% to
-0.5 lease terms as compared to recent years past. With job growth accelerating and lease rates still at low levels,
$2.40
VACANCY BY CLASS 2% $2.30
firms are recognizing the opportunity to lock in rates for longer terms. Tenants still have the upper hand when
$2.20
-1.0 Q4 2011 Q3 2011 CHANGE negotiating for office space, however this window may be closing as some landlords are beginning to raise
0%
$2.10
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 especially for Class A space. $2.00
rental rates 2011
CLASS A 14.12% 14.54% Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Several factors that could influence 2012’s momentum include the European debt09 10 10 U.S. Presidential and
06 07 07 07 07 08 08 08 08 09 09 09 crisis, 10 10 11 11 11 11
CLASS B 17.96% Absorption
Net 17.89% New Supply Vacancy
congressional elections, and San Diego’s mayoral elections. These factors will impact business decisions for
CLASS C 12.93% 12.65% our corporate community’s future expansion plans and could curtail investment in venture capital funding, the
Class A All Classes
lifeblood of start-up firms ranging from technology to Biotech to clean-tech.
NET ABSORPTION | VACANCY
OFFICE LEASING ACTIVITY BY TENANT SIZE
With rental rates gradually inching up from historic lows, demand in Q4 Class A space continues to dominate
Percentage of Total Leases Completed for 2011
OFFICE VACANCY RATES
OFFICE VACANCY RATES absorption activity. In 2011, both Class A and B space saw strong improvement totaling 978,000 square feet
Q4 2011
Q4 2012 and 284,000 SF, respectively.
9.5%
15.4%
S.D. County Overall net absorption for the suburban submarkets totaled 120,000 SF with 91,000 SF concentrated in Class
24.7%
14.1% 3.5%
A space. The suburban submarkets absorbed nearly 1.2 million SF in 2011 with Class A space constituting
14.7% most of this demand with 960,000 SF feet absorbed. 2.2% <= 2,000 SF [278]
Suburban
13.3%
Seven submarkets had significantly strong demand totaling over 100,000 SF of net absorption with Mission
2,001 - 5,000 SF [114]
19.8%
Downtown Valley (301,000 SF), Carlsbad (275,000 SF) and Sorrento Mesa (250,000 SF) being the top three areas.
16.9% 5,001 - 10,000 SF [44]
0% 5% 10% 15% 20% 25%
With eight consecutive quarters of positive net absorption our countywide total vacancy rate 20,000 SF [16] to
10,001 - has dropped
15.4% which is comprised of 14.5% direct vacancy and 0.9% sublease vacancy.
>= 20,001 SF [10]
All Classes Class A NEW SUPPLY
No new speculative office construction was completed in Q4 resulting in the slowest year for new office
development in over fifty years. Only 250,000 SF feet was under construction for the FBI build-to-suit in
60.2%
Sorrento Mesa.
TENANT ADVISORY SERVICES
Plans for a new 950,000 SF mixed-use office project in San Marcos were announced recently. The new
WEBSITE project – aptly named “North City” – will be located in close proximity to UC San Marcos and is expected to
CLICK
break ground in 2012.
LOOKING AHEAD
HERE With continued net absorption and large blocks of space diminishing, executives would be wise to implement a
plan to secure expansion space and lock in favorable lease terms now or be forced to take lesser quality space
in less desirable areas
Colliers International | Accelerating success. | www.colliersTAS.com

2. TENANT OUTLOOK REPORT | WINTER 2012 | OFFICE | SAN DIEGO COUNTY
TENANT ADVISORY SERVICES
OFFICE OVERVIEW
San Diego County Office Market
Winter 2012
OFFICE OVERVIEW
San Diego County Office Market�
Q4 2011
EXISTING PROPERTIES
EXISTING PROPERTIES VACANCY
VACANCY NET ABSORPTION
NET ABSORPTION
Total Direct Sublease Total Prior Qtr Net Abs Net Abs
Inventory Vacancy Vacancy Vacancy Vacancy Current Qtr YTD
Submarket / Class Bldgs SF Rate Rate Rate Rate SF SF
DOWNTOWN
A 20 7,254,266 15.3% 1.5% 16.9% 17.4% 36,025 19,561
B 25 2,232,115 24.7% 0.3% 25.0% 21.2% (84,336) (25,367)
C 14 776,591 31.7% 0.0% 31.7% 31.1% (4,349) (23,685)
TOTAL 59 10,262,972 18.6% 1.1% 19.8% 19.2% (52,660) (29,491)
MISSION VALLEY
A 13 2,008,118 15.3% 0.8% 16.2% 17.2% 20,954 176,229
B 61 3,360,970 11.7% 0.2% 11.9% 12.8% 28,066 83,104
C 66 1,596,960 9.3% 0.3% 9.6% 9.1% (5,015) 41,443
TOTAL 140 6,966,048 12.2% 0.4% 12.6% 13.1% 44,005 300,776
KEARNY MESA
A 24 2,436,160 6.2% 0.8% 6.9% 6.0% (21,725) 16,260
B 73 3,272,367 13.1% 0.2% 13.3% 12.8% (17,634) (42,075)
C 89 2,017,130 21.0% 0.1% 21.0% 20.7% (6,761) (133,930)
TOTAL 186 7,725,657 13.0% 0.4% 13.3% 12.7% (46,120) (159,745)
UTC
A 20 3,088,798 18.9% 0.8% 19.7% 21.4% 52,215 128,184
B 12 928,360 25.9% 3.2% 29.1% 28.6% (4,029) 47,332
C 6 320,381 8.3% 0.0% 8.3% 7.5% (2,460) (3,195)
TOTAL 38 4,337,539 19.6% 1.3% 20.9% 21.9% 45,726 172,321
SORRENTO MESA
A 24 3,655,796 2.4% 1.5% 3.9% 5.0% 24,862 85,128
B 40 2,882,491 10.2% 0.3% 10.5% 11.1% 16,625 141,005
C 44 920,986 13.9% 0.0% 13.9% 15.0% 10,484 23,980
TOTAL 108 7,459,273 6.9% 0.8% 7.7% 8.6% 51,971 250,113
CARMEL VALLEY
A 41 3,581,695 9.1% 5.0% 14.1% 14.0% 14,893 53,929
B 26 1,299,977 19.9% 1.3% 21.2% 21.6% 4,471 56,502
C 1 13,914 0.0% 0.0% 0.0% 0.0% 0 0
TOTAL 68 4,895,586 12.0% 4.0% 16.0% 15.9% 19,364 110,431
RANCHO BERNARDO
A 19 2,232,431 8.2% 0.1% 8.3% 8.0% (4,786) 105,529
B 45 1,833,832 12.2% 0.8% 13.1% 13.1% 1,659 28,964
C 25 490,093 13.0% 0.7% 13.7% 14.3% 3,013 (2,528)
TOTAL 89 4,556,356 10.3% 0.4% 10.8% 10.8% (114) 131,965
CARLSBAD
A 44 2,000,467 23.5% 1.7% 25.3% 25.1% 21,248 200,468
B 108 2,966,038 21.5% 1.0% 22.5% 22.6% (8,830) 62,959
C 38 567,571 13.7% 0.0% 13.7% 13.7% (5,190) 12,055
TOTAL 190 5,534,076 21.4% 1.1% 22.6% 22.6% 7,228 275,482
SAN DIEGO COUNTY OFFICE
A 287 31,229,198 12.5% 1.6% 14.1% 14.5% 127,125 978,482
B 905 31,090,220 17.4% 0.6% 18.0% 17.9% (33,250) 284,320
C 1,151 15,999,164 12.8% 0.1% 12.9% 12.6% (26,858) (140,468)
TOTAL 2,343 78,318,582 14.5% 0.9% 15.4% 15.5% 67,017 1,122,334
Colliers International | p. 2
Colliers International | Accelerating success. | www.colliersTAS.com

3. TENANT OUTLOOK REPORT | WINTER 2012 | OFFICE | SAN DIEGO COUNTY
RATES
HISTORICAL RENTAL RATE TRENDS RENTAL RATES
HISTORICAL RENTAL RATE TRENDS Office Rates
20%
480 offices in
Class A & Overall
Class A & Overall Office Rates Since a historical high point
18% Quarterly Average Asking Rate Per SF Per Month (Full Service)
Quarterly Average Asking Rate Per SF Per Month (Full Service) in Q2 2008, average asking
61 countries on
16% $3.30 rental rates in all office
$3.30 $3.20
14%
$3.20 $3.10
classes have been steadily
$3.10
12% decreasing. As of Q4 2011,
6 continents
Vacancy Rate
$3.00
$3.00
$ / SF / Month (FS)
10% $2.90 the Class A rate and
$ / SF / Month (FS)
$2.90 $2.80
8%
$2.80 combined rate for all classes
$2.70 United States: 135
$2.70
6% $2.60 are both down 20.1% and
Canada: 39
$2.60 $2.50 22.8%, respectively, from
4%
$2.50 Latin America: 17
$2.40 their historical highs reached
$2.40
2% $2.30 Asia Pacific: 194
$2.30 in the first quarter of 2008.
0%
$2.20 EMEA: 95
$2.20 $2.10 Some submarkets are
2009 2010 2011$2.10 $2.00 showing signs of a reversal
$2.00
• $1.9 billion in annual revenue
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 in this trend. Q2 Q3 Q4
Q2 Q3 Q4 Q1
Vacancy
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 09 10 10 10 10 11 11 11 11
06 07 07 07 07 08 08 08 08 09 09 09 billion square feet under
• 2.4
06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 management
Class A All Classes
Class A All Classes • Over 15,000 professionals
LEASING ACTIVITY
OFFICE LEASING ACTIVITY BY TENANT SIZE
OFFICE LEASING ACTIVITY BY TENANT SIZE
A total of 462 leases were Percentage of Total Leases Completed in Q4 2011
Percentage of Total Leases Completed in Q4 2011
Tenant Advisory Services
completed in Q4 totaling 1.5
million square feet. The total
9.5% www.ColliersTAS.com
leased square footage in Q4 9.5% 24.7%
was down 13.2% from Q3;
24.7% 3.5%
overall leasing activity in
3.5% > Only represent tenants in their
2011 was down 32.6% from
2.2% <= 2,000 SF [278] office lease and purchase
2.2% <= 2,000 SF [278]
2010. 2,001 - 5,000 SF [114]
negotiations
2,001 - 5,000 SF [114]
5,001 - 10,000 SF [44]
5,001 - 10,000 SF [44] > Provide objective conflict-free
10,001 - 20,000 SF [16] advice with full service
10,001 - 20,000 SF [16] resources
>= 20,001 SF [10]
>= 20,001 SF [10]
> Increase profitability &
mitigate risk
60.2%
60.2%
RON MILLER
Senior Director
Tenant Advisory
Services
OFFICE SPACE TIME-ON-THE-MARKET
Average Months by Submarket and Class
g y 858.677.5363
30 LIC # 00874868
24
25.6
25.5
24.8
18 Ron Miller is a tenant advisory
21.8
20.6
20.5
20.0
19.7
specialist. His expertise encompasses
Months
19.2
18.9
18.6
18.3
18.2
17.6
17.5
17.1
17.1
17.1
16.9
12
16.0
15.8
15.4
relocation / expansion / contraction
4.0
3.7
3.7
13.5
M
1
1
13
13
14
1
10.8
6 strategies, lease renewal and
0 restructuring, market analysis, and
Downtown Mission Kearny UTC Sorrento Carmel Rancho Carlsbad San Diego user purchase opportunities. With
Valley Mesa Mesa Valley Bernardo County his extensive career experience
Class A Class B All Classes in representing both tenants and
landlords, Ron offers a unique
perspective and valuable insight to his
TIME ON MARKET tenant clients.
Time-on-the-market for Class A office space is averaging 20 months countywide.
Colliers International
4660 La Jolla Village Drive, Suite 100 San Diego, CA 92122 | USA
tel +1 858.677.5363
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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
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