The San Diego County office market saw steady demand in Q3 2012 with 205,000 SF of positive net absorption. Vacancy rates decreased slightly to 14.7% as absorption outpaced new supply. Rental rates have stabilized after bottoming out in 2011 and are rising for Class A space in certain submarkets as vacancy declines. However, economic and political uncertainties could impact demand if planned defense budget cuts materialize in early 2013 as anticipated.

1. FALL 2012 | OFFICE | TENANT ADVISORY SERVICES
SAN DIEGO COUNTY
TENANT OUTLOOK Report
Steady office demand
with uncertainties on the horizon
MARKET OVERVIEW
Demand in the San Diego County office market recorded over 205,000 SF of positive net absorption in the
third quarter. Much of the demand was driven by larger tenants such as ServiceNow, The County of San
Diego and Solar Turbines that signed leases in the prior quarters. With a 19% dip in leasing activity in Q3
we will expect a smaller positive net absorption by year-end.
San Diego County’s unemployment rate measured 9.0% in August, with California’s unemployment rate at
10.4%. The combined industry sectors of “Professional and Business Services” and “Financial Activities”
– the two predominant office-utilizing employment sectors – posted a combined gain of 8,900 jobs.
NEW SUPPLY, ABSORPTION AND VACANCY RATES we should expect small increases in theRENTAL RATE TRENDS companies are scaling back
However, HISTORICAL months ahead as several
VACANCY BY SPACE TYPE their head counts in anticipation of the upcomingOffice Rates
Class A & Overall elections.
3.0 20% Quarterly Average Asking Rate Per SF Per Month (Full Service)
Q3 2012 Q2 2012 CHANGE
YTD we have had steady employment growth, primarily from Technology, Life Sciences, and Healthcare.
18% $3.30
2.5
Direct 14.17% 14.37% Unexpected growth has occurred within the Craft Brewery industry which has become one of the most
16%
$3.20
2.0
0.55% 0.61%
recognized beer communities in the country growing from 50 breweries to 70 in 2012 alone. However,
$3.10
SUBLEASE 14%
there’s heated discussions on what will$3.00
happen after January 2, 2013 with planned budget cuts in the
$ / SF / Month (FS)
1.5 $2.90
TOTAL 14.73% 14.98% Defense sector and the impact this will$2.80 on San Diego’s jobs and economy.
12% have
Vacancy Rate
SF (Millions)
1.0 10% $2.70
Defense related firms are preparing for$2.60 worst and making adjustments to their business such
8% the
0.5
as freezing any hiring and capital expenditures. A recent study compiled by National Association of
$2.50
6%
0.0 Manufacturers is anticipating that California may lose up to 148,000 jobs in 2014 relating to cuts in
$2.40
$2.30
defense spending. Furthermore with “sequestration” there could be drastic effects on the national and
4%
$2.20
-0.5
VACANCY BY CLASS local employment and economy. Should this feared concept materialize, our government will implement
2%
$2.10
-1.0 Q3 2012 Q2 2012 CHANGE
$1.2 trillion budget cuts over 10 years with $500 billion occurring from defense cuts. With about 25% of
0% $2.00
all San Diego jobs tied to the military sector this will Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 on Q2 Q3local economy.
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q3 Q4 Q1 have an unbelievable impact Q1 our Q4 Q1 Q2 Q3
CLASS A 12.78% 12.99% Q3 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12
NET ABSORPTION and VACANCY
CLASS B 17.34% Absorption
Net 17.78% New Supply Vacancy Class A All Classes
CLASS C 12.60% 12.51% Class A contributed 64,000 SF of the 205,000 SF absorbed in Q3. YTD absorption is 487,000 SF with
414,000 SF in Class A.
Class B office space experienced 157,000 SF of positive absorption in Q3 bringing the YTD total to 63,000
SF YTD. Class B activity has been driven by LEASING increase in demand bySIZE
OFFICE a recent ACTIVITY BY TENANT smaller tenants.
Percentage of Total Leases Completed in Q3 2012
OFFICE VACANCY RATES
OFFICE VACANCY RATES
Q3 2012 The increase in absorption by smaller tenants noted over the last three quarter will likely continue
Q3 2012
throughout the remainder of the year. With a 9% decrease in the total number of executed leases in Q3
14.7%
compared to Q2, activity should be comparable during the last quarter. Economic and election uncertainty
28.3% 6.6%
S.D. County has kept many tenants, users and investors on the sidelines waiting to make any substantial real estate
12.8% 0.9%
decisions.
Suburban
14.0% 2.4% <= 2,000 SF [336]
11.3% The top office markets with positive net positive absorption in Q3 include UTC posting 101,000 SF and
2,001 - 5,000 SF [154]
Downtown San Diego (CBD) with 37,000 SF net absorption. Overall net absorption for the suburban
20.1%
Downtown
17.7% submarkets totaled 169,000 SF with 51,000 SF concentrated in Class A space and5,001 - 10,000 SFfor Class B.
124,000 SF [36]
Class C for all markets compiled a negative 15,000 SF.
0% 5% 10% 15% 20% 25% 10,001 - 20,000 SF [5]
The countywide average asking rental rate for all classes bottomed out in 2011. With consistent absorption
>= 20,001 SF [13]
All Classes Class A and declining vacancy rates, the majority of the Class A office markets are experiencing rising rental rates
and diminishing concessions. The markets with the highest Class A office monthly rental rates include
Carmel Valley ($3.20 psf + E) and UTC ($2.95 psf FS).
61.8%
The countywide average asking rental rate for all classes bottomed out in 2011. With consistent absorption
and declining vacancy rates, the majority of the Class A office markets are experiencing rising rental rates
and diminishing concessions. The markets with the highest Class A office monthly rental rates include
TENANT ADVISORY SERVICES Carmel Valley ($3.20 psf + E) and UTC ($2.95 psf FS).
WEBSITE
CLICK
Ten of the last 11 quarters have posted positive net absorption, culminating in a countywide total vacancy
rate that has dropped to 14.7% in Q3 2012. The countywide total vacancy is comprised of 14.2% direct
vacancy and 0.6% sublease vacancy.
HERE With the continued demand we are expecting the overall vacancy rate to drop to approximately 14.5% by
year-end 2012
Colliers International | Accelerating success. | www.colliersTAS.com

2. TENANT OUTLOOK REPORT | FALL 2012 | OFFICE | SAN DIEGO COUNTY
TENANT ADVISORY SERVICES
OFFICE OVERVIEW
San Diego County Office Market | FALL 2012
OFFICE OVERVIEW
San Diego County Office Market�
Q3 2012
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 17.3% 0.4% 17.7% 17.9% 13,156 (39,993)
B 25 2,232,115 22.8% 0.4% 23.2% 24.6% 32,519 53,538
C 13 663,591 36.9% 0.0% 36.9% 35.5% (8,814) 1,569
TOTAL 58 10,149,972 19.7% 0.4% 20.1% 20.5% 36,861 15,114
MISSION VALLEY
A 13 2,008,118 11.2% 0.7% 11.9% 13.8% 38,399 98,766
B 61 3,360,970 13.0% 0.9% 13.9% 12.4% (49,474) (62,188)
C 66 1,596,960 10.0% 0.3% 10.3% 11.2% 13,727 (12,313)
TOTAL 140 6,966,048 11.8% 0.7% 12.5% 12.5% 2,652 24,265
KEARNY MESA
A 19 2,271,526 5.2% 1.0% 6.2% 6.3% 3,404 22,287
B 102 4,749,030 11.2% 0.0% 11.2% 12.2% 49,016 77,154
C 92 1,893,912 17.9% 0.0% 17.9% 18.7% 14,993 (3,517)
TOTAL 213 8,914,468 11.1% 0.3% 11.4% 12.1% 67,413 95,924
UTC
A 20 3,088,798 11.3% 0.3% 11.7% 12.0% 11,175 211,727
B 13 1,146,235 8.7% 0.0% 8.7% 16.9% 94,004 169,711
C 6 320,381 6.0% 0.0% 6.0% 4.8% (3,974) 7,231
TOTAL 39 4,555,414 10.3% 0.2% 10.5% 12.8% 101,205 388,669
SORRENTO MESA
A 21 3,456,338 3.7% 0.5% 4.2% 3.3% (30,568) (12,097)
B 55 4,517,095 13.2% 0.5% 13.7% 14.5% 34,233 24,587
C 44 906,020 15.1% 0.0% 15.1% 12.1% (26,721) (14,186)
TOTAL 120 8,879,453 9.7% 0.4% 10.1% 9.9% (23,056) (1,696)
CARMEL VALLEY
A 41 3,582,193 12.1% 1.7% 13.8% 13.7% (3,337) 11,558
B 26 1,299,977 20.6% 4.9% 25.5% 21.0% (58,757) (55,445)
C 1 13,914 0.0% 0.0% 0.0% 0.0% 0 0
TOTAL 68 4,896,084 14.3% 2.5% 16.9% 15.6% (62,094) (43,887)
RANCHO BERNARDO
A 19 2,232,431 8.0% 0.3% 8.2% 7.7% (13,155) 319
B 58 2,647,973 14.0% 0.1% 14.1% 13.4% (17,915) (45,685)
C 25 490,093 8.0% 0.0% 8.0% 8.1% 461 27,825
TOTAL 102 5,370,497 11.0% 0.1% 11.1% 10.5% (30,609) (17,541)
CARLSBAD
A 44 2,000,467 22.3% 0.7% 23.0% 24.5% 30,624 46,045
B 109 2,988,291 22.9% 0.5% 23.4% 24.5% 32,587 (33,673)
C 38 567,571 14.4% 0.6% 15.1% 13.9% (6,622) (7,821)
TOTAL 191 5,556,329 21.8% 0.6% 22.4% 23.4% 56,589 4,551
SAN DIEGO COUNTY OFFICE
A 276 30,807,949 12.1% 0.7% 12.8% 13.0% 63,773 414,300
B 966 35,520,801 16.7% 0.6% 17.3% 17.8% 156,567 62,740
C 1,150 15,472,218 12.4% 0.2% 12.6% 12.5% (14,973) 9,746
TOTAL 2,392 81,800,968 14.2% 0.6% 14.7% 15.0% 205,367 486,786
Average rental rates are defined as the average asking monthly rate per square foot normalized to a “full service gross” basis.
Colliers International | p. 2
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3. TENANT OUTLOOK REPORT | FALL 2012 | OFFICE | SAN DIEGO COUNTY
RATES RENTAL RATES
HISTORICAL RENTAL RATE TRENDS Office Rates RATE TRENDS
HISTORICAL RENTAL
522 offices in
Class A & Overall
Class A & Overall Office Rates
Quarterly Average Asking Rate Per SF Per Month (Full Service) For four years, the average
20%
Quarterly Average Asking Rate Per SF Per Month (Full Service)
asking rental rate in all office
62 countries on
18% $3.30
$3.30 classes had been steadily
$3.20
$3.2016% decreasing decreased and
$3.10
$3.10
$3.00
14%
12%
$3.00
$2.90
$ / SF / Month (FS)
bottomed out at $2.10/SF/
month “full service gross” at
6 continents
$ / SF / Month (FS)
Vacancy Rate
$2.90
$2.80
$2.8010% $2.70 the end of 2011. However, United States: 125
$2.70
8% $2.60 for the last three quarters, Canada: 38
$2.60
$2.50 the average rate for all
$2.506% $2.40 Latin America: 18
$2.40
4% $2.30 classes increased has Asia Pacific: 214
$2.30 $2.20 remained level at $2.11/SF.
$2.202% EMEA: 117
$2.10 The Class A rate of $2.58/
$2.10 $2.00
0%
$2.00 SF had remained flat for the • $68 billion in annual revenue
2010 2011 2012 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Q3
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
07 07 08 08 08 08 09 09 09 09 10 10
previous three quarters, but
10 10 11 11 11 11 12 12 12 billion square feet under
• 1.25
07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 made a notable increase management
Vacancy Class A (+$0.05 to $2.63/SF) in Q2
All Classes
Class A All Classes
and increased again in Q3 to • Over 12,300 professionals
$2.64/SF.
LEASING ACTIVITY
OFFICE LEASING ACTIVITY BY TENANT SIZE Tenant Advisory Services
OFFICE LEASING ACTIVITY BY TENANT SIZE
A total of 544 Total Leases Completed in Q3 2012 of Total Leases Completed in Q3 2012
Percentage of
leases were Percentage
completed in Q3 totaling 1.6 www.ColliersTAS.com
million square feet. This
equated to a 28.3%
9% decrease in 28.3% 6.6%
6.6% > Only represent tenants in their
lease transactions compared 0.9% office lease and purchase
0.9%
to the previous quarter. In 2.4% negotiations
<= 2,000 SF [336]
terms of square footage, the 2.4% <= 2,000 SF [336]
drop in leasing equated to a 2,001 - 5,000 SF [154]
19% decrease over under Q2
2,001 - 5,000 SF [154] > Provide objective conflict-free
but was a 5% improvement 5,001 - 10,000 SF [36]
5,001 - 10,000 SF [36] advice with full service
over Q1. Absorption is 10,001 - 20,000 SF [5] resources
10,001 - 20,000 SF [5]
expected to be minimal – but >= 20,001 SF [13]
positive – in Q4 based on the >= 20,001 SF [13] > Increase profitability &
lower leasing activity levels mitigate risk
in Q3.
61.8% RON MILLER
61.8%
Senior Director
Tenant Advisory
Services
OFFICE SPACE TIME-ON-THE-MARKET
Average Months by Submarket and Class 858.677.5363
36 LIC # 00874868
30
33.3
31.8
www.ronmillersd.com
29.4
29.4
24
28.2
27.1
27.1
26.4
26.0
25.2
24.8
24.3
24.0
23.4
Months
18
22.7
22.5
21.8
21.2
20.7
Ron Miller is a tenant advisory
20.1
19.8
18.8
18.6
18.2
17.6
12
16.5
specialist. His expertise encompasses
14.2
6
relocation / expansion / contraction
0
strategies, lease renewal and
Downtown Mission Kearny UTC Sorrento Carmel Rancho Carlsbad San Diego
Valley Mesa Mesa Valley Bernardo County restructuring, market analysis, and
user purchase opportunities. With
Class A Class B All Classes his extensive career experience
in representing both tenants and
landlords, Ron offers a unique
TIME ON MARKET perspective and valuable insight to
Time-on-the-market for Class A office space is averaging 27.1 months countywide. his tenant clients.
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 Accelerating success.
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