This report summarizes office market trends in the San Diego area for the second quarter of 2017. It provides statistics on vacancy rates, absorption, rental rates, and notable leasing and sale transactions. Two key submarkets, Kearny Mesa and Mission Valley, had overall vacancy rates of 9.23% and 9.1% respectively. Kearny Mesa posted strong net absorption of 136,858 square feet year-to-date and average asking rental rates increased 4.7% from a year ago. Mission Valley saw negative absorption of 46,568 square feet year-to-date and average rents increased 3.8% from a year ago. The report also forecasts continued positive absorption and rising rental rates for San Diego overall

1. KM
MV
O F F I C E R E P O R T
Q22017

2. 14.3%
13.8%
12.6% 12.9%
11.6% 11.8%
-0.5
0.0
0.5
1.0
1.5
2.0
2012 2013 2014 2015 2016 2017
Net Absorption Construction Completed Vacancy
Square Feet (Millions) Vacancy Rate
$2.00
$2.20
$2.40
$2.60
$2.80
$3.00
$3.20
$3.40
Q212
Q213
Q214
Q215
Q216
Q217
Class A All Classes
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Sandiegohistoricalofficemarkettrends Sandiegohistoricalofficerentalrates
PROPERTY / ADDRESS TENANT SUBMARKET CLASS SIZE (SF) TYPE
2200 Faraday Avenue GreatCall Carlsbad B 62,120 Sublease
8880 Rio San Diego Drive Dept. of Veterans Affairs Mission Valley A 44,794 Renewal
10680 Treena Street Kratos Defense & Security Scripps Ranch A 26,192 New location
225 Broadway Gensler Downtown A 21,000 New location
9665 Granite Ridge Drive Entercom San Diego Kearny Mesa A 18,275 New location
15110 Avenue of Science Otter Products, LLC Rancho Bernardo B 17,315 Renewal
PROPERTY / ADDRESS SUBMARKET CLASS SIZE (SF) SALE PRICE PRICE/SF BUYER SELLER
6010 Hidden Valley Rd Carlsbad B 49,580 $30,050,000 $606 Montecito Medical R.E. Foley Properties
6925 & 6965 Lusk
Boulevard
Sorrento Mesa B 124,303 $26,100,000 $210 HCP, Inc. Colony Northstar, Inc.
9860 Mesa Rim R d Sorrento Mesa B 40,755 $12,500,000 $307 CMS Capital Holdings, LLC Washington Capital
Mgt.
5015 Shoreham Pl Governor Park B 25,600 $11,200,000 $438 Persnickety Painters, Inc. Locale Advisors, Inc.
171 Saxony Road Encinitas A 30,694 $10,400,000 $339 Commercial Equity
Partners
Birtcher Anderson
Realty
6120 Paseo Del Norte Carlsbad C 30,388 $8,550,000 $282 Coast Counties Prop. Mgt. C.S. Burton Co.
* Price based on square footage of existing building; land excluded.
Trend Forecast & Outlook
While San Diego County started off with negative demand for the first half of 2017, the level of negative activity is not
indicative of change in the market dynamics. In fact, several large blocks will absorb in the second half of the year such
as Illumina in UTC and government offices for the City of San Diego in Downtown.
Leasing activity remains steady, albeit at a 22% lower rate than the same period last year. Some of the decrease in
leasing activity can be explained by an increase in lease renewal activity, since lease renewals aren’t always captured in
leasing activity (comparables and transaction activity are not always available). Lease renewal activity typically results in
no net absorption change since many tenants are inclined to control rent costs by not having relocate or expand.
Net absorption in 2017 will likely remain in positive territory. It won’t nearly have the magnitude as the years from 2010 to
2016 when absorption averaged 1.1 million SF annually. Absorption will likely be around a half-a-million SF with vacancy
falling to about 11%.
OVERVIEW/KEY TAKEAWAYS
NOTABLETRANSACTIONS
LEASE
SALE
STATISTICS
MARKET INDICATORS
Relative to prior period Q2 2017 Q2 2016 Change
Overall Vacancy (incl.
sublease) 11.77% 12.57% 
Net Absorption SF (27,913) 193,284 
Under Construction SF 759,899 247,597 
Average Asking Rent (FS) $2.63 $2.47 
* Projected, relative to prior period
** Rental rates are based on average asking rates
3.6%
Net Absorption
YTD 2017
(158,087) SF
Under Construction
YTD 2017
Unemployment
SD County - May 2017
759,899 SF
Total Vacancy Rate
All Product Types - YTD 2017
11.77%
Total Job Growth - Last 12 Months
JOB GROWTH
Source: Bureau of Labor Statistics, 12-month change (5/2016-5/2017), San Diego County
Professional & Business Services Financial Activities
20,000
new jobs
increase
1.4%
0.5%
1,100
new jobs
3.6%
2,600
new jobs

3. The Kearny Mesa office submarket is one of the strongest markets in San Diego. For the first half of 2017, the area posted
136,858 SF of positive net absorption – the most of any submarket countywide. Q2 2017 saw 9,708 SF of net absorption
across all classes which brought down overall vacancy to 9.23%. Overall vacancy is down by 312 basis points (bps) from
a year ago (12.35% in Q2 2016). In particular, the Class A and Class B office submarkets posted vacancies at 8.76% and
6.90% respectively, during Q2, 2017.
Averaging asking rental rates in Kearny Mesa stood at $2.22/SF on a “full service” basis as of Q2 2017. This equates to
a 4.7% increase from a year ago ($2.12 in Q2 2016). As demand continues to be robust, we can expect to see steadily
increasing rental rates amongst all office classes.
The Kearny Mesa medical office is comprised of 1.0 million SF of space dedicated to facilities exclusive to medical users and
tenants. Because the more specialized base of tenants and improvements in these projects, average asking rental rates tend
to be higher. The Q2 2017 average rate stood at $3.29/SF. The rate increased by 21.0% compared to a year ago ($2.72 in
Q2 2016).
Medical office demand has been good as evident by 19,427 SF of positive net absorption for the first half of 2017. As of
Q2 2017, vacancy stands at 5.71% -- the lowest level in over 15 years. Because there is currently no medical office under
construction nor proposed for future development in Kearny Mesa, we can expect vacancy to further decline and rental rates
to continue to accelerate.
KMSNAPSHOT
212 buildings
8.97 SF million total inventory
828,601 SF total vacancy
8.68% direct vacancy rate
136,858 YTD net absorption
$2.22 average asking rate
KEARNYMESA
office buildings sold in Q2 20170
total vacancy for
Q1 20179.23%
class “B” Vacancy6.90%B
options to lease in all buildings
from 2,500-5,000 SF99
10,000+ SF leases in Q2 20171
Lease (Kearny Mesa) Tenant SF Leased Class Term Rate TIA Free Rent Type
Stonecrest 9665 Granite Ridge Drive Entercom San Diego, LLC 18,275 A 122 Months $2.80 + E $65.00 PSF 2 Months New
Mesa View Plaza 9350 Waxie Way Coastal Payroll Services 9,363 A 78 Months $2.60 + E $60.00 PSF 6 Months New
Sky Park Office Plaza 9325 Sky Park Court Lorian Health 6,976 A 64 Months $2.95 + E $10.00 PSF 4 Months Renewal
Canyon Corporate Center 3870 Murphy Canyon Road Johnson & Jennings 5,727 B 90 Months $2.05 + E $55.00 PSF 6 Months New
Balboa Executive Center 9444 Balboa Ave Health IQ 5,548 A 37 Months $2.65 + E $0.36 PSF 1 Month New
class “A” vacancy8.76%A

4. The Mission Valley office submarket has one of the most diverse tenant bases in the county, with users such as financial
firms, real estate offices, legal services and other professional services. Forthe first half of 2017, the area posted 46,586
SF of negative net absorption. Q2 2017 contributed to most of the space put on the market – 30,851 SF of negative
absorption – resulting in a 45 basis point (bps) increase to 9.1%. The overall vacancy for Mission Valley is also 260 bps
lower than the countywide average of 11.7%. Mission Valley’s overall vacancy is down by 204 basis points (bps) from a
year ago (11.14% in Q2 2016).
Class A and Class B office submarkets posted overall vacancies 10.6% and 9.8%, respectively, during Q2 2017. Class
C had the lowest vacancy of 5.7%. All three class vacancies are lower that the countywide averages for each for class.
Averaging asking rental rates in Mission Valley stood at $2.45/SF on a “full service” basis as of Q2 2017. This equates
to a 3.8% increase from a year ago ($2.36 in Q2 2016). Mission Valley is expected to see increased rents over the next
year as demand picks up pace.
There is currently no new space under construction in Mission Valley. However, the Casey Brown Company is
redeveloping the former Union-Tribune newspaper office and printing press buildings. The project is expected to be
completed within the first quarter of 2018.
MVSNAPSHOT
144 buildings
7.08 SF total inventory
622,454 total vacancy
8.36% direct vacancy rate
-46,568 YTD net absorption
$2.35 average asking rate
Lease (Mission Valley) Tenant SF Leased Class Term Rate TIA Free Rent Type
Centerside II 3131 Camino Del Rio North Centene Corporation 10,080 A 60 Months $2.75 FS $50.00 PSF 1 Month New
Plaza 2020 / 2020 Camino Del Rio North Forward Slope 8,262 B 65 Months $2.80 FS $8.00 PSF 5 Months Renewal
Rio Vista Plaza III 9095 Rio San Diego Drive Caliber Funding 7,700 A 64 Months $2.80 + E $35.00 PSF 4 Months Expansion
Centerside I 3111 Camino Del Rio North Pulice Construction 5,447 A 61 Months $2.75 FS $1.00 PSF 1 Month New
Mission Center Office Park 5333 Mission Center
Road
California Teacher's
Association
5,213 B 26 Months $2.30 + E $0.00 PSF 2 Months Renewal
MISSIONVALLEY
total vacancy for
Q2 20179.10%
class “A”
vacancy rate9.52%A
buildings sold during Q20class “B”
vacancy rate11.10%B
projects on the market for sale7
being added to
the market330,000 SF

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