This document summarizes commercial real estate market trends in Silicon Valley for Q2 2012. Key points include: - Gross absorption dipped slightly from the previous quarter but remained within normal historical ranges. - Rents have increased almost 7% year-to-date across major property types. - Net absorption was positive at 1.46 million square feet, the third highest occupancy gain since 2007. - Available space continued to decline slightly, a promising trend for the market recovery. - The R&D sector posted modest but positive results, with eight straight quarters of declining vacancy rates.

1. Q2 2012 | SILICON VALLEY
SILICON VALLEY
RESEARCH & FORECAST REPORT
The Longest Recovery
OFFICE NAVIGATING THROUGH THE ROUGH ECONOMY
30.00% $4.00
From an employment standpoint, this is the longest economic cycle from recession to recovery
Warehouse
25.00% 12.00%since the end of World War II, according to Moody’s Analytics economic data. Looking historically
$0.70
$3.00
9.00% at previous recession and $0.50 recovery cycles, the average cycle lasted 26 months from peak
20.00% $0.60
15.00% $2.00
10.00%
employment pre-recession to the same level of employment post-recession. The current cycle
$0.40
6.00%
5.00%
$1.00
began in December of 2007, $0.30 reached its nadir in the second half of 2009, and now four and a half
3.00% $0.20
0.00%
Warehouse
$0.00 years since its beginning, the $0.10 country has still only recovered half of the jobs it lost. Given the slow
2
pace of this recovery, the news regarding the economy sounds like a broken record being played
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2
0
0
1
1
1
-1
-1
-1
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-1
0.00% $0.00
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-1
-1
Q4
Q2
Q1
Q2
Q3
Q1
Q3
Q4
12.00% Avg. Starting Rent Availability Rate $0.70
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1
2
0
0
1
1
1
-1
-1
-1
-1
-1
Vacancy Rate
-1
-1
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overStarting Rent Vacancy Rate makingRate
and over again, Availability people wonder if anything has changed. Although the Silicon Valley is
R&D
Q4
Q2
Q1
Q2
Q3
Q1
Q3
Q4
$0.60
Avg.
9.00%
25.00% $0.50
$2.00 faring better than the country as a whole, there is still a long climb that is fraught with challenges
$0.40
20.00%
6.00%
MARKET INDICATORS $1.50
$0.30 to get back to where we began.
15.00% $0.20
3.00% $1.00
10.00% Q1 2012 Q2 2012
$0.10 InAll Silicon Valley, leasing and user sale activity dipped slightly in the second quarter of 2012
the
0.00% $0.00
$0.50
5.00% generating 5.40 million square feet of gross absorption, a decrease of 9.8% compared to the 5.99
2
1
2
0
0
1
1
1
Availability Rate 13.60% 13.45%
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-1
-1
-1
-1
-1
Q4
Q2
Q1
Q2
Q3
Q1
Q3
Q4
Avg. Starting Rent Vacancy Rate
$0.00
Availability Rate million square feet of activity reported in Q1 2012. The decline may raise some eyebrows, but when
18.00%
Gross Absorption 5,987,278 SF 5,397,536 SF
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1
2
0
0
1
1
1
-1
-1
-1
-1
-1
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compared to the historical ten year gross absorption average of 5.81 million square feet per quarter
Q4
Q2
Q1
Q2
Q3
15.00%
Q1
Q3
Q4
Avg. Starting Rent Vacancy Rate Availability Rate
Net Absorption -293,292 SF 1,457,405 SF 12.00% decline is within a normal variance. Although we would like to see stronger activity overall,
the
Industrial
there seems to be little reason for concern because the market has naturally ebbed and flowed
9.00%
All
SILICON VALLEY AVAILABILITY
14.00% $1.00 during this slower economic recovery cycle.
6.00%
12.00% 3.00%
$0.80
10.00%18.00%
$0.60
There
0.00% continues to be optimism in the Silicon Valley as the weighted asking rents for all four
8.00%
15.00%
product types have increased by almost 7% since the beginning of the year. Given the nature of
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0
1
10
-1
-1
-1
-1
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-1
-
Q4
Q2
Q2
Q3
6.00%
Q1
Q1
Q3
Q4
$0.40
12.00%
4.00% this slow recovery, part of the decrease in activity during the second quarter can be attributed to
Vacancy Rate Availability Rate
2.00% 9.00%
$0.20
the landlords pushing up rent to see what the market will bear while the tenants muster up the
0.00% 6.00% $0.00
confidence to follow.
2
1
2
0
0
1
1
1
-1
-1
-1
-1
-1
-1
3.00%
-1
-1
Q4
Q2
Q1
Q2
Q3
Q1
Q3
Q4
Avg. Starting Rent Vacancy Rate Availability Rate
0.00% Although demand slowed down during the quarter, Silicon Valley’s net absorption of commercial
2
1
1
2
11
10
1
0
space was more robust than expected garnering a sizable occupancy gain. In Q2 2012, net
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-
-
Q4
Q2
Q2
Q3
Q1
Q1
Q3
Q4
Vacancy Rate Availability Rate absorption was positive 1.46 million square feet; the third highest occupancy gain since the first
quarter of 2007. Also noteworthy is the fact that three out of the four commercial real estate
SILICON VALLEY GROSS ABSORPTION product types that Colliers tracks had occupancy gains for the quarter, the exception being the
office sector which posted an occupancy loss.
5
4
Available space continues to decline, decreasing from 42.84 million square feet at the end of Q1 to
SquaF in Millions
42.42 million square feet in Q2. Although the change in available space is lacking in magnitude, it
3
continues to move in the right direction.
re eet
2
Although there are concerns, there is a reason for the Silicon Valley to hope. In December of 2007,
1
when turmoil in the economy first began, the Valley’s unemployment rate stood at 4.9%. Since
0 reaching its high watermark of 12.0% in January of 2010, Silicon Valley’s unemployment rate
2
12
clawed its way back to 8.4%. As the Valley treks through the recovery, the pace has been slower
1
2
1
0
0
1
-1
-1
-1
-1
-1
-1
-1
-
Q4
Q2
Q2
Q3
Q1
Q1
Q3
Q4
R&D Office Industrial Warehouse than expected. The Valley is halfway back but there’s another half to go.
www.colliers.com/sanjose

2. RESEARCH & FORECAST REPORT | Q2 2012 | SILICON VALLEY
R&D
This is the third straight quarter of Silicon Valley’s R&D sector posted modest promising trend. The R&D availability rate
positive net absorption for the R&D results for the second quarter of 2012. After decreased to 14.1% at the end of Q2 from 14.4%
sector, which is a promising trend. The posting an extremely strong 3.26 million square at the end of Q1. The decrease marks eight
R&D availability rate decreased to 14.1% feet of gross absorption in Q1, the R&D sector straight quarters of decline in availability from
at the end of Q2 from 14.4% at the end of
finished Q2 with a respectable 2.52 million the peak rate of 20.6% in Q2 2010.
Q1. The decrease marks eight straight
square feet of demand—just a tad shy of the
quarters of decline in availability from
OFFICE
the peak rate of 20.6% in Q2 2010. 2.62 million square feet per quarter, ten-year The five largest R&D submarkets accounted for
average. Year-to-date, R&D demand is running over 92% of the leasing and user-sale activity
30.00% at a 5.78-million-square-foot clip and is within
$4.00 in Warehouse total gross absorption of 2.34
Q2, with
striking distance of reaching Colliers’ forecasted million square feet between San Jose,
25.00% 12.00% $0.70
12.0 million square feet for$3.00
2012. Sunnyvale, Santa Clara, Fremont, and Mountain
20.00% $0.60
View.
9.00% Moreover, four of the five major $0.50
15.00% $2.00
Even though R&D activity took a dip during the submarkets registered positive net absorption
$0.40
10.00% quarter, the rate of previously occupied for the quarter; the exception being Sunnyvale
6.00%
$1.00 $0.30
5.00% “rollover space” coming to market decreased which experienced an occupancy loss in Q2.
3.00% $0.20
0.00% $0.00
Silicon Valley’s largest R&D submarket, San $0.10
2
1
2
10
0
1
1
1
-1
-1
-1
-1
-1
-1
R&D AVAILABILITY & RENT TRENDS Jose, posted gross absorption of 649,418 $0.00
0.00%
-1
-
Q4
Q2
Q1
Q2
Q3
Q1
Q3
Q4
2
1
2
0
0
1
1
1
square feet in Q2, 19.6% less than the 807,861
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-1
Avg. Starting Rent Vacancy Rate Availability Rate
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-1
R&D
Q4
Q2
Q1
Q2
Q3
Q1
Q3
Q4
square feet Starting Rent in Q1. Rate
Avg. recorded Vacancy Transactions Rate
Availability
25.00% $2.00 included 8X8 signing a 104,657-square-foot
20.00% lease on O’Nel Drive and Skyera subleasing
$1.50
81,778 square feet on Automation Drive. All in,
15.00%
$1.00
R&D net absorption in San Jose was positive to
10.00% the tune of 428,680 square feet, its third
All
$0.50 consecutive quarter of positive net absorption.
5.00%
$0.00 The18.00% Clara submarket benefited from
Santa
2
InfoBlox taking 126,594 square feet on
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0
1
1
1
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Q4
Q2
Q1
Q2
Q3
15.00%
Q1
Q3
Q4
Avg. Starting Rent Vacancy Rate Availability Rate
Coronado Drive and garnered a gain in R&D
occupancy of 190,366 square feet for Q2. The
12.00%
Industrial Q2 occupancy gain was enough to offset the
9.00%
98,604-square-foot R&D occupancy loss in Q1
14.00% as well. The net result of$1.00 slower flow of
the and 6.00%
put Santa Clara in the black for the year.
12.00% space coming to market and average R&D R&D gross absorption for Santa Clara was
$0.80 3.00%
demand was a Q2 occupancy gain of 882,647 341,598 square feet for the quarter.
10.00%
square feet for the sector; $0.60
a 26.4% increase in 0.00%
8.00%
net absorption from the first quarter’s Fremont got into the mix with a Q2 R&D gross
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0
0
-1
-1
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Q4
Q2
Q3
6.00%
Q1
Q1
698,146-square-foot occupancy gain. This is absorption total of 597,132 square feet, the
Q3
Q4
$0.40
4.00% the third straight quarter of positive net highest amount ofVacancy Rate Fremont has
R&D activity Availabilit
2.00% absorption for the R&D $0.20sector, which is a seen since Q1 2010. R&D net absorption for the
0.00% $0.00
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1
2
0
0
1
1
1
-1
-1
-1
-1
-1
-1
-1
-1
Q4
Q2
Q1
Q2
Q3
Q1
Q3
Q4
R&D LEASING & SALES ACTIVITY
Avg. Starting Rent Vacancy Rate Availability Rate
SELECTED COLLIERS INTERNATIONAL TRANSACTIONS - Q2 2012
PROPERTY ADDRESS SQUARE FEET LANDLORD/SELLER TENANT/BUYER TYPE
3111 Coronado Drive, Santa Clara 126,594 Bixby Land Company InfoBlox Lease
3055 Orchard Drive, San Jose 111,285 JER/Lane, LLC TMG Partners Investment Sale
2125 O'Nel Drive, San Jose 104,657 Cannae Partners 8x8 Inc. Lease
6580 Via Del Oro, San Jose 81,158 South Bay Development Company Ken & Jim Taggert Investment Sale
573-585 Maude Court, Sunnyvale 5 55,288 The Irvine Company LitePoint Corporation Renewal
82 Pioneer Way, Mountain View 34,985 Tufan Tech Center, LLC Bloomreach, Inc Lease
4
eet in Millions
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P. 2 | COLLIERS INTERNATIONAL
2

3. Fremont submarket was a positive in available space, the Silicon Valley
113,922 square feet for the quarter. saw the delivery of two new office
buildings totaling 306,900 square
In the second quarter, weighted
OFFICE AVAILABILITY & RENT TRENDS feet, which increased the building
OFFICE
average R&D starting rents dropped base and added to the higher
back to $1.31 per square foot NNN, 30.00% $4.00
availability rate.
Warehouse
well off the Q2 anomaly of $1.67 per
25.00% 12.00%
square foot. Taking the first half of $3.00 It was a mixed bag for the five
2012 as a whole, overall R&D 20.00% major 9.00%office markets with
starting rents are $1.51 per square 15.00% $2.00 nondescript numbers across the
foot NNN, right on target to hit 10.00% board. 6.00% a gross absorption
On
Colliers’ forecasted weighted $1.00 basis, two markets increased
5.00%
average start rate of $1.60 NNN at activity 3.00%
compared to Q1, two
0.00% $0.00
year-end. markets decreased activity
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1
2
0
0
1
1
1
-1
-1
-1
-1
-1
0.00%
compared to Q1, and one market
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-1
Q4
Q2
Q1
Q2
Q3
Q1
Q3
Q4
stayed on par. On a net absorption
0
0
1
1
1
-1
-1
-1
Avg. Starting Rent Vacancy Rate Availability Rate
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-1
R&D
Q4
Q1
Q2
Q3
Q3
Q4
basis, three markets had Rentloss in
Avg. Starting a Vacancy Rate
OFFICE 25.00% $2.00 occupancy during the quarter and
After five consecutive quarters of solid 20.00% two markets had a gain in occupancy during
$1.50
occupancy gains, the Silicon Valley office the quarter.
sector was unable to keep up the pace and 15.00%
$1.00
registered its first loss in occupancy since 10.00% San Jose, the Valley’s largest office market,
2010. The occupancy loss for the quarter
All
recorded an occupancy loss of 70,481 square
$0.50
5.00%
totaled a modest 117,772 square feet for the feet paired with a middling gross absorption
office market. Given the long drawn-out nature $0.00total of 406,654 square feet. Santa Clara’s
18.00%
of the recovery, a few bumps in the road are to office market posted an occupancy gain of
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1
2
0
0
1
1
1
-1
-1
-1
-1
-1
-1
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-1
Q4
Q2
Q1
Q2
Q3
15.00%
Q1
Q3
Q4
be expected during this slow recovery cycle. 86,143 square feet in Q2 combined with a
Avg. Starting Rent Vacancy Rate Availability Rate
modest 274,233 square feet of gross
12.00%
Office activity dropped 11.1% from the previous
Industrial absorption. Sunnyvale netted the largest
quarter and generated 1.35 million square feet occupancy loss of all 9.00%
the submarkets during
of gross absorption in Q2, compared to the 1.52 14.00% $1.00 the quarter, logging 152,025 square feet of
6.00%
million square feet generated in the previous 12.00%
Office activity dropped 11.1% from the negative net absorption. Sunnyvale’s gross
3.00%
previous quarter and generated 1.35 million $0.80absorption was a nominal 142,838 square feet
quarter. Although the drop in activity may seem
10.00%
like cause for concern, prior to 2011, the five- square feet of gross absorption in Q2, for the quarter. 0.00%
compared to the 1.52 million square feet $0.60
year average for gross absorption is 1.398.00%
1
0
0
-1
-1
generated in the previous quarter.
-1
-1
Q2
million square feet per quarter, not much more6.00% $0.40The largest deal for the quarter was LinkedIn’s
Q1
Q3
Q4
than what was produced in this quarter. 4.00% 75,810-square-foot lease on Mathilda Avenue
Vacancy Rate
$0.20in Sunnyvale. The next largest direct office deal
2.00%
Available space increased in Silicon Valley’s million square feet during the quarter, translating was Chegg signing a lease for 45,000 square
0.00% $0.00
office sector during Q2 for the first time since to a 17.9% availability rate. Beyond the negative feet on Freedom Circle in Santa Clara. The
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2
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0
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1
1
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-1
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Q3 2010. Total office availability grew to 11.07 net absorption that contributed to the increase remainder of office activity recorded in the
Q4
Q2
Q1
Q2
Q3
Q1
Q3
Q4
Avg. Starting Rent Vacancy Rate Availability Rate
OFFICE LEASING & SALES ACTIVITY
SELECTED COLLIERS INTERNATIONAL TRANSACTIONS - Q2 2012
PROPERTY ADDRESS SQUARE FEET LANDLORD/SELLER TENANT/BUYER TYPE
3990 Freedom Circle, Santa Clara 45,000 RREEF Cheeg, Inc. Lease
800 Concar Drive, San Mateo 43,925 Concar Acqusition (JP Morgan) Capcom USA, Inc Renewal
333 W San Carlos Street, San Jose 28,618 5 Legacy Partners PDF Solutions Renewal
4000 E 3rd Avenue, Foster City 24,375 Tishman Speyer Home Depot USA Inc Lease
4
SquaF in Millions
333 W San Carlos Street, San Jose 19,670 PDF Solutions Baynote, Inc. Sublease
2520 Mission College Blvd, Santa Clara 14,203 3 RREEF Toppan Photomasks, Inc Lease
re eet
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P. 3 | COLLIERS INTERNATIONAL
1