The San Diego office market saw strong demand in Q2 2013, with overall vacancy declining to 13.4% and net absorption of 540,000 square feet. Class A office space benefited most, seeing vacancy drop and rents increase. Large blocks of Class A space are scarce in major submarkets like Carmel Valley and Sorrento Mesa, driving effective rents higher. By year-end, 295,000 additional square feet of new Class A office space will be completed, with more projects planned over the next two years that will maintain tight Class A availability.

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TENANT OUTLOOK Report
SAN DIEGO COUNTY
SUMMER 2013 | OFFICE
TENANT ADVISORY SERVICES
VACANCY BY SPACE TYPE
Q2 2013 Q1 2013 CHANGE
Direct 12.93% 13.30% 
SUBLEASE 0.51% 0.54% 
TOTAL 13.44% 13.84% 
VACANCY BY CLASS
Q2 2013 Q1 2013 CHANGE
CLASS A 11.87% 12.56% 
CLASS B 15.42% 15.45% 
CLASS C 12.15% 12.78% 
OFFICE VACANCY RATES
Q2 2013
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
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Q2
VacancyRate
SF(Millions)
Net Absorption New Supply Vacancy
NEW SUPPLY, ABSORPTION AND VACANCY RATES
16.0%
10.6%
11.9%
18.1%
12.8%
13.4%
0% 5% 10% 15% 20%
Downtown
Suburban
S.D. County
All Classes Class A
OFFICE VACANCY RATES
Q2 2013
64.3%
25.9%
7.0%
1.8%
1.1% <= 2,000 SF [365]
2,001 - 5,000 SF [147]
5,001 - 10,000 SF [40]
10,001 - 20,000 SF [10]
>= 20,001 SF [6]
OFFICE LEASING ACTIVITY BY TENANT SIZE
Percentage of Total Leases Completed in Q2 2013
$2.00
$2.10
$2.20
$2.30
$2.40
$2.50
$2.60
$2.70
$2.80
$2.90
$3.00
$3.10
$3.20
$3.30
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
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
$/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)
With office vacancy declining and Class A effective rents
increasing, where are the opportunities?
MARKET OVERVIEW
Even with the traditional “summer slow-down” Class A Office demand remains on fire in major
submarkets including Downtown (CBD). Outside of the CBD there are few quality full floor
Class A options available. The Irvine Company, controlling over 65% of the UTC Class A office
market, has pushed effective monthly rental rates to the mid-$3.00 per square foot (PSF) per
month range, while Kilroy Realty, which controls over 33% of the Carmel Valley office inventory,
is pushing Class A effective rental rates towards the $4.00 PSF range. Leasing incentives are
diminishing with Class A space becoming scarce.
San Diego’s office market posted a strong 540,000 SF of net absorption in Q2, with the overall
vacancy at 13.4%, while increasing year-to-date net absorption to 817,000 SF. A significant
portion was attributed to the FBI who moved into their new Class A 250,000 SF building in
Sorrento Mesa. Class A office space was the beneficiary of most of the positive demand with
430,000 SF of net absorption. Both Class B and C inventories registered net absorption of
12,000 SF and 98,000 SF, respectively.
Large lease transactions during Q2 included Epsilon leasing 31,000 SF in UTC, PIRCH leasing
27,000 SF in UTC, and Liberty Mutual leasing 51,000 SF in Mission Valley.
NET ABSORPTION and VACANCY
Downtown Class A vacancy improved to 16.0% with positive net absorption of 58,000 SF in
Q2 bringing YTD Class A absorption to 100,000 SF. Suburban Class A absorption soared to
373,000 SF with vacancy dropping from 11.3% to 10.6%. Countywide Class A vacancy stands at
11.9%.
Kearny Mesa, normally one San Diego’s tightest submarkets, experienced a downturn in demand
during Q2 as the FBI (-110,000 SF) and Bridgepoint Education (-80,000 SF) relocated out of
Kearny Mesa.
OPPORTUNITIES
Large blocks of available office space are scarce in Carmel Valley, Sorrento Mesa and Mission
Valley causing effective rents to rise and leasing concessions to shrink. Class A office effective
rents are approaching the high- $3.00 PSF range in Carmel Valley, low- to mid mid-$3.00 PSF
range in Sorrento Mesa and around $2.60 range in Mission Valley.
In UTC there is almost 1,000,000 SF of campus-style available options for large office tenants
including Bridge Point for up to 350,000 SF, Towne Centre Technology Park for up to 287,000
SF, and Campus Point Technology Center for up to 330,000 SF. However, there is a shortage of
full-floor space in the multi-tenant Class A office along the La Jolla Village Drive corridor where
firms prefer to be located.
NEW SUPPLY and CONSTRUCTION
By year-end, an additional 295,000 SF of Class A office will be completed, which includes: a
250,000 SF expansion of Qualcomm in Sorrento Mesa; the 34,000 SF Quail Garden Corporate
Center in Encinitas and a 20,000 SF Building at Torrey Reserve in Carmel Valley. Additional
Torrey Reserve buildings totaling 55,000 SF will become available in later in 2014/2015 with
rents targeted to be in the $4.00 - $4.50 PSF range in a combination of office, retail and medical
buildings.
Township 14, TIAA-CREF’s newly remodeled Class A project in Carmel Valley, will have 56,000
SF available in Q2 2014 at rental rates in the low-mid $4.00 PSF range. Latham & Watkins is
moving into the 70,000 SF adjacent building in Q2 2014. Finally, the 415,000 SF build-to-suit
for LPL Financial in UTC will be completed in 2014.
Both The Irvine Company and Kilroy Realty are expected to break ground sometime within
2013/2014 on new Class A office buildings in UTC and Sorrento Mesa, respectively, to keep up
with the Class A office demand. The Irvine Company is expected to either break ground on their
last parcel in BridgePoint or their office tower at La Jolla Centre III in early 2014. Monthly rental
rates are expected to be in the mid $4.00 PSF range for La Jolla Centre III. Kilroy is expected to
break ground in late 2013/early 2014 for their Pacific Corporate Center with monthly rental rates
projected to be in the $3.85 PSF range.
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2. Average rental rates are defined as the average asking monthly rate per square foot normalized to a “full service gross” basis.
SUMMER 2013 | 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 15.5% 0.5% 16.0% 16.8% 58,194 99,629
B 25 2,231,597 22.0% 0.0% 22.0% 22.6% 12,618 38,333
C 13 683,662 27.5% 0.0% 27.5% 30.2% 18,313 37,120
TOTAL 58 10,172,525 17.7% 0.4% 18.1% 19.0% 89,125 175,082
MISSION VALLEY
A 13 2,019,274 9.8% 1.4% 11.2% 12.4% 24,463 4,743
B 63 3,416,195 11.9% 0.6% 12.5% 13.8% 41,541 45,966
C 67 1,604,008 9.0% 0.0% 9.0% 8.6% (7,103) (515)
TOTAL 143 7,039,477 10.6% 0.7% 11.4% 12.2% 58,901 50,194
KEARNY MESA
A 19 2,271,526 8.2% 0.0% 8.2% 7.4% (17,892) (51,817)
B 102 4,769,476 14.7% 0.3% 15.0% 11.1% (189,396) (179,205)
C 92 1,892,337 15.8% 0.2% 16.0% 17.6% 29,901 12,759
TOTAL 213 8,933,339 13.3% 0.2% 13.5% 11.5% (177,387) (218,263)
UTC
A 20 3,088,798 7.1% 0.7% 7.8% 9.5% 54,008 54,622
B 12 1,105,799 6.6% 0.0% 6.6% 7.0% 4,257 8,821
C 6 320,381 2.9% 0.0% 2.9% 4.5% 5,319 4,538
TOTAL 38 4,514,978 6.7% 0.5% 7.2% 8.6% 63,584 67,981
SORRENTO MESA
A 22 3,569,784 3.8% 0.6% 4.4% 4.4% 236,380 232,310
B 52 4,077,487 7.1% 0.1% 7.3% 7.3% 826 163,206
C 42 866,951 16.1% 0.7% 16.8% 19.0% 19,394 10,179
TOTAL 116 8,514,222 6.6% 0.4% 7.0% 7.3% 256,600 405,695
CARMEL VALLEY
A 41 3,582,193 8.9% 2.2% 11.1% 11.6% 17,019 9,526
B 25 1,229,781 22.9% 2.0% 24.9% 26.1% 14,798 16,815
C 1 13,914 0.0% 0.0% 0.0% 0.0% 0 0
TOTAL 67 4,825,888 12.5% 2.1% 14.6% 15.3% 31,817 26,341
RANCHO BERNARDO
A 19 2,232,431 8.5% 0.1% 8.6% 8.8% 5,613 (21,768)
B 58 2,647,973 8.8% 1.1% 9.9% 10.8% 24,462 84,677
C 25 490,093 10.1% 0.0% 10.1% 11.2% 5,014 (10,611)
TOTAL 102 5,370,497 8.8% 0.5% 9.4% 10.0% 35,089 52,298
CARLSBAD
A 44 2,000,467 20.4% 0.8% 21.2% 22.9% 34,109 38,340
B 108 2,936,972 19.1% 0.4% 19.5% 18.6% (25,066) 47,232
C 36 512,229 15.8% 0.7% 16.5% 18.7% 11,037 9,604
TOTAL 188 5,449,668 19.3% 0.6% 19.8% 20.2% 20,080 95,176
SAN DIEGO COUNTY OFFICE
A 278 31,043,596 11.2% 0.7% 11.9% 12.6% 430,980 345,564
B 960 34,844,363 15.0% 0.4% 15.4% 15.5% 11,943 385,307
C 1,147 15,408,747 11.9% 0.2% 12.1% 12.8% 97,013 86,635
TOTAL 2,385 81,296,706 12.9% 0.5% 13.4% 13.8% 539,936 817,506
San Diego County Office Market�
VACANCY NET ABSORPTIONEXISTING PROPERTIES
OFFICE OVERVIEW
Q2 2013
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3. Colliers International
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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.
Accelerating success.
TENANT OUTLOOK REPORT | SUMMER 2013 | 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.
29.6
21.1
14.2
18.1
14.1
26.7
19.8
30.0
24.4
27.7
17.7
21.1
15.6
20.2
22.9
28.0
25.3
23.8
30.5
17.9
18.9
16.4
17.6
25.4
25.9
26.7
24.3
0
6
12
18
24
30
36
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 24.4 months countywide.
64.3%
25.9%
7.0%
1.8%
1.1% <= 2,000 SF [365]
2,001 - 5,000 SF [147]
5,001 - 10,000 SF [40]
10,001 - 20,000 SF [10]
>= 20,001 SF [6]
OFFICE LEASING ACTIVITY BY TENANT SIZE
Percentage of Total Leases Completed in Q2 2013
$2.00
$2.10
$2.20
$2.30
$2.40
$2.50
$2.60
$2.70
$2.80
$2.90
$3.00
$3.10
$3.20
$3.30
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
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
$/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 four years, the average
asking rental rate in all office
classes had been steadily
decreasing and bottomed out
at $2.10/SF/month “full
service gross” at the end of
2011. In 2012, the average
rate for all classes increased
and remained level at $2.11/
SF. However, for the first
two quarters of 2013, the
average rate increased to
$2.12/SF in Q1 and to $2.14/
SF in Q2. The Countywide
Class A rate decreased to
$2.68/SF (-$0.02) in Q2, but
that was primarily caused by
a similar decrease in the
Downtown Class A rate.
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
10 2011 2012 2013
Q2
VacancyRate
Vacancy
Y RATES
64.3%
25.9%
7.0%
1.8%
1.1% <= 2,000 SF [365]
2,001 - 5,000 SF [147]
5,001 - 10,000 SF [40]
10,001 - 20,000 SF [10]
>= 20,001 SF [6]
OFFICE LEASING ACTIVITY BY TENANT SIZE
Percentage of Total Leases Completed in Q2 2013
$2.00
$2.10
$2.20
$2.30
$2.40
$2.50
$2.60
$2.70
$2.80
$2.90
$3.00
$3.10
$3.20
$3.30
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
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
$/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 568 leases were
completed in Q2 totaling 1.5
million square feet. This
equated to nearly the same
level of volume in Q1. Leasing
volume should be strong in
the remainder of 2013 as
vacancy continues to slide,
rents continue to climb and
tenants consequently respond
by focusing on the available
opportunities in a market with
accelerating demand.
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