Research & Forecast Report

Central | OFFICE Accelerating success. Q3 2017

>> Rents Register Slight Drop in Central Los Angeles

Key Takeaways Market Indicators | Relative to prior period > Delivery momentum continued in the third quarter as Hud- Q3 2017 Forecast son Pacific delivered the 92,000 square foot (SF) CUE build- Vacancy   ing at 5800 Sunset Blvd. to the market. This leaves 60,500 Net Absorption   SF of office product under construction and 811,000 SF of Construction  expected proposed construction in the submarket.  Rental Rate   > The average rent for Class A buildings in Central Los Ange- les is $3.38 per square foot (PSF) full service gross (FSG), a 2.9% decrease year-over-year. Summary Statistics | Central Los Angeles, Q3 2017 > Vacancy increased 50 basis points from one quarter ago Class A Class B All Classes recording 18.5%. Vacancy Rate 13.9% 22.9% 18.5% Change from Q2 ‘17 > Leasing activity slid from last quarter's 273,300 SF total to +170 -20 +50 record 151,500 SF. (Basis Points) Net Absorption* -29.3 11.6 -11.4 > Investment activity consisted of Klaff Realty LP acquiring Construction Completions* 92.0 0.0 92.0 1360-1370 N. St. Andrews Pl. for $20.7 million ($321 PSF). Under Construction* 0.0 60.5 60.5 *SF, Thousands

Central Los Angeles Office Market Asking Rents | Central Los Angeles, Q3 2017 The Central Los Angeles market saw demand taper during the third quarter with vacancy increasing by 50 basis points Class A Class B All Classes from last quarter and absorption closing at -11,400 SF for the Average Asking Rent $3.38 $2.42 $2.74 Change from Q2 ‘17 quarter. There is currently 60,500 SF of office product under -$0.04 -$0.06 -$0.01 construction along with 811,000 SF of additional proposed ($) product scheduled to break ground in 2018. This additional Y.O.Y. Change (%) -2.9% 8.9% 3.6% inventory will be attractive to both office tenants seeking new product in a high-image location and creative content pro- Labor Force | Los Angeles County, August 2017 ducers looking for integrated office/production space in the creative center of Los Angeles. Total Prof. & Financial Nonfarm Business Activities Strong leasing activity in 2016 has kept demand steady Services through late 2016 and early 2017. Increasing rents reversed 12-mo Employment 0.8% 0.8% 0.1% for the first time in three years, as rents dipped by $0.01 PSF Growth (%) FSG. Overall rents are still up 3.6% from the same time last 12-mo Actual 37,200 4,900 300 year. Employment Change Central Los Angeles | OFFICE Q3 2017

Vacancy Historical Vacancy v. Rents | Central Los Angeles Market > Central Los Angeles vacancy increased by 50 basis points Q3 ‘13-’17 to 18.5% in the third quarter. The 290-basis-point decrease RENTS VACANCY year-over-year indicates steady demand for the glut of new construction that has come to market. $3.00 24%

22% > Mid-Wilshire Class A properties saw the largest delta in ) vacancy, rising by 180 basis points to 11.9% from 10.1% last $2.50 20% quarter. > Vacancy in Hollywood dropped from 16.7% to 14.6% year- 18% $2.00 to-date. 16%

> Forecast: Central Los Angeles should tighten slightly %(TOTAL) VACANT $ PSF FSG PER ANNUM (WEIGHTED 14% through the end of 2017 as leasing activity in the past year- $1.50 and-a-half absorbs. 12%

$1.00 10% 3Q13 3Q14 3Q15 3Q16 3Q17 Absorption and Leasing Activity > Absorption for the quarter totaled -11,400 SF. > Among the move-ins that drove demand this quarter was Net Absorption by Submarket | Central Los Angeles Market Netflix occupying the entirety of Hudson Pacific's CUE at 5808 Q3 ’17 Sunset Blvd. (92,000 SF). 60,000 > Leasing activity totaled 152,500 SF for the quarter. Movie 45,400 trailer design house Buddha Jones signed a 29,400 SF lease 40,000 at 1741 Ivar Ave. in Hollywood, while Asiana Airlines renewed 11,100 SF at 3530 Wilshire Blvd. 20,000 SF > Forecast: With most of Hollywood's larger projects hav- 0 ing been delivered, absorption through the rest of 2017 will be hard pressed to match the first half of the year. (20,000)

(40,000)

(60,000) Rental Rates (56,800) > The average asking rental rate for the market slid $0.01 from the previous quarter. (80,000) MID WILSHIRE HOLLYWOOD > This quarter saw the first decrease in rents since the third quarter of 2014 ($1.88 PSF FSG). Since then, rents have in- creased by 45.7%. Historical Leasing Activity | Central Los Angeles Market > Although rents in Hollywood regressed, the difference in Q3 ‘13 - ‘17 rates between Mid-Wilshire and Hollywood continues to be stark as Mid-Wilshire remains a steady alternative for price- 600,000 averse tenants. 500,000 > Forecast: Rents currently stand 25.1% higher than their pre-recession peak. That, combined with fewer projects in 400,000 the pipeline, could lead to limited room for rental growth going 300,000 forward. SF

200,000

100,000

0 3Q13 3Q14 3Q15 3Q16 3Q17

2 Central Los Angeles | OFFICE Q3 2017

Construction Historical Net Absorption & Construction Completions > Hudson Pacific's CUE at Sunset Bronson (92,000 SF) de- Central Los Angeles Office Market Q3 ‘13-’17 livered 115,600 SF to the Hollywood submarket. The property was fully leased and occupied at time of delivery by Netflix. NET ABSORPTION CONSTRUCTION COMPLETIONS > Central Los Angeles accounts for 3% of all properties under 500,000 construction in Los Angeles County. The remaining project 400,000 currently under construction is 7007 Romaine St. (60,500 SF). 300,000 SF > Despite CUE's delivery, Hudson Pacific continues to be a 200,000 player in the Hollywood development market. Construction will 100,000 begin on EPIC, located at 5901 W. Sunset Blvd. (274,000 SF), in early 2018. 0

> Forecast: Construction deliveries through 2017 will be (100,000) lower in volume compared to the previous year, but Central Los Angeles continues to be one of the major development (200,000) 3Q13 3Q14 3Q15 3Q16 3Q17 centers in the Greater .

Investment Trends Investment Trends Chart Central Los Angeles Office Market ‘11-’17 > Investment activity for properties over 25,000 SF regis- tered one property trading for a total of $20.7 million dollars. AVERAGE PRICE PSF CAP RATE > Chicago-based Klaff Realty LP acquired 1360-1370 N. St. $500.00 7 $450.00 Andrews Pl. for $321 PSF. The property, which is the buyer's 6 first office asset in , was sold by Chinese investor $400.00

GAW Capital Partners, LLC. $350.00 5

> Forecast: Investors remain bullish in the Central Los $300.00 4

Angeles market, targeting not only Class A trophy buildings, $250.00 $/PSF but also value-add and redevelopment opportunities. 3 Rate Cap $200.00

$150.00 2 Outlook $100.00 1 The Hollywood submarket will continue to see strong demand $50.00 for space from entertainment, media and technology firms as $- 0 pre-leased properties are delivered to the market. With the 2011 2012 2013 2014 2015 2016 2017 surrounding submarkets mostly built-out and creative tenants passing on the burgeoning, but not fully-realized Downtown Unemployment Rate | U.S., CA & Los Angeles County | Los Angeles creative market, Hollywood has the opportunity August 2017 to attract tenants desiring quality space at a lower price point than the Silicon Beach cluster. 5.2% 5.1% As the current development rush, highlighted by projects from Hudson Pacific, J.H. Snyder and Kilroy, comes to a close, the 5.0% market will look to its proposed construction pipeline in 2018 4.8% 4.8% and beyond to continue fulfilling demand for high quality cre- ative and headquarter spaces. 4.6% 4.4% 4.4%

4.2%

4.0% United States California Los Angeles County

3 Central Los Angeles | OFFICE Q3 2017

Market Description Submarket Map Central Los Angeles is an office market comprised of 14.1 million SF, representing 6% of total office space 25,000 SF and greater in the Los Angeles Basin. Mid-Wilshire is attractive to small, entrepreneurial and often Pacific Rim- owned businesses while Hollywood has a mix of firms from the professional services, high-tech and entertainment/ media sectors.

RECENT TRANSACTIONS & MAJOR DEVELOPMENTS Central Los Angeles Office Market Q3 2017

SALES ACTIVITY PROPERTY ADDRESS SIZE SF SALE PRICE PRICE PSF BUYER SELLER 1360-1370 N. St Andrews Pl., Hollywood 64,400 SF $20,700,000 $321 PSF Klaff Realty, LP GAW Capital Advisors USA, LLC

LEASING ACTIVITY

PROPERTY ADDRESS LEASED SF LEASE TYPE BLDG CLASS LESSEE LESSOR 1741 Ivar Ave., Hollywood 29,400 SF Direct-New B Buddha Jones Doubletree LLC 3530 Wilshire Blvd., Los Angeles 11,100 SF Renewal A Asiana Airlines Jamison Properties 3699 Wilshire Blvd., Los Angeles 3,700 SF Direct-New A Videotech Services Jamison Properties

MAJOR DEVELOPMENTS

PROJECT DEVELOPER SIZE SF SUBMARKET STATUS ESTIMATED COMPLETION 7007 Romaine St., Hollywood 1001 N Orange La Llc 60,500 SF Hollywood Under Construction Q4 2017 5901 W. Sunset Blvd., Hollywood Hudson Pacific 300,000 SF Hollywood Proposed TBD Crossroads (2 bldgs), Hollywood Harridge 138,500 SF Hollywood Proposed TBD 1311 N Cahuenga Blvd., Hollywood Cal Coast 352,000 SF Hollywood Proposed TBD

4 Central Los Angeles | OFFICE Q3 2017

oFFICE OVERVIEW Central Los Angeles Office Market Q3 2017

EXISTING PROPERTIES VACANCY ACTIVITY ABSORPTION CONSTRUCTION RENTS

Leasing Net Net Total Total Leasing Completions Weighted Submarket Direct Sublease Total Activity Absorption Absorption Under Bldgs Inventory Vacancy Activity YTD Current Qtr Avg Asking /Class Vacancy Vacancy Vacancy Current Qtr Current Qtr YTD Construction SF Prior Qtr SF SF Lease Rate SF SF SF

MARKET TOTAL A 36 6,543,300 13.8% 0.1% 13.9% 12.2% 79,100 341,100 (29,300) 512,000 92,000 0 $3.38 B 60 6,939,200 22.7% 0.1% 22.9% 23.1% 61,200 185,200 11,600 (16,400) 0 60,500 $2.42 C 22 1,218,000 18.9% 0.0% 18.9% 19.4% 1,100 10,500 6,300 13,700 0 0 $2.39 Total 118 14,700,500 18.4% 0.1% 18.5% 18.0% 141,400 536,800 (11,400) 509,300 92,000 60,500 $2.74

MID-WILSHIRE A 16 3,691,900 11.9% 0.1% 11.9% 10.1% 24,700 127,400 (69,200) (36,700) 0 0 $2.33 B 39 5,811,800 24.4% 0.1% 24.5% 24.8% 29,600 120,100 12,600 (13,300) 0 0 $2.25 C 9 693,400 29.3% 0.0% 29.3% 29.3% 1,100 3,000 (200) (9,200) 0 0 $2.27 Subtotal 64 10,197,100 20.2% 0.1% 20.3% 19.7% 55,400 250,500 (56,800) (59,200) 0 0 $2.27

HOLLYWOOD A 20 2,851,400 16.4% 0.1% 16.5% 15.2% 54,400 213,700 39,900 548,700 92,000 0 $4.36 B 21 1,127,400 13.9% 0.2% 14.1% 14.0% 31,600 65,100 (1,000) (3,100) 0 60,500 $3.94 C 13 524,600 5.2% 0.0% 5.2% 6.4% 0 7,500 6,500 22,900 0 0 $3.29 Subtotal 54 4,503,400 14.5% 0.1% 14.6% 13.8% 86,000 286,300 45,400 568,500 92,000 60,500 $4.21

Note: revisions to the inventory base were made effective Q3 2017, historical data reported here reflect these revisions and may not match data reported inrevious p quarters.

5 Central Los Angeles | OFFICE Q3 2017

Definitions of key terms in this report Space Added (Net): Total square feet added during the quarter via construction Total Rentable Square Feet: completions, including renovated space returned to market, Office space in buildings with 25,000 square feet or more less total square feet taken off-market due to demolitions or of speculative office space. Includes competitive space in conversions. Class A, B and C single-tenant and multi-tenant buildings. Under Construction: Excludes non-competitive owner-occupied buildings, Includes buildings that are in some phase of construction, buildings that include 30 percent or greater of medical or beginning with foundation work and ending with the retail space, and space that is under-construction, under- issuance of a Certificate of Occupancy renovation or off-market.

Class A Space: Technical Note: Space that an image-conscious company would lease for its Colliers International is continuously refining its database. The data shown in headquarters. Typically, this space has a very high level of the historical tables and graphics in this report have been adjusted to take into finish and an excellent location, and commands the highest account these changes in the database. rents in the market. This report has been prepared by Colliers International for general information Class B Space: only. Information contained herein has been obtained from sources deemed Highly functional, attractive space, but less prestigious than reliable and no representation is made as to the accuracy thereof. Colliers Class A Space, and commanding lower rental rates. International does not guarantee, warrant or represent that the information Class C Space: contained in this document is correct. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International Functional, competitive space, but with a lower level of finish excludes unequivocally all inferred or implied terms, conditions and warranties and/or a less desirable location than with Class B Space, and arising out of this document and excludes all liability for loss and damages commanding lower rental rates. arising there from. This report and other research materials may be found on Low-Rise: our website at www.colliers.com/greaterlosangeles. Buildings with a total of 4 floors or less. Mid-Rise: Buildings with a total of 5 to 13 floors. 396 offices in68 countries High-Rise: Buildings with 14 or more floors. on 6 continents Direct Vacancy: United States: 153 > $2.6 billion in annual revenue Space in existing buildings that is vacant and immediately Canada: 29 > 2.0 billion square feet under available during the quarter for direct lease, plus space that management is vacant but not available for direct lease or sublease (for Latin America: 24 example, that is being held for a future commitment). Asia Pacific: 79 > Over 15,000 professionals Total Vacancy: EMEA: 111 Space in existing buildings that is vacant and immediately available during the quarter for direct lease or for sublease, plus space that is vacant but not available for direct lease or sublease. UNITED STATES: Net Absorption: Downtown LA Office TEL: +1 213 627 1214 Net change in occupied square feet from one period to the License No. 01908231 next (includes the impact of change in vacant space available 865 S. Figueroa St., Ste. 3500 FAX: +1 213 327 3200 for sublease). Los Angeles, CA 90017 Leasing Activity: Square feet leased from all known transactions completed during the quarter. Excludes lease renewals. Weighted Average Asking Rental Rates: HANS MUMPER CAITLIN MATTESON Weighted by the total square feet available for direct lease. Executive Managing Director Research Director Data is based on Full Service Gross rents, and includes all Research Services costs associated with occupying the space, including taxes, insurance, maintenance, janitorial service and utilities. CHRIS WONG Reported on a monthly, PSF basis. Regional Research Analyst Research Services

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