San Francisco Office Www

CBRE

San Francisco Office www. cbre. com/research Third Quarter 2011

Demand outpaced supply as San Francisco’s office The shifting demand landscape, specifically market continued its aggressive recovery. The City impacting Class B space, has become one of the experienced its third consecutive quarter of positive most notable trends. Over the quarter, 554,285 SF absorption though the amount was roughly half of of vacant Class B space was absorbed market-wide. last quarter’s. Despite this volatility, overall vacancy This accounts for 71% of the total vacant space continued to drop at a significant rate, ending the removed in all property classes. This was in large quarter at 12.5%. Asking rates continued to part due to leases signed by tech tenants such as increase, though at a slower pace than last quarter, AECOM and Yelp. Quick Stats averaging 4.9% market-wide. Unlike other office The high demand for Class B space has narrowed markets which rely primarily on government or the spread between Class A and B asking rates. One financial services, San Francisco’s position as a Change from last year ago there was an average 18% premium for technology hub proved to be its biggest strength over Current Yr. Qtr. Class A space, which dropped to 13% this quarter, the quarter. impacting the way some landlord’s position their Total Vacancy 12.5% The pace of leasing activity slowed slightly, as space in hopes of capturing the prominent demand. Direct Lease Rate $35.98 reflected by the 2 MSF of gross absorption. J.P Some landlords have been “deconstructing to build,” Morgan Chase, Wells Fargo, Bank of the West and stripping traditional improvements to fit the mold of Net Absorption 287K AECOM stood out as four of the largest transactions “creative” space in high demand by technology Construction 0 of the quarter. The remainder of the top transactions tenants. This initial investment sparked demand for Completions came from the technology sector. Dropbox signed some property owners and helped diversify their The arrows indicate a trend and do not the largest lease for over 85,000 SF at 185 Berry tenant base. represent a positive or negative value for the Street while Bank of the West executed the largest underlying statistic (e.g. Net Absorption could A confluence of domestic and global economic be negative, but still represent a positive renewal at 180 Montgomery Street. Leases continue trend over the time period). events have idimpacted thecapilital markets over the to trend toward more limited concessions. past 90 days resulting in historically low treasury Tenant demand continues to be fueled by the yields. Given that most lenders use the 10-year Hot Topics technology sector. Of the approximately 300 tenants Treasury bill as the benchmark index to price in the market, representing 6 MSF of potential commercial mortgage debt, it’s not surprising that demand, 42% are classified as part of the the combination of a low cost of capital and San • Overall vacancy decreased 100 basis technology sector. In 2007 these companies Francisco’s strong fundamentals led to another points to 12.5% represented only 14% of the total demand, quarter of increased investment activity. During the dttidemonstrating an aggressive increase over thepast quarter the hig hes t price sale was 221 MiMain Street • Market-wide net absorption was four years. As technology companies engage in a which sold to Beacon Capital Partners from the positive 287,408 SF war for talent, many are incorporating a San Booth family. San Francisco’s office market continues • Overall average asking rates Francisco location into their growth strategy to attract to be attractive to landlords and tenants alike. increased 4.9% to $35.98 FSG and retain the young, educated workforce.

• Overall Class A average asking rates 12.5% Total Vacancy vs. Net Absorption Total Vacancy increased 3.2% to $38.47 FSG Net Absorption 287,408 2,000K 20%

1,000K 15%

0 10%

-1,000K 5%

-2,000K 0% Q3'07 Q1'08 Q3'08 Q1'09 Q3'09 Q1'10 Q3'10 Q1'11 Q3'11

50 asis points, w . bb $26$26 50 20 d . 49 lulllull . roppe ddd $33$33 49 t economiceconomic oymen ll 47 . Avg. Direct Asking Rate* Asking Direct Avg. $38$38 47 lingering lingering Since its peak indropped March from 10.1% 2010, to Sanunemp 8.8% Francisco’s as unemployment of has Augustunemployed 2011. decreased Over to 40,200, the a quarter drop ofFrancisco 700 County since June currently 2011. has San thethe third state, lowest unemployment following rate Marinunemployment in rate and decreased 20 San basis points Mateoto over 11.9%. County. the On quarter, the Statewide, falling contrary, the theby national 10 unemployment basis rate increased points from June 2011 to August 2011, a result of the 3% . 1616 3% 8.8% 9.2% 11.9% Source: EDD 5% . 1212 5% U.S. California San Francisco 067 Net Total Total Net Total 881 , , 863 ,,, Rentable Vacancy Availability Net Q3 Net YTD 755 , 12.0% 15.4% $38.00 $34.00 $26.00 168,317 9.4% 13.3% $38.00 $35.00 $25.50 (214,621) 16.9% 25.8% $49.00 N/A 8.2% N/A 9.0% 102,299 $36.50 $32.00 $27.00 61,509 28.7% 30.5% 21.0% $37.50 33.0% 6.8% $33.00 $32.00 $28.00 9.8% $28.50 52,831 $45.00 $22.50 $43.00 50,489 $31.00 32.3% (16,761) 32.4% $30.00 $24.00 $20.50 3,773 3.6% 6.3% $43.00 $37.00 $28.00 31,256 11.4% 14.9% $33.00 $32.00 $29.00 59,234 11.1% 19.8% $38.00 $35.00 $31.00 76 76 755 881 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 0% 3% 6% 9% 12%12% 15% Market Statistics Market Unemployment Rates Potrero HillPotrero 1 Mission Bay / China Basin / China Bay Mission 2,503,496 SquareUnion 3,745,849 SanSan Francisco Francisco Market Market Office Office Civic CenterCivic Ness & Corridor Van 3,065,700 Yerba Buena ofMarket South 3,316,424 2,729,010 Multimedia GulchMultimedia 3,425,395 Rincon / South Beach /Rincon South 2,721,511 Financial District 27,161,379 South FinancialDistrict WaterfrontNorth Square & Jackson 4,961,260 21,262,790 Submarket Area % % A Class B Class C Class Absorption Absorption * Annual * Rate, Full Lease Service Gross MarketView San Francisco Office Third Quarter 2011 . t %% duedue 99 to %% positivepositive 2424 box executed the pp Page 3 rom ff remainedremained .Dro dd t © 2011, CBRE, CBRE, Inc. © 2011, Stree t narrowe absorption absorption t c i netnet str tes increased by the largest percentage , was in the Mission Bay/China Basin development Project and Mission Bay DiDi i ight of the eleven submarkets, 231,546 h consecutive quarter, ending at $35.98 50 Fremon osted significant negative absorption as a l t a ubmarket, posting 168,317 SF of positive i marketmarket toto nanc FiFi i l h camecame out ShS e spacesspaces hh is likely the pipeline will continue to develop. t nt ii largelarge ace added from Deloitte a pp fewfew space aa BB of the s t ass Average asking rates increased formarket-wide. the This sixt is a 4.9% increaselast over year. last Driven by quarter high and demand, aof Class 16.3% B any increase ra over product typenarrowed, - most 9% notably over in the theClCl quarter. CBD. The In spread the between last Class year, A the spread and from B Class A to Multimedia Gulch and Potrerorising Hill 11.4% experienced to the $41.51 and largestless 9.3% dramatic rate to than increase $34.49, last overall, respectively. quarter,in The signifies tenant increase, the demand. though continued, albeit cautionary, strength continues to grow, i AlthoughAlthough to the healthy amountmarket of leasing finished activity the witnessed thirdcontributing this to quarter year. the with 1,500,364 The SF San 287,408 ofDistrict Francisco positive SF was absorption year-to-date. of the The strongest positive Financial activity, performing net followed s by absorption, Mission Bay/China Basinabsorption. which The posted South 102,299 Financial SF District of p positive largest new lease of theAncestry.com’s quarter; 56,963 over SF 85,000 lease at SF 160 at King 185 Street. Berry Street, followed by No construction was completed incompleted the quarter until and 2012. nothing The isrenovations in pipeline remain the underway: remains 188 pipeline Spear strong, to Street, however, be Street, 1355 Market and 525 Street, a 888 Brannan Golden handfulRedevelopment Gate of areas Avenue like and thecreate 875 Transbay significant opportunities Re Stevenson for new Street construction andearly to this stages is being of name reflected the in a pipeline. the As few. less space becomes available and tenant demand Vacancy decreased for the12.5%. fifth The consecutive largest quarter, decreasesubmarket, falling dropping 100 in 440 basis basis vacancy points to pointsNRA 16.9%. to and This is the largely Dropbox a lease resultan at of increase 185 its in small Berry vacancy, Street. the Only largestDeloitte two of submarkets vacated. which experienced was Total the South16.3%. availability Financial Though District availability decreased where decreased slightly, in e SF finishing of the available space quarter atoverall a change 1355 in availability. Market Street in the South of Market leveled the resul $33.49 FSG $38.47 FSG 408 SF , 16.3% 12.5% 287287 408 SF Class A Class B Availability Total Vacancy Total Net Absorption Absorption Net Net 2005 2006 2007 2008 2009 2010 2011 YTD Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 0 0 500K 1,000K 1,500K 2,000K 500K -500K $0 0% 5% 1,000K $10 $30 $20 $40 $50 10% 20% 15% 25% Construction Completions Net AbsorptionNet Absorption Direct Lease Rates Direct Lease Total Vacancy/Availability Total MarketView San Francisco Office

Market Area Descriptions

• Financial District consists of 27 million square feet (35.4%) of the office market. • South Financial District consists of 21.2 million square feet (27.7%) of the office market. • Jackson Square consists of 2.1 million square feet (2.8%) of the office market. • Waterfront/North Beach consists of 2.8 million square feet (3.7%) of the office market. Available Square Feet • Van Ness Corridor consists of 1.2 million square feet (1.5%) of the office market. Vacant Square Feet plus space that is marketed • Civic Center consists of 1.9 million square feet (2.5%) of the office market. as available but not currently vacant, includes • Union Square consists of 3.7 million square feet (4.9%) of the office market. sublease space. • Rincon/South Beach consists of 2.7 million square feet (3.5%) of the office market. Availability Rate • Yerba Buena consists of 3. 3 million square feet (4. 3%) of the office market. Available Square Feet divided by the NRA. • South of Market consists of 2.7 million square feet (3.6%) of the office market. Average Asking Lease Rate • Multimedia Gulch consists of 3.4 million square feet (4.5%) of the office market. The rate determined by multiplying the asking • Mission Bay/China Basin consists of 2.5 million square feet (3.3%) of the office market. full service lease rate for each building in the • Potrero Hill consists of 1.9 million square feet (2.4%) of the office market. summary by its associated NRA, summing the products, then dividing by the sum of the NRA. San Francisco Submarket Map Rates are reported on a yearly basis. Full Service Leases Includes all types whereby the Landlord assumes responsibility for most or all of the operating expenses and taxes for the property, including utilities, insurance, and/or maintenance expenses. Market Coverage Includes office buildings 20,000 square feet and above located within defined submarkets. Jackson Square includes buildings 7,500 square feet and greater. Union Square includes buildings 5,000 square feet or greater. It excludes medical office buildings and government owned office buildings. Net Absorption The change in Occupied Square Feet from one period to the next. Net Rentable Area Thbldfhe gross building square footage minus th e elevator core, flues, pipe shafts, vertical ducts, balconies, and stairwell areas. Occupied Square Feet Building area not considered vacant. Local Offices Under Construction SAN FRANCISCO OAKLAND PLEASANTON SAN FRANCISCO Buildings which have begun construction as PENINSULA 555 12th Street 5000 Hopyard Road DOWNTOWN evidenced by foundation work. 950 Tower Lane Suite 900 Suite 180 101 California Street Vacancy Rate Suite 870 Oakland, CA 94610 Pleasanton, CA 44th Floor Vacant Square Feet divided by the NRA. Foster City, CA 94404 1.510.874.1900 94588 San Francisco, CA 94111 1.650.577.2900 1.925.251.4600 1.415.772.0123 Vacant Square Feet Available square feet which is either physically SILICON VALLEY PALO ALTO WALNUT CREEK vacant or immediately available, includes 225 W. Santa Clara Street Two Palo Alto Square 2175 N. California Blvd. sublease space. 10th Floor 3000 El Camino Real Suite 300 San Jose, CA 95113 Suite 100 Walnut Creek, CA 94596 140845374001.408.453.7400 Palo Alto, CA 94306 1.925 .296 .7700 1.650.949.5100

© Copyright 2011 CBRE Statistics contained herein may represent a different data set than that used to generate National Vacancy and Availability Index statistics published by CBRE’ Corporate Communications Department or CBRE’ research and Econometric Forecasting unit, Torto Wheaton Research. Information herein has been obtained from sources believed reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by CBRE clients, and cannot be reproduced without prior written permission of CBRE. CBRE

San Francisco Office Report www. cbre. com/research Third Quarter 2011

Net Total Total Total Total Average Rentable Vacancy Total Availability Direct Sublease Direct Asking Q3 Net YTD Net Submarket Area %1 Vacant SF % Available Available Rate2 Absorption Absorption

Financial District 27,161,379 12.0% 3,259,207 15.4% 3,520,569 665,815 $36.77 168,317 460,346 Class A 20,217,978 11.7% 2,371,443 15.3% 2,530,048 560,979 $38.00 46,389 354,608 Class B 6,222,131 13.8% 857,972 16.8% 948,142 98,817 $34.00 106,121 100,696 Class C 721,270 4.1% 29,792 6.7% 42,379 6,019 $26.00 15,807 5,042

South Financial District 21,262,790 9.4% 1,998,391 13.3% 2,526,037 300,884 $37.05 (214,621) 292,656 Class A 17,450,936 9.5% 1,650,489 13.3% 2,065,404 250,115 $38.00 (295,051) 184,786 Class B 2,880,256 9.4% 271,708 14.1% 364,243 43,089 $35.00 59,039 50,849 Class C 931,598 8.2% 76,194 11.2% 96,390 7,680 $25.50 21,391 57,021

CBD* 48,424,169 10.9% 5,257,598 14.5% 6,046,606 966,699 $36.89 (46,304) 753,002 Class A 37,668,914 10.7% 4,021,932 14.4% 4,595,452 811,094 $38.00 (248,662) 539,394 Class B 9,102,387 12.4% 1,129,680 16.0% 1,312,385 141,906 $34.32 165,160 151,545 Class C 1,652,868 6.4% 105,986 9.2% 138,769 13,699 $25.72 37,198 62,063

North Waterfront/Jackson Sq 4,961,260 11.4% 564,959 14.9% 661,137 78,324 $31.93 59,234 89,006 Class A 1,574 ,219 14.9% 235,326 16.7% 244,432 18,881 $33.00 8,516 56,467 Class B 2,738,430 10.1% 275,509 14.5% 337,031 58,993 $32.00 50,872 32,519 Class C 648,611 8.3% 54,124 12.4% 79,674 450 $29.00 (154) 20

Rincon/South Beach 2,721,511 3.6%96,633 6.3% 143,939 28,411 $39.6131,256 83,278 Class A 1,429,326 2.9% 41,576 6.3% 89,397 0 $43.00 27,969 (1,103) Class B 1,128,685 4.9% 55,057 7.3% 54,542 28,411 $37.00 3,287 83,626 Class C 163,500 0.0% 0 0.0% 0 0 $28.00 0 755

Yerba Buena 3,316,424 28.7% 952,985 30.5% 949,522 62,253 $33.55 52,831 92,142 Class A 926,903 45.3% 419,463 45.3% 372,792 46,671 $37.50 0 7,341 Class B 1,917,716 24.7% 473,915 27.8% 517,645 15,060 $33.00 52,029 89,601 Class C 471,805 12.6% 59,607 12.6% 59,085 522 $28.00 802 (()4,800)

South of Market 2,729,010 21.0% 573,656 33.0% 899,821 0 $27.70 50,489 329,007 Class A 500,250 4.6% 23,203 4.6% 23,203 0 $32.00 0 0 Class B 1,572,940 29.7% 467,915 48.2% 758,029 0 $28.50 0 298,350 Class C 655,820 12.6% 82,538 18.1% 118,589 0 $22.50 50,489 30,657

Multimedia Gulch 3,425,395 6.8% 231,703 9.8% 328,322 7,105 $41.51 (16,761) 8,242 Class A 1,052,650 13.4% 141,222 14.6% 153,915 0 $45.00 (7,301) 9,239 Class B 1,773,036 4.7% 82,887 9.6%162,498 7,105 $43.00 (1,344) (2,561) Class C 599,709 1.3% 7,594 2.0% 11,909 0 $31.00 (8,116) 1,564

Mission Bay/China Basin 2,503,496 16.9% 421,978 25.8% 567,476 78,661 $49.00 102,299 91,835 Class A 2,503 ,496 16.9% 421,978 25.8% 567,476 78,661 $49.00 102,299 91,835

Potrero Hill 1,863,067 11.1% 207,036 19.8% 313,401 55,730 $34.49 (10,918) (1) Class A 257,109 16.3% 42,000 32.5% 27,750 55,730 $38.00 (14,250) (14,250) Class B 1,173,624 10.9% 128,233 21.2% 248,848 0 $35.00 21,404 16,854 Class C 432,334 8.5% 36,803 8.5% 36,803 0 $31.00 (18,072) (2,605)

Civic Center/Van Ness 3,065,700 32.3% 988,827 32.4% 988,200 6,019 $25.18 3,773 (39,042) Class A 979,369 51.9% 508,193 51.9% 508,193 0 $30.00 4,273 (51,361) Class B 1,444,180 26.6% 383,66926.9% 387,809 0 $24.00 0 10,394 Class C 642,151 15.1% 96,965 15.3% 92,198 6,019 $20.50 (500) 1,925

Union Square 3,745,849 8.2% 305,465 9.0% 315,227 20,074 $31.01 61,509 92,895 Class A 335,200 13.7% 45,934 14.2% 44,151 3,533 $36.50 35,022 38,508 Class B 2,367,085 6.3% 148,983 6.9% 154,358 10,098 $32.00 17,438 29,889 Class C 1,043,564 10.6% 110,548 11.8% 116,718 6,443 $27.00 9,049 24,498

San Francisco Office Market 76,755,881 12.5% 9,600,840 16.3% 11,213,651 1,303,276 $35.98 287,408 1,500,364 Class A 47,227,436 12.5% 5,900,827 16.2% 6,626,761 1,014,570 $38.47 (92,134) 676,070 Class B 23,218,083 13.5% 3,145,848 18.1% 3,933,145 261,573 $33.49 308,846 710,217 Class C 6,310,362 8.8% 554,165 10.8% 653,745 27,133 $26.50 70,696 114,077

1 TTtlotal Vacancy RRtate = DiDitrect Vacancy + SSblublease Vacancy 2 Annual Lease Rates, Full Service Gross * CBD consists of Financial District and South Financial District submarkets

© 2011, CBRE, Inc. MarketView San Francisco Office Report Third Quarter 2011 Floor 9% 6% 3% 0% 18% 15% 12% 0549 0123 th l 44 Page 2 ease 12.5% 287,408 415.772. 415.772. © 2011, CBRE, CBRE, Inc. © 2011, L enewa Investor Investor Investor Investor Investor RlR ew Net Absorption Total Vacancy CB Richard Ellis, Inc. 101 California Street N LN main: fax: San Francisco, CA 94111 CA Francisco, San www.cbre.com/sanfrancisco 15.5% -82,046 BB B B A A 139 711 , 266 , , 16.2% Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 5454 266 -315,985 303303 139 131131 711 0 800K 400K

-400K -800K

1,200K rent data set than that used to generate National -1,200K Square Feet Square San Francisco San Absorption Net and Vacancy Total epresent the current or future performance of the market. formation herein has been obtained from sources believed fied it and make no guarantee, warranty or representation ts accuracy and completeness. Any projections, opinions, Corporate Communications Department or CBRE’ research St St a i $26.50 $33.49 $38.47 gomery orn t St 67,000 A Renewal lif d St Class A Class Class B Class C on a r nd for use by CBRE clients, and cannot be reproduced without prior written permission 201 3201 3 d St 180 M180 M t St 300 C300 C lif i St Statistics contained herein may represent a diffe $27.79 $23.33 $34.18 (MFC) 75-95 Hawthorne StHawthorne (MFC) 75-95 446,765 A Vacancy and Availability Indexand Econometric statistics Forecasting published unit, by Torto CBRE’ Wheaton Research. In © Copyright 2011 CBRE reliable. While we doabout not it. doubt its Itassumptions accuracy, or is we estimates have your used notThis are responsibility veri information for is example to designed only exclusively independentlyof and CBRE. do confirm not i r t es W y Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 e lt $22.83 $26.51 $33.56 ea f th o R San Francisco San Property Office Direct (FSG) Lease Rates

k $50 $45 $40$40 $35 $30 $25 $20 $15 roy

an Ancestry.com 160 King St 56,963 A New Lease Alliant University 1 Beach St 64,161 B Renewal Cornerstone RE Advisers 795 Folsom St 187,202 B KilKil R lt AECOMAECOM Symantec 303 2 Wells FargoSansome 343 St 70,000 A Renewal Dropbox 185 Berry St85,591 A New Lease St85,591New Berry A Dropbox 185 Bk f th Wt th f Bk B Manulife Financial Corporation Beacon Capital PartnersTMG Partners JV Divco West PropertiesMarket 1275 StMain 221 St 354,000 A 363,000 A JP Morgan ChaseHarrison 600 St 34,824 A New Lease Autodesk Inc.Market 1 St - Steuart 36,436 A Sublease Practice FusionTaylor St 420 46,024 B New Lease Buyer Address SF Total Class Type Lessee Address SF Total Class Type

Significant Sale Transactions of the Quarterof the Quarter SignificantSignificant Sale Transactions Sale Transactions Significant Lease Transactions the Quarter of Significant Transactions Lease