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Top five owners of Skyline assets remain divided between ST REIT and institutional investors Skyline Review | Spring 2014 TRUETT ST. SHEPHARD 161 212 REED ST The investment landscape PRIEST CLAY ST. CLAY ST. Spec development takes center stage as MALVINA DAWSON PLEASANT ST. EWER PL. Competition within TROY AL. 45910167112 1,318,325 s.f. pricing moves ahead of replacement costs SPROULE LN . 3 P 4.9% SACRAMENTO ST. SACRAMENTO ST. . . the urban core spurs YSETTE

L Properties, Inc. 1124 LERO Y

KIMBAL L 3,015,953 s.f. P

GOLDEN CT 14 11.2% 9 1344 P NOB HILLTIAA-CREF DRUMM ST development and leasing San Francisco’s investment market has been a While companies like Kilroy Realty Corporation, 1,390,878 s.f. ACORN 8 STEUAR 10 124 3427 5.2% Vornado Realty Trust ST. ATION top choice for investors following the recession, Boston Properties, JP Morgan, and Tishman . CALIFORNIA ST. . T ST . THE EMBARCADERO . . . . . P P P . 19 activity across the .

P Y ST recording more than $14.7 billion in sales volume Speyer make significantP investments into new FRANK 15 ST Morgan Stanley VE. MUNI METRO ST SPEAR ST ST HELEN ST T & ON ST since 2010. Although this represents just half of construction, new investors to101 the market are faced 16 18 VIS ST 39 4026 TTE RY ST

17 DA

Prudential FRON T ST VINE KEARNY BA SANSOME ST the total sales volume recorded from 2004 through with a depleted inventory for sale and must now OCKT . 1,497,000 s.f. GRAN T A

POWELL Skyline market P P ST EMBARCADERO BAR 25 5.6% MONTGOMER PINE ST. 2007, pricing on a per-square-foot basis has PINEcompete ST. with both large institutional investors as 1,875,916 s.f. recovered to pre-recession levels and continues well as foreign capital. Additionally, China’s recent 7.0% MAIN ST to increase. While 2014 promises to be another introduction of its ‘Go Global’ policy couldAUSTIN result ST. HOOKER . AUSTIN ST. MULFORD 20 BEALE ST strong year for building sales, recent activity has in a significant flow of Chinese capital to San P . largely focused on land sales and speculative Francisco, further increasing demand and pricing BUSH ST. ST BUSH ST. . P 2317 MARKET 3228 developments as replacement costs now rival for core assets across the market. P 2118 FREMONT 3339 3842 pricing for Class A assets at approximately $700 FERN ST. 4437 2220 ST per square foot, and tenant demand for new supply P P . SUTTER ST. 31 FIRST rivals activity last seen during the dot.com boom. SUTTERDowntown ST. San Francisco - High watermark Avg. $/s.f. P 37 P 25 2614 ST high watermark office sales vs. market average P TION . HOBART A . For more information please contact: Jones Lang LaSalle Brokerage, Inc. DANIEL BURNHAM ST. HEMLOCK ST. P P P $953 COSMO PT. MISSION ST $1,000 E 30 License # 01856260 P 24 OPHI R P AG AT POST ST. Y BART & MUNI METRO ST POST$900 ST. $804 2931 4641 Jones Lang LaSalle Americas, Inc. $765 1 Front Street, Suite 1100 $800 2745 2822 MONTGOMER TERMINAL License # 01223413 Y. P Y , CA 94111 E P SECOND ST 4334 K R 35 O 48 Y P $639 $650 $642 R $700 $625 NEW MONTGOMER 3638 47 +1 415 395 4900 TE $606 PE DERBY ST. DERBY ST. TRANSBA .

$600 P P www.us.joneslanglasalle.com/san-francisco $512 $673 . $479 $508 GEARY BLVD. GEARY BLVD. $458 FUTURE $500 4243 HOWARD ST . 49 80 $410 $400 $534 S $388 T A $519 R $345 $500 R $400 $332 $451 Y ST . 4136 K ANNIE ST FOLSOM ST IN G P . W $373 $300Y P . $192 $343 $311 P WOOD ST $186 $189 $309 EL $174 $316 $288 $300 $296 . $200 $138 $250 $245 O'FARRELL ST. O'FARRELL ST. $207 $161 $185 P $100 $97 $140 $113 $136 $0 134 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD 45 2014 ELLIS ST. P P .

P P MAGNIN ST San Francisco market locations . P P Largest lease transactions in 2013 Investment sales transactions EDDY ST. Skyline Skyline CYRIL 1 600 Montgomery 18 101 California 35 55 Second HARRISON ST P . P 2 1 Maritime Plaza 19 1 California 36 560 Mission LARCH ST. P P

PP 3 505 Montgomery 20 1 Front 37 50 Fremont Address Size Tenant P Type Address DateP Sold Buyer P Sale price MASON ST Size TURK ST. Seller Price per square foot 4 1 21 333 Bush 38 50 Beale . P 345 Spear Street 372,167 Google Renewal/Expansion P P P P P . 2014 on the market OPAL 5 2 Embarcadero Center P 22 1 Sansome 39 .1 Market Plaza - Spear DODGE ST P DOW PL 100 First Street 188,546 Delta DentalELM of California RenewalELM 6 3 Embarcadero CenterP P YLOR ST 23 1 Bush 40 1 Market Plaza - Steuart 55 Second Street . TA ON ST P 379,328 r.s.f. RINCON 142,439 Bechtel Renewal 7 4 Embarcadero Center 24 1 Montgomery 41 101 Second GOLDEN GATE AVE. STEVENS MINT ST 80 P . 2014 sales transactions . 8 650 California 25 111 Sutter 42 555 Mission P V . ASSAR PL. STERLING ST 140,378 Stubhub Renewal/Expansion DALE PL . ST P REDWOOD . REDWOOD P THIRD ST Invesco $297,103,050 JESSIE 9 600 California 26 43 100 First P ST January-14 . P Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized .

P JONES ST ST YANT 1 Market Plaza 111,948 Visa New lease 388,370 r.s.f. Hines / Sumitomo $765 P VERONA BREEN PL . P 10 580 California 27 88 Kearny 44 201 Mission BR . real estate services to clients seeking increased value by owning, occupying and investing in real estate. With McALLISTER ST. . MARKET P P 2013 sales transactions 11 275 Battery 28 1 Post MABINI 45 annual revenue of $4.0 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations 1 Montgomery Tower 68,441 Stifel Financial Advisors Renewal MAR . GALLAGHER LN

TH ST Y ST Y ST P . LAPU-LAPU ST PERR worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to . . . DivCore / AEW $265,000,000 12 150 California 29 595 Market BONIFACIO 46 199 Fremont October-13 MINNA 53,017 XoomASH STCorporation. P New lease 542,743 r.s.f. Brookfield $488 P a property portfolio of 3.0 billion square feet. Its investment management business, LaSalle Investment . STILLMAN ST FEDERAL ST TANOANG SORA P VENWOR 13 100 California P . 30 575 Market 47 301 Howard . Fisher Family / ECP $103,000,000 ST P . Management, has $47.6 billion of real estate assets under management. For further information, visit LEA TOMA FOUR RIZAL 1 Sansome Street 50,327 U.S. Department of Housing & Urban Development New lease April-13 NA 14 50 California P P FULTON ST. 250,608 r.s.f. Illinois Teachers / Lincoln Property $411 31 525 Market 48 Hills Plaza - 345 Spear DE BOOM ST www.jll.com. BRANNAN ST P TH ST P P 15 601 California 32 425 Market 49 Hills Plaza - 2 Harrison

275 Battery Street 50,195 Gordon & Rees Renewal/Contraction . . . BIRCH ST. VE. THE EMBARCADERO ON ST 16 555 California A COLIN . P 33 45 Fremont RK ST ©2014 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; 43,842 P SunRun Sublease STEVENS P. P P ABER PL. KELLY P HYDE ST T 17 345 CaliforniaTEHAMA P SOUTH PA . 34 The Landmark at 1 MarketP however, no representation or warranty is made to the accuracy thereof. ST JR. ST GROVE ST. . CENTER ST JESSIE A ST P P . . CLEMENTIN P . P . IVY ST. IVY ST. FIFTH ST

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SAN BRUNO RHODE ISLAND ST DE HARO ST VERMONT KANSAS ST Our Skyline review of San Francisco includes buildings that meet one or more of the following Vacancy rate is a measurement expressed as a percentage Availability is defined as total office supply in square feet being Average asking rate as stated by the broker or property owner, criteria: built or significant renovations since 1985; high-profile location; recognized tenant San Francisco Skyline of the total amount of vacant space divided by the total actively marketed for immediate or future occupancy, including the asking “face” rent per square foot for a particular space Occupied Direct Sublet profile; and/or architectural significance. We analyze the top 49 buildings across the financial amount of inventory. both direct and sublease. being marketed for lease. floor available floor available floor An analysis of the San Francisco Skyline market district - the buildings that truly move the market.

Floor South Financial District North Financial District Floor

60 60

50 50

40 40

30 30

20 20

10 10

1 1 2 Harrison 345 Spear 301 Howard 199 Fremont 101 Second 555 Mission 100 First 201 Mission 560 Mission 50 Fremont 140 New Montgomery Bechtel Building 55 Second 45 Fremont 595 Market 575 Market 525 Market 425 Market Steuart Street Tower Spear Street Tower 1 Market - Landmark 1 California 101 California 50 California 100 California 150 California 1 Front 275 Battery 345 California 1 Bush 1 Sansome 44 Montgomery 333 Bush 1 Montgomery 111 Sutter 1 Post 88 Kearny 4 Embarcadero 3 Embarcadero 2 Embarcadero 1 Embarcadero 555 California 601 California 580 California 600 California 650 California 505 Montgomery One Maritime 600 Montgomery 211,489 s.f. 403,415 s.f. 307,396 s.f. 405,000 s.f. 388,370 s.f. 557,015 s.f. 465,363 s.f. 482,876 s.f. 684,321 s.f. 817,412 s.f. 300,000 s.f. 50 Beale 379,328 s.f. 584,663 s.f. 428,420 s.f. 486,710 s.f. 1,083,000 s.f. 1,101,389 s.f. 516,222 s.f. 965,699 s.f. 434,396 s.f. 484,129 s.f. 1,237,631 s.f. 687,574 s.f. 288,431 s.f. 249,510 s.f. 638,768 s.f. 475,138 s.f. California Center 313,906 s.f. 611,000 s.f. 654,350 s.f. 542,743 s.f. 752,942 s.f. 275,017 s.f. 420,604 s.f. 221,952 s.f. 1,035,779 s.f. 767,350 s.f. 794,000 s.f. 823,389 s.f. 246,456 s.f. 316,068 s.f. 346,640 s.f. 489,373 s.f. 329,732 s.f. 526,464 s.f. Hills Plaza 662,060 s.f. 600,000 s.f. 1,497,000 s.f. 499,215 s.f. Trophy Trophy Trophy Trophy Trophy Trophy Trophy Trophy Trophy Trophy Trophy Trophy Trophy

JLL’s Skyline review analyzes the top assets across Rental rates by submarket Absorption by industry San Francisco: Skyline statistics fourth quarter 2013 San Francisco Skyline review Despite being the more popular submarket among the tech industry, Skyline buildings in the South Financial District Technology tenants outpace every other sector in Skyline absorption the Financial District – the buildings that truly haven’t achieved top rental rates in this cycle or last Leasing activity in San Francisco remains move the market. Momentous leasing activity from San Francisco existing supply (425 buildings) 74,549,701 s.f. dominated by technology companies. 700,000 Skyline existing supply (49 buildings) 26,921,403 s.f. Q1 2008 Q4 2013 Negative absorption $70.00 600,000 $63.53 Positive absorption Vacant direct 2,363,239 s.f. the technology sector and a surge of speculative Although redundant in its repetition, this statement remains as true today as it did four years ago and Despite the waning popularity of the North Financial District (NFD), skyline buildings in this submarket 500,000 $59.08 400,000 Vacant direct % 8.8% can be credited as the driver of virtually all of the economic recovery and expansion experienced during maintain a competitive edge of their own, boasting a lower vacancy rate, 9.0 percent versus 10.2 percent, $60.00 construction continues to transform and shift the 300,000 this cycle. While the entire commercial real estate market has reaped the benefits of this industry’s and a higher average asking rent, $63.53 per square foot versus $59.14 per square foot. This is due not $53.29 Vacant sublet 138,263 s.f. expansion, the South Financial District (SFD) remains one of its largest beneficiaries. Directly adjacent only to the sustained occupancy of legal, financial, and professional services firms, but also because of $51.53 200,000 market toward the South Financial District to to SOMA and within a short walk to BART and the future Transbay Terminal, the SFD is arguably the prestige of assets in the NFD coupled with a lack of new construction. Although many of these $50.00 100,000 Vacant sublet % 0.5% the most dynamic submarket in San Francisco today. With more than 1.6 million square feet of new industries are either downsizing or remaining the same size, they maintain the largest share of office 0 Vacant total 2,501,502 s.f. meet the changing needs of today’s workforce. As occupancy, despite the booming technology industry. And while its location is declining in appeal, the -100,000 developments under construction, awaiting addition to the skyline, the SFD will maintain its competitive $40.00 Vacant total % 9.3% edge in the coming years with new supply that’s both in-demand and also essential to future business quality of these buildings and their high-rise space, in particular, achieves top rates unrivaled by many -200,000 economic expansion in the region fuels continued growth in San Francisco. South Financial District competitors. -300,000 Available direct 2,459,268 s.f. -400,000 growth of the Skyline and surrounding office market, $30.00 Available direct % 9.1% Occupancy (s.f.) 24,419,901 s.f.

$20.00 / PR investment into San Francisco by investors and Legal 2013 Net absorption 348,835 s.f. Energy Insurance Non Profit Technology Real Estate 2012 Net absorption 397,195 s.f. tenants alike will remain strong for now, but may $10.00 / Marketing

3.6% 3.5% 35% 8.1% Pharma / Biotech 2011 Net absorption 722,457 s.f. total skyline availability as total skyline vacancy as a total 2013 net absorption Skyline rent premium compared Financial Services

be tempered as pricing reaches peak levels. Professional Services Q4 2013 direct average asking rent (full service) $61.75 a percent of total market percent of total market as a percent of total citywide to overall market $0.00

net absorption Skyline South Financial District Skyline North Financial District Advertising Existing rent 12-month rent change 9.6%