Savills Studley Research

Savills Studley Report Los Angeles office sector Q3 2018

SUMMARY Market Highlights

STEADY LEASING 20 basis points to 15.9%, though, and has Several larger leases kept quarterly deal decreased by 70 basis points year-on-year. "Tenants continue to seek out volume on track. Quarterly leasing totaled and find alternative locations to 3.3 msf, on par with the prior quarter, but ASKING RENT INCREASES lease space. The South Bay area more than 10% below the market’s long- Asking rent across the Greater Los Angeles term historical average. Tenants have leased area increased by 9.3% to $39.27. The continues to see a jump in rent. 12.7 msf in the four most recent quarters, average Class A asking rent also increased Investors have also followed suit, approximately 15% below the long-term by 7.3% to $40.82. market average. targeting many properties that SALES DROP are ideal for creative office space AVAILABILITY RATES UP SLIGHTLY Office property sales during the first seven conversions." The region’s overall availability remained months of the year totaled $3.8 billion, a unchanged at 19.8% and Class A availability 23.3% decrease compared to the first seven fell to 17.9% from 18.3% respectively. The months of 2017. Westside's Class A availability rate fell by Savills Studley Research Savills Studley Report | Los Angeles

Larger Firms Dominating Office-Using Employment Trends Activity

Millions Following trends seen in several other 1.10 6% major markets, leasing in Los Angeles is 4% becoming increasingly top heavy. Larger 1.05 firms, particularly tech and creative sector 2% companies, have remained aggressive 1.00 0% in their pursuit of talent and space. In contrast, smaller and mid-sized companies -2% have been increasingly restrained recently. 0.95 -4% The moderation in activity has been more apparent in the Westside where companies 0.90 -6% continue to pursue options in South -8% Bay locations such as El Segundo and

0.85 2009 Manhattan Beach. -10% 2014 2015 2016 2017 2018 2010 2011 2012 0.80 2013 -12% Downtown Tenants Remain Cautious L.A. Office Emp. L.A.(% Ann. Change) U.S.(% Ann. Change) Source: Bureau of Labor Statistics^ Demand for office space has remained controlled in as law firms and banks stick to a more restricted Availability Rate Trends appetite for space. The last few quarters Availability Rate Trends have brought some moderate growth – in most cases the addition of a few thousand 25% 23.8% square feet or occasionally an extra floor. CoreSite, for example, recently signed a 176,685-sf renewal and expansion, adding 22% 20.6% just over 17,200 sf at One Wilshire. The REIT specializes in colocation data centers. Additionally, CBRE Global Investors signed 19% 17.9% 18.7% a 32,000-sf lease at Figueroa at Wilshire and will move from nearby City National 16% Plaza. The building has registered a flurry of activity in the last few quarters, completing a 58,000-sf lease with Seyfarth Shaw and 13% 37,000 sf with Preferred Bank. Convene is also working on the buildout of a conference Class A Class B & C and fitness facility at the tower. 10% Q3 '13 Q3 '14 Q3 '15 Q3 '16 Q3 '17 Q3 '18 Creative sector tenants have largely steered clear of space in Downtown Los Angeles’ traditional building stock, preferring the Westside or even the converted warehouses Asking Rent Trends ($/sf) in the Arts District or South Bay. During the Rental Rate Trends second quarter, Spotify leased 110,000 sf at the At Mateo Complex (555 Mateo Street). $50 Spotify will move its regional headquarters from West (9200 Sunset $40.82 Boulevard – 8,200 sf) to the $80-million retail $40 and office property. More recently, online coupon innovator Honey leased 130,000 $30.10 $36.71 sf at the former Coca-Cola plant in the Arts $30 District.

$25.09 A few high-flying startups are expanding $20 in Santa Monica. Bird leased 58,403 sf of swing space at Colorado Center in Santa Monica. The e-scooter startup provides a $10 last-mile commuter solution charging by the Class A Class B & C minute, and expects to expand even more eventually. The company may run into some $0 hurdles from the city, though. The Santa Q3 '13 Q3 '14 Q3 '15 Q3 '16 Q3 '17 Q3 '18 Monica City Council is expected to vote on

02 Q3 2018

a pilot program that would cap the number of scooters. Availability Rate Comparison Rental Rate Comparison ($/sf)

Century City 8.9% Santa Monica $68.92 Space Consolidation Continues Westwood/West LA 13.7% Beverly Hills/W.Hollywood $61.44 Central 14.1% Hollywood $57.54 Westside $56.88 Beverly Hills/W.Hollywood 15.6% Other firms are consolidating and capturing Fox Hills/Marina $54.99 Pasadena higher-quality, more efficient space at the 15.9% Century City $50.43 Westside 15.9% Miracle Mile $48.56 same time. In other leasing activity, Anthem San Fernando Valley 15.9% Westwood/West LA $48.09 N.Hwd/St.City/Univ. City 16.1% Downtown LA $43.54 Blue Cross signed a 169,320-sf lease at San Gabriel Valley 16.3% Park Mile $40.47 Los Angeles Region $39.27 Santa Clarita Valley 16.3% Burbank $37.07 21215 Burbank in Campus @ Warner Center. West San Fernando Valley 16.6% Pasadena $35.43 Downsizing begets more downsizing. Santa Monica 16.7% N.Hwd/St.City/Univ. City $35.02 Burbank 17.1% Tri-Cities $34.92 Anthem Blue Cross is moving into space Tri-Cities 18.1% Wilshire District $34.49 US Index 18.1% US Index $34.37 that Intuit will vacate. The maker of Turbo Airport Long Beach 18.4% $33.45 Glendale $32.58 Hollywood 19.4% Tax is relocating to about 53,000 sf at nearby South Bay $32.41 21650 Oxnard Street. Following a trend that Miracle Mile 19.4% South Bay Area $31.85 Los Angeles Region 19.8% Central San Fernando Valley $31.65 is well established among law firms, banks Airport 19.9% Santa Clarita Valley $30.68 Wilshire District 21.3% San Fernando Valley $29.28 and general professional/business services, Mid-Wilshire 21.9% Long Beach $28.25 West San Fernando Valley $27.88 Glendale 22.1% the insurer is densifying by about 60% from San Gabriel Valley $27.15 Park Mile 23.6% Mid-Wilshire $26.79 South Bay Area nearly 450,000 sf at 21555 Oxnard Street to 23.9% Type Fox Hills/Marina 24.2% New $59.97 much more efficient space. Anthem’s move Downtown LA 25.4% Existing Direct $35.44 will open a big opportunity at 21555 Oxnard South Bay 30.4% Sublet $32.27 (a 32-acre development site). The insurer 0% 5% 10% 15% 20% 25% 30% 35% $0 $10 $20 $30 $40 $50 $60 $70 $80 has been located at the building since 1977. Anthem is relocating to a project on the cusp of a major redevelopment. Officials approved zoning several years ago that Major Transactions permits up to 30 msf of commercial space. Tenant Sq Feet Address Market Area Adler Realty recently unveiled plans to CoreSite 176,685 624 S Grand Ave Downtown LA transform Warner Center Corporate Park Anthem Blue Cross 169,320 21215 Burbank Blvd West San Fernando Valley into a 2.6-msf mixed-use development. Honey Science Corporation 131,675 963 E 4th St Downtown LA Spotify 110,000 555 Mateo St Downtown LA New construction activity has been kept in Tennis Channel 69,000 3003 Exposition Blvd Santa Monica check in this cycle. Since 2013, only 8.6 msf Spaces 67,688 5999 Center Dr Fox Hills/Marina has been delivered across the L.A. market, Bird 58,403 2501 Colorado Ave Santa Monica including two buildings over 500,000 sf. WeWork 52,427 8687 Melrose Ave Beveryly Hills/West Hollywood The current development pipeline remains NewTV 49,480 6555 Barton Ave Hollywood restrained with 5.3 msf underway and 42% Nexon America 49,307 621 Hawaii St South Bay of this pre-leased. Sum of Top 10 Leases 933,985 Sum of 3rd Quarter Leasing Activity 3.3 MSF

Co-Development Plans tenants. Coworking continues to supplement that are well below replacement cost. El leasing activity across the region. WeWork Segundo is no longer an alt-investment. There may not be a lot of large-scale added to its growing list of centers, leasing Atlas Capital Group paid $39 million for buildings underway but there are quite 52,427 sf at the Pacific Design Center’s INSITE, a two-building complex that few projects being repositioned. Several Green Building in West Hollywood. previously served as a Raytheon research owners are including coworking space as facility. The seller, Steelwave, overhauled part of their redevelopment. EQ Office’s Steady Sales the 101,874-sf facility, adding a new façade, plans for the redevelopment of the Howard mezzanine space, roof, landscaping and Hughes Center include collaboration with Owners cashing out on properties have built out the interior for creative office. Other Industrious. The revamped 1.4-msf campus been able to maintain pricing power – sales recent large conversions include Tishman will feature an array of conferencing, have stayed elevated despite rising prices. Speyer’s conversion of a 260,000-sf former collaboration and amenity experiences that The Wells Fargo Building recently sold Xerox industrial plant in El Segundo to will be available to tenants. Industrious will for $193 million ($930/sf). Local investor creative space. manage 100,000 to 140,000 sf of office StarPoint Properties bought the building. suites and also design ground-floor space In one of the largest sales in Los Angeles The recent move of the L.A. Times to El across the campus. Unique amenities will since 2014, Boston Properties and Canada Segundo has solidified the submarket’s include a farmers market, programmed Pension Plan Investment Board (CPPIB) reputation. Asking rent is growing at a fitness options and dog-friendly features. paid $616 million ($513/sf) for the Santa faster pace in South Bay areas such as El Monica Business Park in the Ocean Park Segundo and Long Beach as more product Flexibility and scalability have always been neighborhood. The 47-acre park comprises is repurpose. Rental rate growth in Santa selling points for coworking providers. Firms 21 buildings totaling 1.2 msf. The complex Monica and Silicon Beach has slowed a bit such as Industrious are taking fractional was 94% leased at time of sale. as tenants explore other areas. Despite the office space to a new level, offering agile acceleration in rent in South Bay, the gap bespoke space for short-term tenants. Other investors have pushed out a bit further in rent between Santa Monica and Beverly A company spokesperson said they are on the risk curve, picking up value-add and Hills ($60-plus) and South Bay locations committed to co-creating space with opportunistic assets, sometimes at prices (low-$40/sf) is still roughly $20/sf.

savills-studley.com/research 03 Savills Studley Report | Los Angeles

Leasing Available Availability Asking Rents Map Submarket Total Activity SF Rate Per SF

% pp % SF Last This Change Year This Change Year This Change Year (1000's) 12 Months Quarter from Ago Quarter from Ago Quarter from Ago Last Qtr. Last Qtr. (1) Last Qtr. Downtown LA 42,073 2,095 10,681 2.6% 8,322 25.4% -0.1% 20.7% $43.54 14.5% $40.21 1 Downtown LA - Class A 23,571 1,124 4,607 -6.8% 4,601 19.5% -1.4% 19.8% $42.99 7.9% $41.12 Wilshire District 15,862 607 3,373 9.2% 3,076 21.3% 1.8% 19.2% $34.49 2.4% $32.69 2 Wilshire District - Class A 11,996 520 2,542 12.3% 2,374 21.2% 2.4% 19.5% $34.74 2.3% $33.51 Hollywood 5,109 370 992 18.3% 816 19.4% 2.2% 16.7% $57.54 6.3% $53.56 3 Hollywood - Class A 3,750 342 687 -3.6% 690 18.3% -1.0% 18.7% $60.83 3.5% $55.71 Westside 53,353 4,166 8,490 -2.1% 8,932 15.9% -0.2% 16.6% $56.88 3.8% $54.12 4 Westside - Class A 45,475 3,565 7,246 -6.4% 7,966 15.9% -0.9% 17.3% $57.61 4.5% $54.67 South Bay Area 33,631 1,862 8,051 7.7% 6,134 23.9% 1.6% 18.7% $31.86 0.5% $29.09 5 South Bay Area - Class A 21,182 1,404 4,121 -1.4% 3,757 19.5% -0.2% 17.7% $33.46 1.5% $30.33 San Fernando Valley 29,478 2,393 4,694 -10.5% 4,425 15.9% -1.9% 15.1% $29.28 1.0% $28.36 6 San Fernando Valley - Class A 18,778 1,603 2,991 -5.0% 2,891 15.9% -0.5% 15.1% $31.34 0.7% $30.22 Tri-Cities 21,661 886 3,915 -2.9% 4,371 18.1% -0.3% 19.9% $34.92 0.9% $33.56 7 Tri-Cities - Class A 16,393 595 3,303 -4.8% 3,632 20.2% -0.7% 21.9% $35.93 1.1% $34.32 Santa Clarita Valley 2,578 141 421 0.2% 433 16.3% 0.0% 16.8% $30.68 1.3% $29.95 8 Santa Clarita Valley - Class A 1,859 118 296 -3.5% 312 15.9% -1.3% 17.6% $31.64 1.9% $30.79 San Gabriel Valley 11,279 538 1,838 7.9% 1,480 16.3% 0.7% 14.2% $27.15 -1.3% $26.45 9 San Gabriel Valley - Class A 3,575 104 407 -5.6% 298 11.4% -0.5% 9.4% $29.53 -1.8% $29.53 Greater Los Angeles Total 209,916 12,688 41,464 0.7% 36,887 19.8% 0.0% 17.8% $39.27 9.3% $36.58 1-9 Greater Los Angeles Total - Class A 142,830 9,032 25,514 -3.5% 25,821 17.9% -0.5% 18.0% $40.82 7.3% $38.72

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(1) Percentage point change for availability rates. Unless otherwise noted, all rents quoted throughout this report are average asking gross (full service) rents psf. Statistics are calculated using both direct and sublease information. Short-term sublet spaces (terms under two years) were excluded. ^Unless otherwise noted, source for data is Savills Studley. The information in this report is obtained from sources deemed reliable, but no representation is made as to the accuracy thereof. Statistics compiled with the support of The CoStar Group. Copyright © 2018 Savills Studley

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