Research & Forecast Report | OFFICE MARKET Q1 | 2020

San Francisco Office > VACANCY San Francisco’s vacancy rate rose 80 basis points to 5.3 percent Market Cools Down which translated to nearly 749,000 square feet of negative net absorption. The South Financial District experienced nearly 267,000 square feet of negative net absorption. This is primarily due to Blue Shield vacating nearly 263,000 square feet at . Additionally, the Yerba Buena submarket posted nearly 318,000 square feet of negative net absorption due to Ellation vacating 110,000 square feet at 835 Market Street and Nektar vacating over 67,000 square feet at RFR Realty purchased 360 Third Street. 301 Battery Street for $143 million, ($769 psf) > LEASING VOLUME San Francisco’s leasing volume declined during the first quarter of the year, with nearly 840,000 square feet of closed transactions. This is well below the 20-year quarterly average of over 1.8 million square feet and marks the first time in the past few years that San Francisco has not had a 100,000 square foot deal close. The largest lease signed during the first quarter of the year was Knotel's sublease of nearly 84,000 square feet at 301 Brannan C O LU M B U S Street. Despite this wane in leasing volume during the first quarter of 2020, technology companies continue to lead the charge for space in San Francisco. Skillz subleased for Technology tenants account for 46.3 percent of the demand in the City which nearly 52,000 square translates into nearly 4.1 million square feet of requirements. feet at 505 Howard E M BA RC AD ERO > ABSORPTION San Francisco posted nearly 749,000 square feet of negative net absorption during the first quarter of 2020. Despite this negative net GREEN Knotel subleased nearly absorption, there are 161 tenant requirements for nearly 8.8 million square feet 84,000 square feet at BROADWAY of requirements in the market, 21 of those requirements are for over 100,000 301 Brannan Street square feet. Over the next few months, we will see if tenant requirements in San

T N A R G Francisco fluctuate as companies adjust to the changing environment.

R O L Y A T WASHINGTON

H T R O W N E V A E L

E D Y H

S S E N N A V > RENTS Overall weighted rents fell 11.8 percent to $88.21 per square foot CALIFORNIA and non-weighted rents declined 2.0 percent to $83.14 per square foot during S P E A R 80 the first three months of 2020. Some of the largest decreases in rents were BUSH F R E M O N T experienced with overall weighted Class A rents falling 11.6 percent to $92.67. The decline in Class A weighted rents can be largely attributed to a lack of large MARKET S1 T new deals at rents of over $95 per square foot of effective rents.

GEARY POWELL 3 R D

MISSION Market Indicators 5 T H Relative to prior period Q1 2020 Q2 2020 FOLSOM BRYANT VACANCY  

7 T H BRANNAN NET ABSORPTION   4 T H TOWNSEND HAYES 80 CONSTRUCTION KING  

01 T H WEIGHTED RENTAL RATE  

D R 3 NON-WEIGHTED RENTAL RATE   7 T H S I O C N A R F A Y R R E T H T 4 SALES VOLUME   101 SALES PRICES O W E N S  

1 6 T H 280

80

1 9 T H Rental Rates San Francisco – Office Rents - Q1 2020 Weighted and non-weighted rents softened almost % OVERALL 1Q '20 1Q '20 1Q '20 4Q '19 MARKET QUARTERLY across the board during the first quarter of 2020. OVERALL DIRECT SUBLEASE OVERALL CHANGE This can be attributed to a combination of the lack All Markets $88.21 $90.10 $81.90 $100.02 -11.8% of leasing and large deal activity in San Francisco. All Markets: Class A $92.67 $93.89 $88.78 $104.79 -11.6% Despite the softening of rents in the first quarter, annual rents increased from this time last year for All Markets: Class B $85.34 $87.86 $73.43 $91.55 -6.8% both overall weighted rents and Class A weighted Financial District: Class A $91.34 $92.25 $88.78 $95.97 -4.8% rents. Overall annual weighted rents increased 1.2 Financial District: Class B $73.62 $75.88 $64.86 $82.02 -10.2% percent in the City and annual overall weighted rents in the SOMA submarket rose by 16.9 percent SOMA Overall $92.60 $92.60 N/A $103.20 -10.3% to $92.60 per square foot. Source: Colliers International Note: Weighted Average Rents

2,200,000 20.0%

1,700,000 15.0% Absorption & Vacancy San Francisco’s vacancy rate rose 80 basis points to 5.3 percent which translated to nearly 1,200,000 10.0% 749,000 square feet of negative net absorption. The South Financial District experienced nearly 267,000 square feet of negative net absorption. 700,000 5.0% This is primarily due to Blue Shield vacating nearly 263,000 square feet at 50 Beale Street. The Yerba Buena submarket posted nearly 318,000 Net Absorption 200,000 0.0% Rate Vacancy square feet of negative net absorption primarily due to Ellation vacating 110,000 square feet at 835 Market Street and Nektar vacating over 67,000 -300,000 -5.0% square feet at 360 Third Street. Additionally, in Vacancy Net Absorption the Yerba Buena submarket, Zume Pizza vacated nearly 33,000 square feet as well as Quantcast -800,000 -10.0% moving out of over 32,000 square feet at 795 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q Folsom Street. '09 '10 '10 '11 '11 '12 '12 '13 '13 '14 '14 '15 '15 '16 '16 '17 '17 '18 '18 '19 '19 '20

Source: Colliers International

$10.0 Historic 19-year 80 Investment Volume annual average sales volume is The San Francisco investment sales market activity $9.0 68 70 waned slightly during the first quarter or 2020 68 $3.2 billion with five office closings for a total of $840 million. $8.0 Notable large-scale transactions include the DWS 57 60 60 Group’s purchase of a 49 percent interest in 525 $7.0 53 Market Street for $604 million or approximately $1,200 per square foot and RFR Realty’s purchase 50 $6.0 of 301 Battery Street from Bentley Enterprises for 45 42 $143 million or $769 per square foot. 40 $5.0 38 38 40 36 With the San Francisco market feeling the effects 33 32 of the COVID-19 pandemic towards the end of the $4.0 first quarter of 2020, the near-term outlook for 30 25 the local investment market is uncertain and one $3.0 of caution. The mid-term to longer-term outlook 18 17 17 20 remains optimistic, although pricing levels are 14 $2.0 forecasted to be affected if there are material 10 changes to vacancy and rental rates. 8 10 $1.0 5 $1.9 $0.4 $0.1 $0.5 $1.8 $3.5 $3.2 $9.8 $0.7 $0.3 $1.5 $2.8 $6.0 $2.4 $6.3 $3.7 $4.6 $3.6 $3.7 $6.8 $0.8 $0.0 0 San Francisco Sales Activity (Billions) # Transactions 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

Source: Colliers International

2 San Francisco Research & Forecast Report | Q1-2020 | San Francisco / Office Market | Colliers International Major Office Lease Transactions - Q1 2020

ADDRESS TENANT SIZE TYPE SIGNED DATE CLASS 301 Brannan Street Knotel 83,830 Sublease 20-Jan B

505 Howard Street Skillz 51,684 Sublease 20-Jan A

555 Deloitte 35,694 Lease 20-Jan A

153 Townsend Street PeopleAi 35,557 Sublease 20-Jan A

425 Market Street The Trade Desk 27,542 Lease 20-Feb A

101 California Street Blackstone 24,424 Lease 20-Mar A

139 Townsend Street Wilson Sonsini 19,790 Lease 20-Jan B

2101-2129 Mission Street Square 19,000 Lease 20-Feb C

45 Fremont Street IPG 18,409 Lease 20-Jan A

Major Office Sale Transactions - Q1 2020

ADDRESS SELLER BUYER SQ.FT. SALES DATE CLASS SALE PRICE PRICE/SQ.FT.

525 Market Street (49%) Knickerbocker DWS Group 506,821 Feb-20 A $605,150,000 $1,194

301 Battery Street Bentley Enterprises RFR Realty 185,851 Feb-20 B $143,000,000 $769

Lincoln Property Co JV 1045 Sansome Street Abbott Corporation 90,000 Jan-20 B $70,000,000 $778 Goldman Sachs

451 Pacific Avenue Firehouse Properties MXB Properties 10,264 Jan-20 B $12,850,000 $1,252

353 Folsom Street Marita Friedman Walker Warner 9,088 Feb-20 B $9,000,000 $990

In the midst of the COVID-19 outbreak, information and data is emerging at a quick and uneven rate. The information contained herein has been obtained from sources deemed reliable at the time the report was written. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

Development Pipeline Leasing Activity The 345 Montgomery Street renovation, which was completely preleased to The San Francisco market has experienced historical high gross leasing activity SPACES, was delivered this quarter for nearly 78,000 square feet. Currently there over the past eight years, with an average gross leasing activity of 8.2 million is nearly 2.6 million square feet of new construction and renovation product that square feet. As we kick off 2020, the first quarter experienced its first drop-in is scheduled to be delivered by the end of the year. Tenants have preleased over large deal activity, with no deals of at least 100,000 square feet. This marks the 2.3 million square feet of the construction, or over 88 percent of the upcoming first quarter without a single six figure deal closing in approximately eight years. deliveries. The market has over 7.2 million square feet of pending construction The largest deal that closed this quarter was Knotel subleasing nearly 84,000 projects that have already garnered Prop M allocations which equates to 8 square feet at 301 Brannan Street with the second largest deal Skillz subleasing projects. Additionally, San Francisco has over 3.2 million square feet of projects in approximately 52,000 square feet at 505 Howard Street. San Francisco has been the development pipeline which are looking to acquire Prop M allocations. affected by the COIVD-19 pandemic and time will tell how this translates to the leasing volume moving forward.

3 San Francisco Research & Forecast Report | Q1-2020 | San Francisco / Office Market | Colliers International Market Comparisons - San Francisco OFFICE MARKET

VACANCY NET TOTAL DIRECT DIRECT SUBLEASE SUBLEASE TOTAL OCCUPIED VACANCY NET NET NET NEW UNDER RATE NEW SUPPLY PROPOSED CLASS BLDGS INVENTORY VACANT VACANCY VACANT VACANCY VACANT SPACE RATE ABSORPTION ABSORPTION SUPPLY YTD CONSTRUCTION CURRENT CURRENT-SQ. SQ. FT. SQ. FT. SQ. FT. RATE SQ. FT. RATE SQ. FT. SQ. FT. PRIOR PERIOD CURRENT-SQ. FT. YTD-SQ. FT. SQ. FT. SQ. FT. PERIOD FT.

DOWNTOWN MARKET

A 189 63,202,717 2,380,855 3.8% 772,350 1.2% 3,153,205 60,049,512 5.0% 4.0% (635,789) (635,789) 77,999 77,999 2,359,316 10,521,417

B 290 25,244,821 1,105,921 4.4% 454,751 1.8% 1,560,672 23,684,149 6.2% 5.9% (69,035) (69,035) - - 1,193,420 439,622

C 123 6,355,485 268,839 4.2% 34,782 0.5% 303,621 6,051,864 4.8% 4.1% (44,015) (44,015) - - - -

Total 602 94,803,023 3,755,615 4.0% 1,261,883 1.3% 5,017,498 89,785,525 5.3% 4.5% (748,839) (748,839) 77,999 77,999 3,552,736 10,961,039

FINANCIAL DISTRICT:

A 112 47,279,479 1,889,793 4.0% 498,149 1.1% 2,387,942 44,891,537 5.1% 4.2% (392,296) (392,296) 77,999 77,999 956,968 288,677

B 73 8,140,598 494,885 6.1% 76,875 0.9% 571,760 7,568,838 7.0% 6.6% (21,368) (21,368) - - - -

C 34 1,476,936 103,792 7.0% 21,552 1.5% 125,344 1,351,592 8.5% 7.7% (12,066) (12,066) - - - -

Total 219 56,897,013 2,488,470 4.4% 596,576 1.0% 3,085,046 53,811,967 5.4% 4.7% (425,730) (425,730) 77,999 77,999 956,968 288,677

SUBMARKETS:

North 117 28,791,554 1,337,537 4.6% 365,628 1.3% 1,703,165 27,088,389 5.9% 5.3% (158,933) (158,933) 77,999 77,999 - - Financial South 102 28,105,459 1,150,933 4.1% 230,948 0.8% 1,381,881 26,723,578 4.9% 4.0% (266,797) (266,797) - - 956,968 288,677 Financial

Total 219 56,897,013 2,488,470 4.4% 596,576 1.0% 3,085,046 53,811,967 5.4% 4.7% (425,730) (425,730) 77,999 77,999 956,968 288,677

Union 58 4,063,190 228,456 5.6% 7,472 0.2% 235,928 3,827,262 5.8% 6.5% 28,103 28,103 - - 114,766 90,900 Square

Yerba Buena 31 4,663,528 183,088 3.9% 235,894 5.1% 418,982 4,244,546 9.0% 2.2% (317,912) (317,912) - - 108,500 1,444,000

SOMA West 40 3,774,330 50,359 1.3% 7,700 0.2% 58,059 3,716,271 1.5% 2.2% 26,012 26,012 - - - 3,333,385

SOMA East 60 6,160,990 181,438 2.9% 194,368 3.2% 375,806 5,785,184 6.1% 4.6% (94,344) (94,344) - - 266,053 1,739,725

Civic Center/ Mid-Market 45 6,385,741 140,582 2.2% 51,345 0.8% 191,927 6,193,814 3.0% 3.7% 46,830 46,830 - - 460,000 - Jackson 40 2,330,330 25,293 1.1% 15,618 0.7% 40,911 2,289,419 1.8% 2.1% 8,143 8,143 - - - - Square North Waterfront 48 3,646,953 168,259 4.6% 46,942 1.3% 215,201 3,431,752 5.9% 5.6% (9,164) (9,164) - - - - Van Ness Corridor 18 1,063,442 92,103 8.7% 13,907 1.3% 106,010 957,432 10.0% 10.0% 36 36 - - - -

Potrero West 17 1,258,348 89,529 7.1% 10,380 0.8% 99,909 1,158,439 7.9% 8.4% 5,994 5,994 - - 244,101 362,416

Potrero East 11 1,088,053 27,970 2.6% 73,378 6.7% 101,348 986,705 9.3% 8.5% (8,504) (8,504) - - 126,537 -

Mission Bay 15 3,471,105 80,068 2.3% 8,303 0.2% 88,371 3,382,734 2.5% 2.3% (8,303) (8,303) - - 1,275,811 3,701,936

Total 602 94,803,023 3,755,615 4.0% 1,261,883 1.3% 5,017,498 89,785,525 5.3% 4.5% (748,839) (748,839) 77,999 77,999 3,552,736 10,961,039

QUARTERLY COMPARSION AND TOTALS

Q4-19 602 94,788,993 3,236,008 3.4% 1,018,605 1.1% 4,254,613 90,534,380 4.5% 4.9% (130,053) 763,919 - 750,370 2,481,002 10,459,655

Q3-19 602 94,788,993 3,812,762 4.0% 877,324 0.9% 4,690,086 90,098,907 4.9% 7.0% 1,985,808 1,635,587 100,800 1,614,131 3,515,969 10,887,044

Q2-19 602 94,788,993 5,715,785 6.0% 960,109 1.0% 6,675,894 88,113,099 7.0% 6.0% (245,025) (350,221) 750,370 1,523,331 3,616,769 10,887,044

Q1-19 601 94,038,623 4,789,527 5.1% 890,972 0.9% 5,680,499 88,358,124 6.0% 6.2% (105,196) (105,196) 772,961 772,961 4,226,782 10,375,831

FOR MORE INFORMATION Erin Proto Senior Research Manager San Francisco +1 415 288 7827 [email protected]

Colliers International | San Francisco , 11th Floor San Francisco, CA 94105 +1 415 788 3100 Copyright © 2020 Colliers International. The information contained herein has been obtained from sources deemed reliable. While colliers.com every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional4 Northadvisors Americanprior to acting Researchon any of the material& Forecast contained Report in this report. | Q4 2014 | Office Market Outlook | Colliers International