Research & Forecast Report | OFFICE MARKET Q4 | 2019

> VACANCY Ending the year, the vacancy rate for the San Francisco market Strong Leasing Volume continues to ride at historic lows, falling 40 basis points to 4.5 percent. The vacancy rate hasn’t hit these levels since the dot com boom of 2000. The City’s direct vacancy rate fell 60 basis points to 3.4 percent, while the vacant sublease Continues In The City space nudged up 20 basis points to 1.1 percent. The South Financial submarket dominated the positive net absorption for the quarter, as the submarkets’ vacancy rate dropped 160 basis points to 4.0 percent. Overall Class A vacancy Latham & Watkins declined dramatically, shrinking 90 basis points to 4.0 percent during the last renewed at 505 quarter of the year. for over 117,000 SF > LEASING VOLUME Leasing volume in the City continued to be robust during the last quarter of 2019, posting over 2.2 million square feet of closed transactions. Annual leasing volumes remained at record highs of nearly 9.5 million square feet, 28 percent higher the annual 20-year average of 7.4 The Paramount Group acquired Market Center for million square feet. During the fourth quarter there were four transactions $722 million ($959 psf) that closed over 100,000 square feet. VISA leased over 303,000 square feet at 1051 3rd Street, Latham & Watkins renewed for over 117,000 square feet at 505 Montgomery Street, and Nextdoor lease nearly 116,000 square feet at C O LU M B U S 420 Taylor Street. Additionally Autodesk renewed over 109,00 square feet at 1 Market Street.

> ABSORPTION The City closed the year with another quarter of positive absorption at nearly 375,000 square feet of positive net absorption, while the E M BA RC AD ERO year-to-date net absorption closed at over 2.0 million square feet. Again, the Class A properties accounted nearly 85 percent of the positive net absorption GREEN VISA leased over 303,000 SF at 1051 for the year. Much of the positive net absorption for Class A properties came

BROADWAY 3rd Street from new Class A deliveries. Key contributors in the new Class A deliveries were tenants such as Facebook moving into nearly 773,000 square feet at 250

T N A R G Howard Street and Dropbox occupying most of The Exchange at 1800 Owens

R O L Y A T WASHINGTON

H T R O W N E V A E L E D Y H Street in the Mission Bay submarket. Tenant demand remains strong in the San S S E N N A V Francisco market with approximately 7.5 million square feet of requirements, CALIFORNIA and 20 requirements over 100,000 square feet. Technology and Coworking S P E A R 80 companies account for over 48 percent of the requirements in the market while BUSH F R E M O N T Consumer Products/Services account for 3.2 percent of the tenant demand in

MARKET S1 T the City.

GEARY > RENTS Overall weighted rents increased 10 percent to $100.02 per square POWELL 3 R D feet this quarter while overall non-weighted rents rose from $84.36 to $84.86

MISSION per square foot. A key contributor to the increase in overall weighted rents was the VISA lease for nearly 304,000 square feet at 1051 3rd Street with 5 T H

FOLSOM an effective rent of over $120 per square foot. Weighted Class A rents in the

BRYANT Financial District remained relatively flat during the fourth quarter at $95.97

7 T H BRANNAN per square foot as weighted Class B rents in the Financial District soften by 5.9 percent to $82.02 per square foot. Both weighted and non-weighted rents 4 T H TOWNSEND HAYES enjoyed across the board annual rent gains in 2019. Annually overall weighted 80 KING rents increased 17.2 percent and overall non-weight rents increased 12.1 01 T H percent. Watch for rents to continue to grow in the coming year, but the rent growth will likely be at a slower pace than experienced in the past few years.

D R 3

7 T H S I O C N A R F A Y R R E T H T 4 Market Indicators 101 Relative to prior period Q4 2019 Q1 2020

O W E N S VACANCY  

280 1 6 T H NET ABSORPTION   80 CONSTRUCTION   WEIGHTED RENTAL RATE   1 9 T H NON-WEIGHTED RENTAL RATE   SALES VOLUME   SALES PRICES   Rental Rates San Francisco – Office Rents - Q4 2019 Both overall weighted and non-weighted rents % OVERALL 4Q '19 4Q '19 3Q '19 MARKET 4Q '19 DIRECT QUARTERLY in the SOMA submarket continued to climb this OVERALL SUBLEASE OVERALL CHANGE quarter. The SOMA submarket experienced the All Markets $100.02 $101.10 $93.37 $90.94 10.0% largest increase in weighted rents, growing 12.9 All Markets: Class A $104.79 $106.39 $85.01 $95.54 9.7% percent to $103.20 per square foot. The primary driver for the increase in the SOMA submarket this All Markets: Class B $91.55 $88.94 $98.44 $90.89 0.7% quarter were from deals with effective rents over Financial District: Class A $95.97 $97.41 $85.01 $96.14 -0.2% $95 per square foot, such as the Airbnb deal at Financial District: Class B $82.02 $82.51 $72.00 $87.16 -5.9% 808 Brannan Street and the Redaptive deal at 340 Brannan Street. The SOMA submarket’s annual SOMA Overall $103.20 $84.25 $112.94 $91.39 12.9% weighted rents increased 21.8 percent to $103.20 Source: Colliers International Note: Weighted Average Rents per square foot, the highest increase in San Francisco’s market. 2,200,000 20.0%

1,700,000 15.0% Absorption & Vacancy The North Financial District and South Financial District enjoyed occupancy gains of over 119,000 1,200,000 10.0% and nearly 386,000 square feet of positive net absorption, respectively. The two largest move- ins for the South Financial District was Google 700,000 5.0% occupying approximately 187,000 square feet at 215 Fremont Street and Amazon moving into over 143,000 square feet at 525 Market Street. The Net Absorption Rate Vacancy 200,000 0.0% key contributors for the positive net absorption in the North Financial District was Google moving into over 41,000 square feet at The Ferry Building, WeWork occupying over 83,000 square feet at 600 -300,000 -5.0% Vacancy Net Absorption California Street, and Turo moving into over 39,000 square feet at 111 Sutter Street. The positive net absorption for the North Financial District shrunk -800,000 -10.0% the vacancy rate 40 basis points to 5.3 percent and 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q 2Q 4Q the vacancy rate for the South Financial District '09 '09 '10 '10 '11 '11 '12 '12 '13 '13 '14 '14 '15 '15 '16 '16 '17 '17 '18 '18 '19 '19 fell 160 basis points to 4.0 percent. Source: Colliers International

Investment Volume $6.8B office The San Francisco office investment market $10.0 80 investment continues to be a hot bed of activity. Total activity in 2019 investment volume hit record highs in 2019 at $9.0 68 70 $6.8 billion with a total of 42 closed transactions. 68 San Francisco continues to be one of the most $8.0 desirable investment markets in the nation. Annual 57 60 60 leasing activity for 2019 remained at record high $7.0 53 levels posting 9.5 million square feet marking the third consecutive year of leasing activity over 9.0 50 $6.0 million square feet. 45 42 40 Several notable Class A buildings traded during $5.0 38 38 40 36 the fourth quarter of 2019 including Paramount 33 32 Group’s $722 million partial interest purchase of $4.0 555 & 575 Market Street and Columbia Property 30 25 Trust’s $239 million purchase of 201 California $3.0 Street. Tokyo Trust Capital Co. purchased One 18 Tehama for $131 million or $1,329 per square foot 17 17 20 14 $2.0 setting a new pricing levels renovated Class B 10 office product. 8 10 $1.0 With an incredible amount of capital in the market searching for San Francisco investment $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 $0.0 0 opportunities and interest rates remaining 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 historically low, the San Francisco investment

San Francisco Sales Activity (Billions) # Transactions market in poised for another very strong first half of 2020. Source: Colliers International

2 San Francisco Research & Forecast Report | Q4-2019 | San Francisco / Office Market | Colliers International Major Office Lease Transactions - Q4 2019

ADDRESS TENANT SIZE TYPE SIGNED DATE CLASS 1051 3rd Street VISA 303,064 Lease Nov-19 A 505 Montgomery Street Latham & Watkins 117,154 Renewal Dec-19 A 420 Taylor Street Nextdoor 115,766 Lease Dec-19 B 1 Market Street Autodesk 109,432 Renewal Dec-19 A 71 Stevenson Street Uber 79,674 Lease Oct-19 A 808 Brannan Street AirBnb 60,680 Sublease Nov-19 B 345 California Street Easy Post 51,156 Lease Nov-19 A 160 Spear Street Databricks 47,577 Renewal Oct-19 A 475 Sansome Street WeWork 44,341 Lease Dec-19 A

101 Green Street Lightstep 40,238 Lease Dec-19 B

45 Fremont Street Sentry.io 36,792 Lease Nov-19 A

221 Main Street Triage Consulting Group 36,668 Renewal Oct-19 A

888 Brannan Street AirBnb 36,490 Lease Nov-19 B

680 Folsom Street Demandbase 34,728 Renewal Oct-19 A

650 California Street Credit Suisse 31,170 Renewal Oct-19 A

Major Office Sale Transactions - Q4 2019

ADDRESS SELLER BUYER SQ.FT. SALES DATE CLASS SALE PRICE PRICE/SQ.FT. 555 & 575 Market Street Blackstone Real Estate Partners Paramount Group 752,735 Dec-19 A $722,000,000 $959 (Market Center) Columbia Property 201 California Street Beacon Capital Partners 272,124 Dec-19 A $238,900,000 $878 Trust PRP Real Estate 350 Rhode Island (North Bldg) Clarion Partners 127,074 Nov-19 A $134,250,000 $1,056 Investment Management Urban Land 150 Post Street Madison Capital / Prudential Development / Meyer 105,833 Nov-19 B $93,500,000 $833 Corporation Tokyo Trust Capital 246 1st Street (One Tehama) CIM 98,566 Nov-19 B $131,000,000 $1,329 Co., Ltd. 295 Bay Street Goodwill Anchor Distillery 35,278 Nov-19 C $24,000,000 $680 701 Sutter Street Reed Moulds Hescowitz Living Trust 19,250 Oct-19 B $13,500,000 $701 Peacock Construction 465 Tehama Street Madrone Glen LLC 8,000 Oct-19 B $5,600,000 $700 Inc. San Francisco's Largest Occupiers SAN FRANCISCO LARGEST OCCUPIERS $4.50 M Over the past two $4.0 M 3.82 M years, Facebook has $3.50 M 3.19 M jumped up to the top $3.0 M 2.84 M 15 occupiers. $2.50 M 1.96 M 1.81 M $2.0 M 1.79 M 1.71 M 1.53 M $1.50 M 1.40 M 1.18 M 1.03 M .95 M .80 M .79 M .76 M

$1.0 M .73 M .71 M .68 M .60 M .58 M .58 M .56 M .51 M .46 M .45 M $.50 M

$.0 M

3 San Francisco Research & Forecast Report | Q4-2019 | San Francisco / Office Market | Colliers International Development Pipeline Leasing Activity While there were no new deliveries to the market during the fourth quarter, three The San Francisco office market continued to experience historical gross leasing properties delivered earlier this year that added over 1.6 million square feet to activity this year. The leasing volume in the City hasn’t been this strong since the San Francisco office inventory. At year-end, over 3.5 million square feet of 2000. As the year closed the market enjoyed the third consecutive year of gross office space is under construction throughout the City, and roughly 2.6 million leasing activity at approximately 9.5 million square feet. There were 18 deals over square feet of that construction is scheduled to be delivered in 2020. Of the 100,000 square feet that closed this year and four of those deals closed during construction scheduled to be delivered in 2020, approximately 87.9 percent of the fourth quarter. The largest deal that closed this year was Pinterest preleasing which has already been preleased. The only project that hasn’t been preleased is all of 88 Bluxome Street the West Tower for over 488,000 square feet with the the renovation of the Armory at 1800 Mission Street. Additionally, there are seven second largest deal being VISA leasing the entire building at 1051 3rd Street for projects at approximately 7.2 million square feet that are pending with Prop M over 303,000 square feet. These are some of the market indicators that reflect the allocations. continued strength of the San Francisco office market.

Existing Properties Absorption New Supply U/C & Proposed Class # of Buildings Inventory Total feet) (square Vacant Direct feet) (square Direct Rate Vacancy Sublease Vacant feet) (square Sublease Rate Vacancy Vacant Total feet) (square Space Occupied feet) (square Rate Vacancy Period Current Rate Vacancy Period Prior Net Current Absorption YTD Net Absorption Net New Supply Current Feet) (Square Net New Supply YTD Under Construction Feet) (Square Proposed Feet) (Square

189 63,202,717 1,803,692 713,724 290 25,230,791 1,214,163 263,428 123 6,355,485 218,153 41,453

112 47,279,479 1,502,488 493,158 73 8,126,568 472,887 63,459 34 1,476,936 90,859 22,419

2 2 2 2 2 2

117 28,777,524 1,321,287 208,899 102 28,105,459 744,947 370,137

2 2 2 2 2

4,063,190 224,802 39,229 31 4,663,528 54,809 46,261 3,774,330 79,118 4,953 6,160,990 145,742 135,720 6,385,741 141,936 96,821 2,330,330 44,496 4,558 3,646,953 184,943 21,094 1,063,442 95,181 10,865 1,258,348 105,903 0 1,088,053 92,844 0 3,471,105 0

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