Second Quarter 2011 • San Francisco • Office Report

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Second Quarter 2011 • San Francisco • Office Report Second Quarter 2011 • San Francisco • Office Report SAN FRANCISCO OFFICE Lic #00832933 One Bush Street, Suite 400 • San Francisco, CA 94104 Tel: 415.445.8888 • Fax: 415.445.8886 www.ccareynkf.com SAN FRANCISCO • OFFICE • SECOND QUARTER TABLE OF CONTENTS Coverage Map 1 Office Update and Q2 2011 in Review 2 Office Market Highlights - Leasing 3 Office Market Highlights - Sales 5 San Francisco Class A Focus 6 North Financial District Market Summary 8 South Financial District Market Summary 10 North Waterfront / Jackson Square Market Summary 12 Van Ness / Civic Center Market Summary 13 Union Square Market Summary 14 SOMA Market Summary 15 Agent Roster 19 SAN FRANCISCO • OFFICE • SECOND QUARTER COVERAGE MAP 1 SAN FRANCISCO • OFFICE • SECOND QUARTER OFFICE UPDATE AND Q2 2011 IN REVIEW San Francisco’s economy continues leases signed were Twitter’s next couple years. We expect to see to expand, driven by the technology 205,903-square-foot lease at 1355 continued improvement in office sector. The local unemployment rate Market Street and Zynga’s 80,000- market fundamentals moving dropped from 9.5% in January to square-foot expansion at 650 forward, aided by employment gains 8.4% in May 2011, the lowest Townsend Street. SAN FRANCISCOand a flourishingOFICE •FIRST technology QUARTER sector. unemployment rate since April 2009. The re-emergence of legal and The California unemployment rate Due to the increased velocity of professional services firms will also dropped from 12.7% to 11.4% leasing activity, landlords continued benefit the overall economy and over the same period, the lowest rate to push average asking rates across office market. As demand continues since May 2009. Although the all submarkets. The SOMA unabated, landlords will continue to technology sector leads employment submarkets have sustained the most push asking rents for both quality growth in San Francisco, the significant asking rate increases as creative and traditional space and financial services and business demand continues from new and tenants will be forced to move to up- services sectors continue to improve existing technology tenants and the and-coming areas. and gain jobs lost during the amount of “creative” space on the economic downturn. market diminishes. Asking rates for VACANCY ▼ the creative, brick-and-timber The San Francisco office market buildings average in the high-$40s, Q2'11 11.0% showed sustained improvement in fully serviced. Strong demand for the the second quarter of 2011 with limited supply of creative space is Q1'11 13.5% 382,824 square feet of positive pushing tenants to more traditional CLASS A ASKING RENTS ▲ absorption, adding to the 297,824 office space, which is also seeing square feet of absorption in the first asking rate increases. Q2'11 $39.56 quarter. The overall office vacancy Q1'11 $38.21 rate fell from 13.5% to 11.0% over Sales transaction volume also the second quarter as leasing activity increased over the second quarter. NET ABSORPTION ▲ remained steady. The increase in Not surprisingly, the majority of the occupancy caused asking rates to sales activity in San Francisco Q2'11 297,824 continue their upward trend, occurred in SOMA, including three of Q1'11 327,701 specifically in the CBD and SOMA. the top five transactions. The largest office sale was Rincon Center, TOP LEASES Leasing activity in the second quarter including 101 & 121 Spear Street, United States Environmental continued to be driven by technology which sold for $190 million, or Protection Agency companies, although several of the $345/rsf, to Hudson Pacific 75 Hawthorne Street 320,000 largest leases were renewals by Properties. The largest SOMA sales government, legal, and financial were 409 & 499 Illinois Street, which Twitter, Inc. firms. The EPA signed the largest sold for $293 million to Alexandria 1355 Market Street 205,903 deal of the quarter with a 320,000- Real Estate Equities, and 888 Farallon Capital square-foot renewal and expansion Brannan Street, which sold for $37 Management LLC, Hellman & (60,000 square feet) at 75 million to Vantage Property Investors Friedman LLC, Pisces Hawthorne Street. Additional LLC. Foundation, and Hall Capital renewals included Farallon, Hellman Partners LLC & Friedman, Pisces, and Hall’s The City of San Francisco’s Mid- One Maritime Plaza 175,000 175,000 square feet at One Maritime Market Tax Break, which sparked Plaza, Bank of the West’s 150,000 Twitter’s 210,000-square-foot lease square feet at 180 Montgomery at 1355 Market Street, is expected to Street, and Farella, Braun + Martel’s attract additional technology 122,000 square feet at 235 companies to the area and establish Montgomery Street. The largest new the next thriving submarket over the 2 SAN FRANCISCO • OFFICE • SECOND QUARTER OFFICE MARKET HIGHLIGHTS – LEASING Average Asking Rate ¹ 2011 2011 Submarket Net Rentable Area * Vacancy Total Vacancy ³ Total Availability Class A Class B Class C Q2 Net Absorption ² YTD North Financial District 28,543,630 3,280,566 11.5% 17.0% $39.87 $31.60 $24.85 85,619 90,013 South Financial District 24,784,071 1,788,760 7.2% 10.9% $39.12 $33.80 $25.76 (51,554) 103,582 North Waterfront/Jackson Sq. 6,756,207 588,512 8.7% 12.8% $35.20 $33.05 $25.30 23,290 16,451 Van Ness/Civic Center 7,285,982 944,759 13.0% 23.4%SAN FRANCISCO $30.27 $28.21 $24.35OFICE •FIRST 20,205 QUARTER 83,944 Union Square 5,360,628 387,909 7.2% 12.8% $38.20 $35.12 $25.00 45,379 85,071 SOMA** 10,881,768 2,202,467 20.2% 23.3% $47.73 $38.63 $28.07 174,885 246,464 San Francisco Office Market 83,612,286 9,192,973 11.0% 15.9% $39.56 $33.81 $26.38 297,824 625,525 ** SOMA inventory includes the following markets: South of Market; Yerba Buena; Multimedia Gulch; Mission Bay; South Beach; Inner Mission & Potrero Hill City-Wide Class A Historical Trends 2007/Q2 46,663,509 3,286,066 487,191 8.1% 92,522 $43.32 Q3 46,663,509 3,083,395 355,421 7.4% 240,597 $46.82 Q4 46,663,509 2,976,387 352,776 7.1% 154,149 $46.82 2008/Q1 47,322,203 2,754,242 365,733 6.6% 209,188 $46.91 Q2 47,595,475 3,243,799 393,792 7.6% (517,616) $46.94 Q3 47,595,475 3,448,110 744,607 8.8% (555,126) $44.07 Q4 48,151,794 4,587,686 841,335 11.3% (1,236,304) $41.26 2009/Q1 48,219,559 4,968,642 1,122,238 12.6% (661,859) $37.02 Q2 48,219,559 5,009,042 1,273,766 13.0% (190,864) $35.49 Q3 48,219,559 4,995,774 1,178,876 12.8% 108,158 $34.64 Q4 48,337,119 5,439,820 962,606 13.3% (227,776) $34.64 2010/Q1 48,337,137 5,809,095 812,902 13.7% (87,475) $34.78 Q2 48,337,137 5,841,640 876,466 13.9% (96,109) $35.02 Q3 48,337,137 5,908,685 836,353 14.0% (26,932) $35.64 Q4 48,363,449 6,106,107 588,634 13.8% 50,297 $36.69 2011/Q1 48,362,494 5,900,447 514,103 13.3% 206,666 $38.21 Q2 51,186,227 5,058,186 282,415 10.4% 136,331 $39.56 CITY-WIDE CLASS A HISTORICAL VACANCY VS. LEASE RATES $50.00 20.0% $40.00 13.9% 15.0% 13.0% 10.4% $30.00 10.0% 8.1% 7.6% Vacancy Lease Lease Rate $20.00 5.0% $10.00 0.0% Year/Quarter Lease Rate Vacancy Rate 1 Rates are quoted as full service ³ Vacancy is based on vacant square footage 2 Absorption is based on vacant square footage * Includes all classes of office space 3 SAN FRANCISCO • OFFICE • SECOND QUARTER OFFICE MARKET HIGHLIGHTS – LEASING (CONT.) 75 Hawthorne Street United States Environmental Protection AgencySAN FRANCISCO renewed OFICEand expanded •FIRST QUARTER (60,000 square feet) at 75 Hawthorne Street for a total of 320,000 square feet, the largest lease transaction of the second quarter. Significant Leases (By Square Footage) Largest Leases Tenant Lessor (Sublessor) Address Sq. Ft. United States Environmental Protection Agency ( E ) ( R ) RREEF America LLC 75 Hawthorne Street 320,000 Twitter, Inc. Shorenstein Company LLC 1355 Market Street 205,903 Farallon Capital Management LLC, Hellman & Friedman Morgan Stanley One Maritime Plaza 175,000 LLC, Pisces Foundation, and Hall Capital Partners LLC ( R ) Bank of the West ( R ) The Swig Company 180 Montgomery Street 150,000 Farella, Braun + Martel LLP ( R ) Shorenstein Company LLC 235 Montgomery Street 122,000 Zynga, Inc. ( E ) TMG Partners 650 Townsend Street 80,000 Pacific Gas and Electric Company ( R ) Morgan Stanley One Market Street 74,538 Ancestry.com American Assets Trust, L.P. 153 Townsend Street 59,963 ModCloth.com ( C ) ( R ) W-5 Brannan, L.P. 651 Brannan Street 31,671 Moss Adams LLP Hines 101 Second Street 28,577 VerticalResponse, Inc. Broadway Partners Fund Manager LLC 50 Beale Street 28,121 WeWork New Urban Properties LLC 156 Second Street 25,998 Miller Law Group ( R ) Ellis Partners LLC 111 Sutter Street 25,531 Splunk, Inc. ( E ) Kilroy Realty Corporation 250 Brannan Street 23,362 Stockbridge Capital Group LLC ( R ) Boston Properties, Inc. 4 Embarcadero Center 22,313 Zoosk, Inc. ( C ) Mosten Management Company, Inc. 475 Sansome Street 21,391 Q2 2011 Top Contiguous Spaces (vacant/available in the next 12 months) Address Lessor (Sublessor) Sq.
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