Second Quarter 2011 • • 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- 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 . 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

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SAN FRANCISCO • OFFICE • SECOND QUARTER

OFFICE MARKET HIGHLIGHTS – LEASING (CONT.)

75 Hawthorne Street

United States Environmental Protection AgencySAN FRANCISCO renewed OFICE and 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 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 28,577 VerticalResponse, Inc. Broadway Partners Fund Manager LLC 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 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. Ft. National Real Estate Advisors 597,443 1355 Market Street Shorenstein Company LLC 476,743 680 Folsom Street TMG/ Rockwood Capital 400,000 370 Third Street Lincoln Property Company & Lane Partners 369,027 500 Terry Francois Boulevard ( C ) Sobrato Development 305,260 888 Brannan Street Vantage Property Investors LLC 285,000 50 Fremont Street TIAA-CREF 257,696 499 Illinois Street - Building Two Alexandria Real Estate Equities 210,275

( S ) = Sublease ( R ) = Renewal ( E ) = Expansion ( C ) = Cornish & Carey Commercial Newmark Knight Frank Involvement

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SAN FRANCISCO • OFFICE • SECOND QUARTER

OFFICE MARKET HIGHLIGHTS- SALES

101-121 Spear Street

Hudson Pacific Properties purchased the SAN FRANCISCO OFICE •FIRST QUARTER remaining 49% of 101-121 Spear Street from Beacon Capital Partners.

Significant Sale Statistics (By Square Footage) Largest Building Sales (By Square Footage) Building Seller Buyer Sq. Ft. 101 & 121 Spear Street Beacon Capital Partners Hudson Pacific Properties (49% Interest) 547,964 409 & 499 Illinois Street Shorenstein Company LLC Alexandria Real Estate Equities 453,256 888 Brannan Street Wells Fargo & Co. Vantage Property Investors LLC 400,000 75 Hawthorne Street RREEF America LLC Manulife Financial Corporation 348,021 201 Third Street ADCO Group Kilroy Realty Corporation 305,618 500 Terry Francois Boulevard Lionstone Group Sobrato Development 305,260 350 Rhode Island Street (South Building) SKS Investments Tishman Speyer 135,509 115 Sansome Street Swig Company Harvest Properties 128,838

Largest Buildings for Sale (Over 50,000 Square Feet) Building Seller Buyer Sq. Ft. SEB Investment GmbH N/A 566,644 370 Third Street Lincoln Property Company & Lane Partners N/A 390,000 1275 Market Street (Pending) State Compensation Insurance Fund N/A 385,000 155 5th Street (Pending) TMG Partners University of Pacific School of Dentistry (Rumored) 375,000 221 Main Street Booth Family N/A 363,452 795 Folsom Street Westcore Properties N/A 187,202 55 Hawthorne Street RREEF America LLC N/A 136,808 625 Second Street (Pending) KBS REIT I Hudson Pacific Properties (Rumored) 134,848 631 Howard Street RREEF America LLC N/A 100,315 101 Howard Street Booth Family N/A 90,150 10 United Nations Plaza (Pending) Hill Companies LLC N/A 72,031

Projects Planned (By Square Footage) Building Owner Location Status Sq. Ft. Tishman Speyer SFD Planning 430,000 350 Bush Street & 500 Pine Street Lincoln Properties NFD Entitled/ On Hold 365,000 680 Folsom Street TMG/ Rockwood Capital SFD Planning 400,000 Piers 27-31 Shorenstein Company LLC North Waterfront Planning 400,000 ( C ) GLL Real Estate Partners SFD Entitled / Marketing Space 350,000 Beacon Capital Partners SFD Entitled 307,000 Foundry Square III Wilson Meany Sullivan SFD Entitled 278,710

( C ) = Cornish & Carey Commercial Newmark Knight Frank Involvement

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SAN FRANCISCO • OFFICE • SECOND QUARTER

SAN FRANCISCO CLASS A FOCUS – TIER 1, 2 & 3

SAN FRANCISCO OFICE •FIRST QUARTER

Energy Star LEED – Certified LEED - Pending

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SAN FRANCISCO • OFFICE • SECOND QUARTER

SAN FRANCISCO CLASS A FOCUS – TIER 1, 2 & 3

SAN FRANCISCO OFICE •FIRST QUARTER

Energy Star LEED – Certified LEED - Pending

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SAN FRANCISCO • OFFICE • SECOND QUARTER

NORTH FINANCIAL DISTRICT MARKET SUMMARY

2nd Quarter, 2011 Vacancy Rate Vacant (SF) Net Absorption Building Class Total RSF Overall Overall Direct Sublet Current Quarter Q1'11 Rental Rates¹ A 21,389,196 11.0% 2,363,494 2,167,271 196,223 58,210 64,319 $39.87 B 6,402,821 13.7% 875,840 869,692SAN 6,148 FRANCISCO 13,723 OFICE(62,991) •FIRST QUARTER$31.60 C 751,613 5.5% 41,232 41,232 0 13,686 3,066 $24.85 28,543,630 11.5% 3,280,566 3,078,195 202,371 85,619 4,394

Class A Historical Trends Quarter Total RSF Direct Vacant Sublet Vacant Vacancy Absorption Rental Rates 2007/Q2 20,968,597 1,654,847 268,598 9.1% (121,277) $43.24 Q3 20,968,597 1,381,444 181,956 9.2% (17,312) $45.15 Q4 20,968,597 1,252,588 177,665 7.5% 83,823 $48.30 2008/Q1 21,482,945 1,294,006 131,722 6.6% 55,817 $48.30 Q2 21,482,945 1,430,829 153,364 7.4% (134,611) $48.30 Q3 21,482,945 1,525,829 477,404 9.3% (286,019) $45.30 Q4 21,482,945 2,075,292 563,406 12.3% (480,054) $42.20 2009/Q1 21,546,720 2,189,346 733,855 13.6% (254,346) $37.98 Q2 21,546,720 2,215,344 844,216 14.2% (136,359) $36.30 Q3 21,546,720 2,320,104 787,246 14.4% (47,790) $35.40 Q4 21,546,720 2,437,999 677,910 14.5% (8,559) $35.40 2010/Q1 21,484,328 2,460,520 594,145 14.2% 61,244 $35.68 Q2 21,484,328 2,496,782 592,519 14.4% (34,636) $35.89 Q3 21,484,328 2,623,061 571,197 14.9% (104,957) $36.01 Q4 21,484,328 2,701,790 380,870 14.3% 111,598 $37.45 2011/Q1 21,484,328 2,698,792 319,549 14.0% 64,319 $39.23 Q2 21,389,196 2,167,271 196,223 11.0% 58,210 $39.87

CLASS A HISTORICAL VACANCY VS. LEASE RATES

$50.00 20.0%

14.2% 14.4% $40.00 11.0% 15.0%

$30.00 10.0% 9.1% 7.4% Vacancy

Lease Rate Lease $20.00 5.0%

$10.00 0.0%

Year/Quarter

Lease Rate Vacancy Rate 1 Rates are quoted as full service

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SAN FRANCISCO • OFFICE • SECOND QUARTER

NORTH FINANCIAL DISTRICT MARKET SUMMARY

Farallon Capital Management LLC, SAN FRANCISCO OFICE •FIRST QUARTER Hellman & Friedman LLC, Pisces Foundation, and Hall Capital Partners LLC renewed at One Maritime Plaza for 175,000 square feet.

11.5% overall vacancy in Q2’11, compared to 14.1% in Q1’11.

85,619 square feet of positive absorption in Q2’11, compared to 4,394 square feet of positive absorption in Q1’11.

CLASS A HISTORICAL DIRECT VS. SUBLEASE AVAILABLE SPACE

3,000,000

2,500,000

2,000,000

1,500,000

1,000,000

Available Space (Sq. Ft.) (Sq. AvailableSpace 500,000

0

Year/Quarter

Direct Avail Sublease Avail

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SAN FRANCISCO • OFFICE • SECOND QUARTER

SOUTH FINANCIAL DISTRICT MARKET SUMMARY

2nd Quarter, 2011 Vacancy Rate Vacant (SF) Net Absorption Building Class Total RSF Overall Overall Direct Sublet Current Quarter Q1'11 Rental Rates¹ A 20,420,778 7.0% 1,432,962 1,393,441 39,521 (65,886) 173,634 $38.76 B 3,154,750 8.1% 256,367 250,169SAN 6,198 FRANCISCO(21,124) OFICE (5,476)•FIRST QUARTER$33.80 C 1,208,543 8.2% 99,431 99,431 0 35,456 (13,022) $25.76 24,784,071 7.2% 1,788,760 1,743,041 45,719 (51,554) 155,136

Class A Historical Trends Quarter Total RSF Direct Vacant Sublet Vacant Vacancy Absorption Rental Rates 2007/Q2 19,128,276 998,881 142,012 6.0% 13,586 $42.67 Q3 19,128,276 1,157,348 92,021 6.5% 114,922 $43.40 Q4 19,128,276 1,294,077 83,682 7.2% (128,390) $47.60 2008/Q1 19,612,763 1,064,770 149,049 6.2% (32,660) $47.60 Q2 19,612,763 1,153,898 158,734 6.7% 37,426 $47.60 Q3 19,612,763 1,357,040 187,752 7.9% (73,457) $47.60 Q4 20,169,082 1,977,938 203,342 10.8% (410,583) $44.20 2009/Q1 20,181,060 2,089,038 284,973 11.8% (237,133) $41.50 Q2 20,181,060 2,086,629 297,292 11.8% (9,910) $37.35 Q3 20,181,060 1,990,618 248,285 11.1% 145,018 $36.20 Q4 20,181,060 1,966,796 191,732 10.7% 80,375 $35.30 2010/Q1 20,239,092 2,099,081 166,408 11.2% (106,961) $35.30 Q2 20,239,092 2,103,286 240,025 11.6% (77,822) $35.30 Q3 20,239,092 2,022,986 248,509 11.2% 71,816 $35.78 Q4 20,239,092 2,064,200 206,764 11.2% 531 $37.53 2011/Q1 20,239,092 1,902,776 194,554 10.4% 173,634 $38.46 Q2 20,420,778 1,393,441 39,521 7.0% (65,886) $38.76

CLASS A HISTORICAL VACANCY VS. LEASE RATES

$50.00 20.0%

$40.00 15.0% 11.8% 11.6%

$30.00 7.0% 10.0%

6.7% Vacancy Lease Rate Lease $20.00 6.0% 5.0%

$10.00 0.0%

Year/Quarter

Lease Rate Vacancy Rate

1 Rates are quoted as full service

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SAN FRANCISCO • OFFICE • SECOND QUARTER

SOUTH FINANCIAL DISTRICT MARKET SUMMARY

Moss Adams LLP leased 28,577 square SAN FRANCISCO OFICE •FIRST QUARTER feet at 101 Second Street.

7.2% overall vacancy in Q2’11, compared to 10.2% in Q1’11.

51,554 square feet of negative absorption in Q2’11, compared to 155,136 square feet of positive absorption in Q1’11.

CLASS A HISTORICAL DIRECT VS. SUBLEASE AVAILABLE SPACE

3,000,000

2,500,000

2,000,000

1,500,000

1,000,000

Available Space (Sq. Ft.) (Sq. AvailableSpace 500,000

0

Year/Quarter

Direct Avail Sublease Avail

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SAN FRANCISCO • OFFICE • SECOND QUARTER

NORTH WATERFRONT/JACKSON SQUARE MARKET SUMMARY

America’s Cup Event Authority leased SAN FRANCISCO OFICE •FIRST QUARTER 17,050 square feet at 75 Broadway Street.

8.7% overall vacancy in Q2’11, compared to 11.2% in Q1’11.

23,290 square feet of positive absorption in Q2’11, compared to 6,839 square feet of negative absorption in Q1’11.

2nd Quarter, 2011 Vacancy Rate Vacant (SF) Net Absorption Building Class Total RSF Overall Overall Direct Sublet Current Quarter Q1'11 Rental Rates¹ A 1,868,537 12.3% 229,735 229,735 0 16,167 755 $35.20 B 3,576,793 9.1% 325,512 319,712 5,800 (9,378) 7,322 $33.05 C 1,310,877 2.5% 33,265 32,415 850 16,501 (14,916) $25.30 6,756,207 8.7% 588,512 581,862 6,650 23,290 (6,839)

CLASS A HISTORICAL VACANCY VS. LEASE RATES

$50.00 20.0%

$40.00 15.0% 13.6% 13.8% 12.3%

$30.00 8.9% 10.0% 6.7% Vacancy

Lease Rate Lease $20.00 5.0%

$10.00 0.0%

Year/Quarter

Lease Rate Vacancy Rate

1 Rates are quoted as full service

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SAN FRANCISCO • OFFICE • SECOND QUARTER

VAN NESS/CIVIC CENTER MARKET SUMMARY

Twitter, Inc. signed a lease at 1355 Market Street SAN FRANCISCO OFICE •FIRST QUARTER for 210,000 square feet.

13.0% overall vacancy in Q2’11, compared to 18.6% in Q1’11.

20,205 square feet of positive absorption in Q2’11, compared to 63,739 square feet of positive absorption in Q1’11.

2nd Quarter, 2011 Vacancy Rate Vacant (SF) Net Absorption Building Class Total RSF Overall Overall Direct Sublet Current Quarter Q1'11 Rental Rates¹ A 2,761,948 16.8% 464,951 464,951 0 2,195 5,688 $30.27 B 2,775,988 15.6% 433,440 355,324 78,116 12,331 44,642 $28.21 C 1,748,046 2.7% 46,368 46,368 0 5,679 13,409 $24.35 7,285,982 13.0% 944,759 866,643 78,116 20,205 63,739

CLASS A HISTORICAL VACANCY VS. LEASE RATES

$50.00 25.0% 21.8%

20.0% $40.00 16.8%

15.0% $30.00 10.0% Vacancy

Lease Lease Rate $20.00 6.3% 3.9% 5.0% 4.2%

$10.00 0.0%

Year/Quarter

Lease Rate Vacancy Rate

1 Rates are quoted as full service

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SAN FRANCISCO • OFFICE • SECOND QUARTER

UNION SQUARE MARKET SUMMARY

Birst, Inc. leased 10,326 square feet at 153 SAN FRANCISCO OFICE •FIRST QUARTER Kearny Street.

7.2% overall vacancy in Q2’11, compared to 8.6% in Q1’11.

45,379 square feet of positive absorption in Q2’11, compared to 39,692 square feet of positive absorption in Q1’11.

2nd Quarter, 2011 Vacancy Rate Vacant (SF) Net Absorption Building Class Total RSF Overall Overall Direct Sublet Current Quarter Q1'11 Rental Rates¹ A 294,125 24.8% 72,836 72,836 0 9,451 0 $38.20 B 2,675,035 5.8% 156,353 151,318 5,035 13,078 18,222 $35.12 C 2,391,468 6.6% 158,720 158,720 0 22,850 21,470 $25.00 5,360,628 7.2% 387,909 382,874 5,035 45,379 39,692

CLASS A HISTORICAL VACANCY VS. LEASE RATES

$50.00 50.0%

40.0% $40.00 34.8% 24.8% 30.0% $30.00 20.0% Vacancy

Lease Rate Lease $20.00 5.0% 5.2% 10.0% 0.0% $10.00 0.0%

Year/Quarter

Lease Rate Vacancy Rate 1 Rates are quoted as full service

14

15

SOMA OFFICE UPDATE Q2 2011 SAN FRANCISCO OFFICE • SECOND QUARTER

By: Riccardo Gale

The SOMA office leasing market Advent Software is rumored to be looking continues to soar. Average asking for 250,000 square feet, Yelp is in the VACANCY ▼ rents across all classes increased to market for 125,000 square feet, and $40.29/rsf up from $36.61/rsf in the EventBrite is in search of 75,000 square Q2'11 20.2% previous quarter, a 10.1% increase. feet. Q1'11 21.0% Vacancy fell from 21.0% to 20.2%, CLASS A ASKING RENTS ▲ with tenants absorbing 174,885 Despite the robust tour activity, square feet of office space. expansions of existing tenants accounted Q2'11 $47.73 for the majority of the lease transactions Q1'11 $37.64 Not surprisingly, the technology this quarter, with Zynga, Ancestry, NET ABSORPTION ▲ sector is driving much of this ModCloth, and Splunk absorbing an demand. There remains a great deal additional 200,000 square feet Q2'11 174,885 of appetite for creative, collaborative collectively. The only new large lease Q1'11 71,579 space in those submarkets which completed this quarter was Zynga’s provide good access to Caltrain 80,000-square-foot expansion at 650 TOP LEASES and/or BART, including the ballpark Townsend Street. Zynga, Inc. area, the Mission/Howard Street 650 Townsend Street 80,000 corridor, and the Second Street Coincidentally, the pace of investment Ancestry.com corridor. The quality office space in activity is also frenetic. Properties these specific areas are now currently on the market for sale in SOMA 153 Townsend Street 60,000 commanding asking rents into the include 795 Folsom Street and 631 ModCloth.com ( C ) $50’s/rsf, comparable to high-rise Howard Street. 651 Brannan Street 31,671 view space in Class A buildings downtown. In conclusion, the second quarter of 2011 saw rapid increases in rents, particularly A number of large users are actively for small creative suites in prime touring. RocketSpace is looking for locations. Many tenants are accordingly up to 150,000 square feet for their compelled to consider more traditional tech-only, co-working space model, buildings in fringe locations.

$50.00 30.7% 32.0% 30.0% $45.00 28.0% 26.3% 26.0% $40.00 24.0% 20.2% 22.0% $35.00 20.0% 17.4% 18.0% VacancyRate Asking Rental AskingRental Rates $30.00 16.0% 15.2% 14.0% $25.00 12.0%

Class A Asking Rents Vacancy

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SAN FRANCISCO • OFFICE • SECOND QUARTER

SOMA MARKET SUMMARY

2nd Quarter, 2011 Average Asking Submarket # of Buildings Total Sq. Ft. Vacant Sq. Ft. Vacancy Rate Absorption Sq. Ft. Rent* South Beach/Multimedia Gulch 57 5,377,407 647,422 12.0% $42.00 127,614 SAN FRANCISCO OFICE •FIRST QUARTER Yerba Buena 19 2,658,095 901,559 33.9% $34.00 22,063 Potrero Hill/Showplace Square 14 1,108,154 129,606 11.7% $33.00 24,215

Mission Bay 5 1,738,112 523,880 30.1% $55.00 993

Totals: 95 10,881,768 2,202,467 20.2% $40.79 174,885

*Rates are based on a weighted full service average for available space only.

SOMA Top Buildings Q2 2011 Building Rates¹ Direct Sublease Total Avail. Total Percent Building Stories Sq. Ft. Total Direct Avg. Sq. Ft. Sq. Ft. Sq. Ft. Avail. 185 Berry Street 6 940,079 $46.00 197,796 11,189 208,985 22.2% 301 Brannan Street 6 69,090 $47.00 24,605 11,791 36,396 52.7%

475 Brannan Street 4 255,000 N/A 0 0 0 0.0%

444 De Haro Street 2 152,706 $40.00 106,360 0 106,360 69.7% 303 Second Street 10 700,945 $40.00 13,461 0 13,461 1.9%

501 Second Street 7 207,809 $48.00 22,652 0 22,652 10.9% 625 Second Street 4 134,847 N/A 0 21,879 21,879 16.2%

500 Terry Francois Boulevard 6 305,260 $58.00 305,260 0 305,260 100.0%

370 Third Street 7 390,000 $45.00 367,027 0 367,027 94.1% 123 Townsend Street 6 138,735 N/A 0 0 0 0.0%

139 Townsend Street 5 57,782 N/A 0 7,105 7,105 12.3% 410 Townsend Street 4 73,755 N/A 0 0 0 0.0%

650 Townsend Street 6 710,400 $38.00 133,193 0 133,193 18.7%

1 Rates are Quoted as Full Service

Top Contiguous Spaces Available (vacant/available space in the next 12 months) Address Square Feet 680 Folsom Street 400,000

370 Third Street 367,027

500 Terry Francois Boulevard ( C ) 305,260 888 Brannan Street 285,000

499 Illinois - Building 2 210,275

444 De Haro Street ( C ) 100,000

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SAN FRANCISCO • OFFICE • SECOND QUARTER

SOMA MARKET SUMMARY (CONT.)

Top Leases Q2 2011 Tenant Address Lessor Square Feet Zynga, Inc. ( E ) 650 Townsend Street TMG Partners 80,000

Ancestry.com 153 Townsend Street SAN FRANCISCOAmerican Assets Trust, OFICE L.P. •FIRST 59,963 QUARTER

ModCloth.com ( C ) ( R ) 651 Brannan Street W-5 Brannan, L.P. 31,671 Splunk, Inc. ( E ) 250 Brannan Street Kilroy Realty Corporation 23,362

Granicus, Inc. 600 Harrison Street Pell Development Company 15,226

Top Building Sales Q2 2011 Address Seller Buyer Square Feet 499 Illinois Street Shorenstein Company LLC Alexandria Real Estate Equities 453,256 888 Brannan Street Wells Fargo & Co. Vantage Property Investors LLC 400,000 500 Terry Francois Boulevard Lionstone Group Sobrato Development 305,260 350 Rhode Island Street SKS Investments Tishman Speyer 135,509 (South Building) 989 Market Street Transcontinental Realty Investors New Urban Properties LLC 107,337

Top Buildings for Sale Q2 2011 Address Seller Buyer Square Feet Lincoln Property Company & Lane 370 Third Street N/A 390,000 Partners 795 Folsom Street Westcore Properties N/A 187,202 625 Second Street (Pending) KBS REIT I Hudson Pacific Properties (Rumored) 134,848

631 Howard Street RREEF America LLC N/A 100,315

( S ) = Sublease ( R ) = Renewal ( E ) = Expansion ( C ) = Cornish & Carey Commercial Newmark Knight Frank Involvement

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SAN FRANCISCO • OFFICE • SECOND QUARTER

AGENT ROSTER

OFFICE LEASING INVESTMENTS MARKETING/SALES ASST.

Roman Adler John Norton Russ Sherman Natelle Fitzgerald 415.274.4434 415.445.5137 415.445.5104 415.274.4415 [email protected] [email protected] [email protected] [email protected]

SAN FRANCISCO OFICE •FIRST QUARTER

Jonathan Allen Bart O’Connor Kathryn Jackson 415.445.5102 CAPITAL GROUP 415.445.5138 415.445.5161 [email protected] [email protected] Ben Bullock [email protected] Karl Baldauf Will Scovill 415.445.5139 Madeline Kieselhorst 415.445.5117 415.445.5134 [email protected] 415.445.5114 [email protected] [email protected] Will Connors [email protected] Bill Benton Nick Slonek 415.445.5166 Raquel Ledesma 415.274.4434 415.445.5100 [email protected] 415.445.5136 [email protected] [email protected] Erik Doyle [email protected] 415.445.5111 Mike Brown Cassidy Zerrer Angela Meyers [email protected] 415.274.4423 415.274.4432 415. 274.4436 [email protected] [email protected] Sean Fulp [email protected] 415.445.5123 John Cashin RETAIL LEASING Melinda Miyagishima [email protected] 415.445.5112 415.445.5108 [email protected] Tracy Chiao David Galuski [email protected] 415.445.5140 415.445.5169 Donnette Clarens Cynthia Morales [email protected] [email protected] 415.445.5120 415.445.5149 [email protected] Erika Elliott Allison Gorelick [email protected] 415.445.5124 415.445.5131 Bryan Courson Rachel Pagan [email protected] [email protected] 415.445.5155 415.445.5121 [email protected] Tom Neuburger Mike Hegseth [email protected] 415.445.5129 415.445.5113 Nathan Crawford [email protected] [email protected] OFFICE ADMIN. 415.274.4439 [email protected] Julie Taylor Kyle Ladewig Nicole Costello 415.445.5128 415.445.5103 Kevin Delehanty 415.274.4436 [email protected] [email protected] 415.445.5132 [email protected]

Brad Zampa [email protected] BK Masterson 415.445.5115 Shannon Dolan 415.445.8888 [email protected] 415.445.5105 [email protected] [email protected] Nicole Zanghi 415.445.5142 Riccardo Gale [email protected] 415.445.5119 [email protected] RESEARCH COORDINATOR Liz Hart 415.513.2170 Jackie Treviño [email protected] 415.445.5133 [email protected] Jim Lucas 415.445.5106 [email protected]

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SAN FRANCISCO • OFFICE • SECOND QUARTER

SAN FRANCISCO OFICE •FIRST QUARTER

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