Q3 2012 | Office

Pleasanton | Alameda County, California

research & forecast Report

Office Market Review Tri-Valley The Tri-Valley Class A office market vacancy is slowly creeping its way to single digit rates. Currently the Tri-Valley Class A office market vacancy sits at 10.1 percent, down from 11.3 percent last quarter and from 13.1 percent one year ago. The Tri-Valley Class A’s office net absorption also moved in a positive direction from negative 25,213 square feet in the prior quarter to 167,464 square feet this quarter. As explained previously, the dip in what seemed to be an improving trend in net absorption was stifled last quarter by some hefty-sized blocks of space being placed onto the market. Gross absorption for the Tri-Valley Class A office market also showed improvement from 1,024,141 square feet during the third quarter of 2011 to 1,215,724 square feet this quarter. market indicators Projected

Q3-12

Q4-12

VACANCY NET ABSORPTION construction Rental rate

Selected Market Stats > The Tri-Valley Class A office market’s

vacancy sits at 10.1 percent, down from 11.3 percent last quarter. > Net absorption moved in a positive

direction from negative 25,213 square feet in the prior quarter to 167,464 square feet this quarter. > Overall weighted average asking rates

increased from $1.99 per square foot full service three months ago to $2.05 per square foot full service in the current quarter. > Alameda County’s unemployment rate is

9.3 percent as of August 2012* *SOURCE: CALIFORNIA EMPLOYMENT DEVELOPMENT DEPARTMENT

Another optimistic statistic for the Tri-Valley Class A office market’s recovery and growth is represented by the increase in average weighted asking rates from $1.90 per square foot full service twelve months ago to $1.99 per square foot full service three months ago to $2.05 per square foot full service in the current quarter. Market predictions also indicate that average weighted asking rates will continue to climb and could bump by $0.10-$0.15 per square foot full service in the next six months with tightening supply of large blocks of Class A office space. Each of the previously mentioned indicators are all moving in the right direction and indicate a strengthening market, which will presumably be capped off by a similarly solid fourth quarter. In the third quarter of 2012, there was one owner/user sale transaction completed. Searchlight Property Management LLC purchased a 5,457 square foot unit at Birch Lakes from Fernwood, Bruns and Bertolotti. The closing price indicates a solid appreciation in value as compared with most sales transactions completed in the market over the past five years. Historical vacancy and average asking rates 20%

$2.10 $2.05

16%

$2.00 $1.95

12%

$1.90 $1.85

8%

$1.80 $1.75

4%

$1.70 $1.65

0%

4Q 2010

1Q 2011

2Q 2011

3Q 2011

4Q 2011

Vacancy Rate Series1

www.colliers.com/pleasanton

1Q 2012 Series2

2Q 2012

3Q 2012

Asking Rate

$1.60

Market predictions also indicate that average weighted asking rates will continue to climb and could bump by $0.10-$0.15 per square foot full service in the next six months.

research & forecast report | Q3 2012 | Office

Pleasanton Five years ago at the crux of the economic crash, the Pleasanton Class A office market had 516,288 square feet of vacant space (8.4 percent vacancy). Today, vacancy is perched at 16.6 percent, down from 17.8 percent last quarter. As the vacancy rate has slowly bobbed its way down to its present rate, it is still a far cry from where things stood prior to the economic bust. However, as discussed in our second quarter 2012 report, California Center continues to weigh down the rest of the Pleasanton Class A office market with its significant vacancy.

SAN RAMON 20 miles to Walnut Creek

DUBLIN

40 miles to San Francisco

PLEASANTON

LIVERMORE

30 miles to San Jose

“The Tri-Valley commercial real estate market is undoubtedly seeing strong signs of improvement in what has been a highly wavering and unsteady recovery out of the economic crash a half decade ago.”

If California Center was removed from the picture, Pleasanton’s Class A office vacancy would be 6.2 percent, down from 7.8 percent in the previous quarter and more indicative of the true health of the Pleasanton Class A office market. Pleasanton’s Class A office net absorption also improved from negative 58,113 square feet three months ago to positive 56,484 square feet currently. Gross absorption also stood on trend coming in at 230,202 square feet as compared year-over-year at 272,946 square feet. Pleasanton’s Class A office gross absorption was comprised of healthy activity across almost all of the Class A buildings: Stoneridge Tower completed 16,012 square feet of new deals, Stoneridge Corporate Plaza completed 11,166 square feet of leasing, Bernal Corporate Park inked 14,944 square feet of leases, Hacienda Terrace signed up 12,325 square feet of new tenants and Hacienda West executed 24,138 square feet worth of deals which included the largest Lease (by size); ServiceMax Inc. signing for 17,451 square feet. Pleasanton’s Class A office market’s average weighted asking rates also tip-toed up to $2.04 per square foot full service from $2.03 per square foot full service last quarter, however, still not near pre-crash rates of $2.36 per square foot full service five years ago. Historical vacancy and average asking rates 20%

$2.10 $2.05

16%

$2.00 $1.95

12%

$1.90 $1.85

8%

Pleasanton’s Class A office market’s average weighted asking rates also tip-toed up to $2.04 per square foot full service from $2.03 per square foot full service last quarter, however, still not near pre-crash rates of $2.36 per square foot full service five years ago.

$1.80 $1.75

4%

$1.70 $1.65

0%

4Q 2010

1Q 2011

2Q 2011

3Q 2011

4Q 2011

Series1 Vacancy Rate

1Q 2012 Series2

2Q 2012

3Q 2012

$1.60

Asking Rate

Dublin Once again, the Dublin Class A office market stood static reporting an unchanged vacancy rate from the second quarter of 2012 at 4.2 percent or 61,810 square feet. With the small size of the Dublin Class A office market (approximately 1,500,000 square feet) and already low vacancy, it is not surprising to see little change here. Two years ago the Dublin Class A office market featured a 23.4 percent vacancy rate, so although its vacancy is currently sitting pretty it had a mountain to conquer. Dublin’s third quarter Class A office net absorption is 0 square feet, down from 18,124 square feet last quarter. Gross absorption is almost double that of the much larger (approximately 6,200,000 square foot) Pleasanton Class A office market at 416,092 square feet from 274,764 square feet one year ago. Interestingly, Dublin’s Class A office average weighted asking rate fell from $2.14 per square foot full service one quarter ago to $2.07 per square foot full service this quarter.

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| Colliers International - Pleasanton

research & forecast report | Q3 2012 | Office

San Ramon The San Ramon Class A office market has shown the most progressively steady improvement annually compared to all other Tri-Valley Class A office submarkets. Currently, the San Ramon Class A office market vacancy is 5.9 percent down from 7.4 percent in the previous quarter and from 9.5 percent four quarters ago. Net absorption has also remained positive at 110,980 square feet today from 14,776 square feet last quarter. San Ramon’s Class A office gross absorption even beat its year-over-year numbers coming in at a strong 569,430 square feet from 476,431 square feet. Legacy Partners’ Legacy San Ramon completed 19,871 square feet of new lease transactions, with the bulk of activity coming from Bishop Ranch. Bechtel National Corporation signed at Bishop Ranch 6 for 19,724 square feet, Pacific Gas & Electric Corporation penned their 106,673 square foot lease at Bishop Ranch 1 (sublease from Audatex North America Inc.) and Kraft Foods Inc. decided to make Bishop Ranch 15 their home with 11,474 square feet. The vigorous activity at Bishop Ranch over the past nine months, is providing great signs of optimism and growth for the entire TriValley Class A office market. San Ramon’s Class A office average weighted asking rates moved upwards from $1.84 per square foot full service one year ago to $1.89 per square foot full service three months ago to $2.06 per square foot full service

presently. The $0.17 per square foot full service jump since the last quarter may be indicative of how quickly rates could move in this market over a fairly short time horizon.

Livermore During the third quarter of 2012, the Livermore office and office/flex markets remain basically flat, with a half of a percent uptick in vacancy. While the gross absorption year-to-date is positive 181,261 square feet, the net absorption year-to-date is negative 37,603 square feet. These numbers should change, as the Livermore Charter Schools’ close of escrow on sixteen stand-alone buildings at Montevina (Airway Boulevard and I-580) will absorb 100,000 square feet of vacant flex and office buildings. Vertical Ventures Capital LLC and their joint-venture equity partner purchased five buildings totaling 207,806 square feet at Pacific Corporate Commons for an undisclosed price. FormFactor is the primary tenant leasing four of the five buildings on a long-term basis. This was a large leased investment sale that demonstrates Livermore remains a popular choice for well capitalized investors. Still, the Livermore office and office/ flex market, at approximately ten percent of the total 27,355,147 square feet of Tri-Valley inventory, is a relatively small segment of the overall market. Property owners of this market type product are anxiously awaiting the outcome of the November 6th election, when Measure B1 will be put in front of the voters to encourage the expediting of BART to West Livermore.

significant deals Sale activity PROPERTY ADDRESS

SALE DATE

Square feet

BUYER

type

7005-7545 Southfront Road

Aug-12

207,806

Vertical Ventures LLC

R&D/Flex

7011 Koll Center Parkway

Aug-12

5,457

Searchlight Property Management LLC

Class B

significant deals Lease activity PROPERTY ADDRESS

Lease Date

square feet

tenant

type

6111 Bollinger Canyon Road

Sep-12

106,673

Pacific Gas & Electric Company

Class A

2430 Camino Ramon

Aug-12

19,724

Bechtel National Corporation

Class A

3875 Hopyard Road

Jul-12

17,451

ServiceMax Inc

Class A

4457 Willow Road

Aug-12

15,911

Neotract*

Class B

6723 Sierra Court

Aug-12

14,711

Cannon Business Solutions Inc*

Office/Flex

6723 Sierra Court

Sep-12

13,825

ZELTIQ Aesthestics Inc*

Office/Flex

6940 Koll Center Parkway

Aug-12

12,326

Gregg Jefferies Sports Academy

Office/Flex

12677 Alcosta Boulevard

Jul-12

11,474

Kraft Foods Inc

Class A

3825 Hopyard Road

Sep-12

11,255

Standard Pacific Homes*

Class A

4511 Willow Road

Aug-12

11,226

Sunblet Controls

Office/Flex

4900 Hopyard Road

Aug-12

10,935

Sensiba San Filippo LLP

Class A

* Renewal Colliers International - Pleasanton |

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research & forecast report | Q3 2012 | Office Market Comparisons Office market Type

Total Bldgs Inventory SF

Direct Direct Vacancy Vacant SF Rate

Sublease Vacant SF

Sublease Vacancy Rate

Total Vacant SF

Vacancy Rate Current Quarter

Vacancy Rate Prior Quarter

Occupied Space Sf

Net Absorption Current Qtr SF

Net Absorption YTD SF

GROSS COMPLETIONS ABSORPTION CURRENT YTD SF QTR

Under Const SF

Weighted Avg Asking Rental Rate FSG

Dublin A

10

1,488,260

61,810

4.2%

-

0.0%

61,810

4.2%

4.2%

1,426,450

-

141,184

416,092

-

-

$2.07

B

15

409,543

120,106

29.3%

-

0.0%

120,106

29.3%

30.4%

289,437

4,507

1,410

39,962

-

-

$1.39

Flex

24

869,016

89,050

10.2%

-

0.0%

89,050

10.2%

7.5%

779,966

(23,519)

(19,460)

10,863

-

-

$1.47

Total

49

2,766,819

270,966

9.8%

-

0.0%

270,966

9.8%

9.1%

2,495,853

(19,012)

123,134

466,917

-

-

$1.57

820,216

225,699

27.5%

22,775

2.8%

248,474

30.3%

30.7%

571,742

3,591

(9,196)

44,302

-

-

$1.09

Livermore B

22

Flex

70

2,043,065

488,490

23.9%

-

0.0%

488,490

23.9%

23.0%

1,554,575

(19,423)

(28,407)

136,959

-

-

$1.36

Total

92

2,863,281

714,189

24.9%

22,775

0.8%

736,964

25.7%

25.2%

2,126,317

(15,832)

(37,603)

181,261

-

-

$1.27

6,189,219

980,710

15.8%

44,679

0.7%

1,025,389

16.6%

17.5%

5,163,830

56,484

14,820

230,202

-

-

$2.04

Pleasanton A

47

B

68

2,748,385

417,658

15.2%

34,187

1.2%

451,845

16.4%

16.8%

2,296,540

10,021

96,647

315,919

-

64,474

$1.67

Flex

97

3,475,957

420,262

12.1%

11,877

0.3%

432,139

12.4%

13.3%

3,043,818

29,305

64,486

195,735

-

-

$1.53

Total

212

12,413,561

1,818,630

14.7%

90,743

0.7%

1,909,373

15.4%

16.2%

10,504,188

95,810

175,953

741,856

-

64,474

$1.84

San Ramon A

31

7,564,037

415,742

5.5%

31,550

0.4%

447,292

5.9%

7.4%

7,116,745

110,980

189,926

569,430

-

-

$2.06

B

28

1,041,781

133,566

12.8%

5,523

0.5%

139,089

13.4%

14.8%

902,692

14,641

(18,253)

33,643

-

-

$1.59

Flex

9

705,668

91,891

13.0%

-

0.0%

91,891

13.0%

13.0%

613,777

-

(10,910)

2,990

-

-

$1.47

Total

68

9,311,486

641,199

6.9%

37,073

0.4%

678,272

7.3%

8.6%

8,633,214

125,621

160,763

606,063

-

-

$1.88

MARKET TOTAL A

88

15,241,516

1,458,262

9.6%

76,229

0.5%

1,534,491

10.1%

11.2%

13,707,025

167,464

345,930

1,215,724

-

-

$2.05

B

133

5,019,925

897,029

17.9%

62,485

1.2%

959,514

19.1%

19.8%

4,060,411

32,760

70,608

433,826

-

64,474

$1.47

Flex

200

7,093,706

1,089,693

15.4%

11,877

0.2%

1,101,570

15.5%

15.3%

5,992,136

(13,637)

5,709

346,547

-

-

$1.44

Total

421

27,355,147

3,444,984

12.6%

150,591

0.6%

3,595,575

13.1%

13.8%

23,759,572

186,587

422,247

1,996,097

-

64,474

$1.71

150,591

0.6%

3,595,575

13.1%

13.8%

23,759,572

186,587

422,247

1,996,097

-

64,474

$1.71

QUARTERLY COMPARISON AND TOTALS Q3-12

421

27,355,147

3,444,984

12.6%

Q2-12

421

27,355,147

3,601,430

13.2%

180,732

0.7%

3,782,162

13.8%

14.1%

23,572,985

80,033

235,660

1,541,617

-

64,474

$1.73

Q1-12

421

27,355,147

3,647,213

13.3%

214,982

0.8%

3,862,195

14.1%

14.7%

23,492,952

155,627

155,627

1,095,000

-

64,474

$1.69

Q4-11

422

27,387,519

3,824,211

14.0%

193,611

0.7%

4,017,822

14.7%

15.7%

23,369,697

285,657

604,813

2,124,152

-

-

$1.64

Q3-11

422

27,387,519

4,109,593

15.0%

193,886

0.7%

4,303,479

15.7%

16.8%

23,084,040

288,832

319,156

1,671,696

-

-

$1.62

*Note: The weighted average asking rates for office/flex is converted to a full service equivalent

Bishop Ranch 1 - 6111 Bollinger Canyon Road PG&E signed a long-term lease relocating approximately 700 employees to the business park from various locations throughout the Bay Area.

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| Colliers International - Pleasanton

research & forecast report | Q3 2012 | Office

Looking Forward The Tri-Valley commercial real estate market is undoubtedly seeing strong signs of improvement in what has been a highly wavering and unsteady recovery out of the economic crash a half decade ago. Over the last nine months or so, the Tri-Valley commercial real estate market has seen an increase in tenant demand from tenants, new to the market. These tenants’ interest in the Tri-Valley is most pointedly due to the rising rents in San Francisco and the Peninsula office markets. Due to the escalating costs of both residential and commercial space in those markets, large global companies have decided to look elsewhere and take full advantage of the Tri-Valley’s lower office rents. New to the market tenant demand is probably one of the strongest indicators for growth, instead of the persistent inter-market tenant churn that had become so commonplace over the past five years. Companies like General Electric Global Research, GAP’s internet technology group, Bechtel National Corporation and Pacific Gas & Electric Corporation (new user group) are the most notable companies that have found themselves hunting for space in the Tri-Valley. What goes hand-in-hand with the aforementioned new tenants, are possible new demand from companies that act as support for and suppliers of their businesses. Additionally, when taking a closer look at the 10.1 percent Tri-Valley Class A office market vacancy, it is interesting to point out that there are just fifteen available spaces above 20,000 square feet. Most of the vacancy is tucked away in 142 available spaces less than 5,000 square feet. A tightening supply of large blocks of space (which is also where the recent hotbed of tenant demand sits) might lend itself to a jump, rather than a tick, in rental increases. There is the potential for some softening in the market, as large sublease availabilities have appeared; two spaces for greater than 20,000 square feet and five spaces for 10-20,000 square feet. However, the big picture for the condition of the Tri-Valley commercial real estate market remains much more positive than in past quarters and years. As the TriValley and East Bay markets generally grow out of housing cycles, it is encouraging to see that recovery has come without homebuilding activity. Although there will not be a huge pop in the Tri-Valley commercial real estate market like those seen in the San Francisco and Peninsula markets with billion dollar IPO’s and insta-millionaires, the signs for positive growth are upon us with tangible optimism for what is to come. As we round the corner to the last quarter of 2012, it is still very important to pay close attention to how the employment market, global economy and political environment behaves as they will continue to impact the Tri-Valley commercial real estate market.

522 offices in 62 countries on 6 continents United States: 147 Canada: 37 Latin America: 19 Asia Pacific: 201 EMEA: 118 • $1.8 billion in annual revenue • $1.25 billion square feet under management • Over 12,300 professionals pleasanton OFFICE: 5050 Hopyard Rd. Suite 180 Pleasanton, CA 94588 United States tel +1 925 463 2300 FAX +1 925 463 0747 MANAGING PARTNER Ted Helgans tel +1 925 227 6202 [email protected] CA License No. 00873026 RESEARCHER: Lisa Kohler tel +1 925 227 6236 [email protected] AUTHOR Loren Honda, CCIM Senior Associate tel +1 925 227 6261 [email protected] CA License No. 01796910 CONTRIBUTING AUTHOR (Livermore) Mark Triska, SIOR, SVP tel +1 925 227 6210 [email protected] CA License No. 01012779 This report and other research materials may be found on our website at www.colliers.com. This quarterly report is a research document of Colliers International Pleasanton, CA. Questions related to information herein should be directed to the Research Department at +1 925 227 6236. Information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof.

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