Q4 2011 | Office

Pleasanton | Tri-Valley, California

research & forecast Report

Positive Momentum in 2012

market indicators Projected

Q4-11

Over the past year, the Tri-Valley Class A office market was marked by mixed economic signals amidst a protracted U.S. economic recovery. One year ago, the Tri-Valley Class A office market’s gross absorption was 1,018,032 square feet while today, it stands at a healthy 1,214,589 square feet. The increase in gross absorption year-over-year is a positive signal for deal velocity and market confidence. The Tri-Valley Class A office market’s current vacancy is 12.1 percent, which decreased by 1.0 percentage point from the previous quarter and has been on a ticking decline over the past two years. The Tri-Valley Class A office market’s net absorption moved downward from 390,266 square feet in the last quarter to 162,227 square feet presently. Although net absorption remained positive, the current quarter did represent a slip in a trend that had improved over the last three years. Between the second and third quarters of 2011, the average asking rental rate shuffled from $1.88 per square foot full service to $1.90 per square foot full service, increasing marginally this quarter to $1.92 per square foot full service.

Q1-12

VACANCY NET ABSORPTION construction Rental rate

Selected Market Stats > Overall Class A gross absorption closes the year at 1,214,589 square feet > The Tri-Valley Class A office market’s current vacancy is 12.1 percent decreasing by 1.0 percent from the previous quarter > Class A Average asking rental rates in the Tri-Valley increased slightly to $1.92 per square foot full service > Alameda County’s unemployment rate is 9.6 percent as of November 2011* *SOURCE: CALIFORNIA EMPLOYMENT DEVELOPMENT DEPARTMENT

The Tri-Valley office market saw several sales close during the fourth quarter of 2011. In Dublin, five condominium sales were completed at 111 Deerwood Road with sizes ranging from 924 to 1,854 square feet. Pleasanton saw one owner-user sale close with Axis Community Health, Inc. purchasing the 24,188 square foot building at 5925 W. Las Positas Boulevard from Cathay Bank. With both the investment sale and condominium sale markets seemingly dry for 2011, seeing some action in the sales market represents a positive sign for the market. It is important to note that Dublin Corporate Center was marketed for sale (without a listing price) for a short time during the first half of the fourth quarter. The Tishman Speyer project consists of three, four-story Class A office buildings, totaling approximately 440,000 square feet and is currently 89 percent leased. The offering received a high level of interest from prospective institutional buyers. It became apparent; however, that there was significant upside to be realized if the offering was delayed until the fourth quarter of 2012 when rents in the project will be more stabilized. Although escrow had not closed by the end of 2011, it is important to note Ross Stores, Inc.’s pending purchase of Emerald Point in Dublin. The sale consists Historical vacancy and average asking rates 16.0%

$2.00

14.5%

$1.90

13.0%

$1.80

11.5%

$1.70

10.0%

1Q 2010

2Q 2010

3Q 2010

4Q 2010

1Q 2011

Vacancy Rate

www.colliers.com/pleasanton

2Q 2011

3Q 2011

4Q 2011

Asking Rate

$1.60

Between the second and third quarters of 2011, the average asking rental rate shuffled from $1.88 per square foot full service to $1.90 per square foot full service, increasing marginally this quarter to $1.92 per square foot full service.

research & forecast report | Q4 2011 | Office

of three Class A office buildings; 194,846 square feet (5130 Hacienda Drive) from Wells Real Estate Investment Trust and 218,052 square feet (5120, 5140 Hacienda Drive) from Cisco Systems. This transaction is expected to close during the first quarter of 2012. As previous sales had typically been of distressed properties, the potential sale of Dublin Corporate Center and impending sale of Emerald Point will be an excellent litmus for the market; in both asset valuation and in investors’ willingness to invest in the Tri-Valley.

SAN RAMON 20 miles to Walnut Creek

DUBLIN

40 miles to San Francisco

PLEASANTON

LIVERMORE

30 miles to San Jose

“The increase in gross absorption yearover-year is a positive signal for deal velocity and market confidence.”

Pleasanton The Pleasanton Class A office market’s vacancy is currently reported as 16.1 percent, removing 76,550 square feet of vacant space from the previous quarter and representing a 1.5 percent rate decrease from the same period last year. It is worthwhile to mention that removing California Center’s 508,429 square feet of available space from the Pleasanton Class A office market reduces vacancy to just 8.2 percent. Over the last six months, vacancy rates have improved, however it would not be unusual to see a bobbing vacancy rate in the upcoming quarters. Pleasanton’s Class A office net absorption moved up from 26,837 square feet in the third quarter to 76,550 square feet three months later. The Pleasanton Class A office market’s gross absorption came in at 368,961 square feet currently, greatly trailing the level from one year ago at 501,114 square feet. This calculates to a 26.4 percent drop in leasing activity year-over-year. Regardless of being off-trend for its gross absorption for the year, deal velocity in the market was healthy. The two landlords who faired the greatest during the quarter were UBS Realty Investors LLC and MetLife Real Estate Investments. Stoneridge Corporate Plaza’s (MetLife) leasing efforts resulted in; executing a 7,096 square foot lease with Ponderosa Homes (relocation from within the Pleasanton market), leasing 9,613 square feet to Chapter 13 Standing Trustee for the United States Bankruptcy Court and inking a long term 11,178 square foot lease to the University of San Francisco (East Bay Regional campus) who is relocating from San Ramon’s Bishop Ranch. MetLife was also able to commit existing tenants to renewals and early lease extensions in excess of 31,000 square feet. Pleasanton Corporate Commons (UBS) also experienced a healthy quarter expanding both Workday, Inc. and Callidus into 30,772 square feet and 13,772 square feet, respectively. The Pleasanton Class A office market’s average asking rental rate stepped up from $1.93 per square foot full service to $2.00 per square foot full service for the year’s end. However, the average weighted asking rate is greatly pulled upward due to California Center’s $2.25 per square foot full service asking rate. Removing this anomaly, the average weighted asking rental rate for Pleasanton’s Class A office market would be a more realistic $1.78 per square foot full service.

Pleasanton’s Class A average asking rental rates 25.0%

$2.10

20.0%

$2.00

15.0%

$1.90

10.0%

$1.80

5.0%

$1.70

0.0%

1Q 2010

2Q 2010

3Q 2010

4Q 2010

1Q 2011

Vacancy Rate

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| Colliers International - Pleasanton

2Q 2011

3Q 2011

Asking Rate

4Q 2011

$1.60

research & forecast report | Q4 2011 | Office

significant deals Sales activity PROPERTY ADDRESS

Lease Date

square feet

tenant

type

7133 Koll Center Parkway

Dec-11

29,183

ATA Retail Services Inc

Office/Flex

5925 West Las Positas Boulevard

Dec-11

24,188

Axis Community Health Inc

Office/Flex

PROPERTY ADDRESS

Lease Date

square feet

tenant

type

122 Lindbergh Avenue

Dec-11

56,027

True-Tech Corporation

R&D/Flex

4000 Executive Parkway

Dec-11

46,414

Five9 Inc

Class A

6200 Stoneridge Mall Road

Dec-11

30,772

Workday Inc

Class A

7901 National Drive

Dec-11

30,000

TOPCON Positioning Systems

Class B

6120 Stoneridge Mall Road

Dec-11

24,801

American Baptist Homes of the West*

Class A

6491-6557 Sierra Lane

Oct-11

23,898

Pathway Community Church

Office/Flex

5700 Stoneridge Mall Road

Nov-11

18,903

Pacific Office Automation Inc

Office/Flex

6723 Sierra Court

Dec-11

13,825

ZELTIQ Aesthetics Inc

Office/Flex

6200 Stoneridge Mall Road

Dec-11

13,772

Callidus Software Inc†

Class A

6120 Stoneridge Mall Road

Dec-11

11,178

University of San Francisco

Class A

6140 Stoneridge Mall Road

Nov-11

9,613

Chapter 13 Standing Trustee

Class A

4160 Hacienda Drive

Oct-11

9,031

YFA Inc

Office/Flex

5653 Stoneridge Drive

Nov-11

8,932

East Bay Regional Park District

Office/Flex

6230 Stoneridge Mall Road

Dec-11

7,765

Workday Inc†

Class A

6671 Owens Drive

Oct-11

7,411

The Performance Group of Northern CA¹

Office/Flex

7031 Koll Center Parkway

Oct-11

7,336

Internet Hub

Class B

6130 Stoneridge Mall Road

Oct-11

7,096

Ponderosa Homes

Class A

5627 Stoneridge Drive

Dec-11

6,571

SiliconDust USA Inc

Office/Flex

1252 Quarry Lane

Oct-11

6,505

PositiveID

Office/Flex

7020 Koll Center Parkway

Dec-11

6,251

Bally Gaming Inc

Office/Flex

significant deals Lease activity

* Renewal

† Extension/Expansion

¹ Sublease

Colliers International - Stockton |

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research & forecast report | Q4 2011 | 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

9

1,469,152

202,994

13.8%

-

0.0%

202,994

13.8%

13.8%

1,266,158

(138)

115,327

282,752

-

-

$1.92

B

15

407,460

118,882

29.2%

2,634

0.6%

121,516

29.8%

27.6%

285,944

(9,233)

13,061

74,938

-

-

$1.37

Flex

24

869,188

69,590

8.0%

-

0.0%

69,590

8.0%

6.9%

799,598

(9,197)

15,061

34,931

-

-

$1.06

Total

48

2,745,800

391,466

14.3%

2,634

0.1%

394,100

14.4%

13.7%

2,351,700

(18,568)

143,449

392,621

-

-

$1.60

Livermore B

22

788,586

216,503

27.5%

22,775

2.9%

239,278

30.3%

31.6%

549,308

10,016

(12,774)

97,922

-

-

$1.22

Flex

70

2,044,707

425,973

20.8%

34,110

1.7%

460,083

22.5%

24.6%

1,584,624

42,030

114,657

161,053

-

-

$1.14

Total

92

2,833,293

642,476

22.7%

56,885

2.0%

699,361

24.7%

26.5%

2,133,932

52,046

101,883

258,975

-

-

$1.17

Pleasanton A

52

6,480,327

1,032,564

15.9%

7,645

0.1%

1,040,209

16.1%

17.2%

5,440,118

76,550

107,053

368,961

-

-

$2.00

B

63

2,467,342

542,849

22.0%

5,643

0.2%

548,492

22.2%

21.0%

1,918,850

(29,216)

(24,593)

204,175

-

-

$1.73

Flex

97

3,476,433

481,592

13.9%

15,033

0.4%

496,625

14.3%

17.7%

2,979,808

119,713

108,878

248,746

-

-

$1.36

Total

212

12,424,102

2,057,005

16.6%

28,321

0.2%

2,085,326

16.8%

18.1%

10,338,776

167,047

191,338

821,882

-

-

$1.78

7.0%

102,806

1.4%

637,218

8.4%

9.5%

6,974,618

85,815

164,424

562,876

-

-

$1.80

San Ramon A

32

7,611,836

534,412

B

29

1,066,820

119,431

11.2%

1,405

0.1%

120,836

11.3%

11.3%

945,984

(488)

15,935

84,359

-

-

$1.55

Flex

9

705,668

79,421

11.3%

1,560

0.2%

80,981

11.5%

11.4%

624,687

(195)

(12,216)

3,439

-

-

$1.22

Total

70

9,384,324

733,264

7.8%

105,771

1.1%

839,035

8.9%

9.8%

8,545,289

85,132

168,143

650,674

-

-

$1.71

MARKET TOTAL A

93

15,561,315

1,769,970

11.4%

110,451

0.7%

1,880,421

12.1%

13.1%

13,680,894

162,227

386,804

1,214,589

-

-

$1.92

B

129

4,730,208

997,665

21.1%

32,457

0.7%

1,030,122

21.8%

21.2%

3,700,086

(28,921)

(8,371)

461,394

-

-

$1.55

Flex

200

7,095,996

1,056,576

14.9%

50,703

0.7%

1,107,279

15.6%

17.8%

5,988,717

152,351

226,380

448,169

-

-

$1.24

Total

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

QUARTERLY COMPARISON AND TOTALS 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

Q2-11

421

27,387,519

4,402,173

16.1%

190,138

0.7%

4,592,311

16.8%

16.2%

22,795,208

(153,158)

30,324

866,116

-

-

$1.62

Q1-11

421

27,387,519

4,259,560

15.6%

179,593

0.7%

4,439,153

16.2%

17.0%

22,948,366

183,482

183,482

443,556

-

-

$1.57

Q4-10

421

27,416,586

4,468,043

16.3%

192,247

0.7%

4,660,290

17.0%

17.2%

22,756,296

66,301

586,748

2,275,601

-

-

$1.64

6200 Stoneridge Mall Road Workday Inc and Callidus Software Inc expanded into over 40,000 square feet (combined) in this Class A project located at Pleasanton Corporate Commons in Pleasanton, CA.

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| Colliers International - Pleasanton

research & forecast report | Q4 2011 | Office

Livermore The Livermore office market continues to show improvement, as the overall vacancy rate for office and office/flex dropped from 26.5 percent in the third quarter of 2011 to 24.7 percent by year end. Significant deals included Topcon Positioning Systems Inc. leasing the entire F. Rodgers Corporation 30,000 square foot headquarters building on Greenville Road and True-Tech Corporation expanding into the area from Fremont, leasing the former Sanmina building of 56,027 square feet in the Livermore Airport area. Livermore’s vacancy rate should continue to decrease slightly, as companies resume hiring in an improving economy and as companies are attracted to Livermore’s white collar hiring incentives offered by the city.

Dublin The Dublin Class A office market rounded out the year with a significant 282,752 square feet in gross absorption, marking a 286 percent increase in this small market from twelve months ago. This deal velocity is attributed to action at Dublin Corporate Center (which likely stirred the initial contemplation of a sale) although leasing activity was silent this quarter. With no deals executed in Dublin’s Class A office market, one deal worth mentioning in the office/flex market is Pathway Community Church leasing 23,898 square feet on Sierra Lane. Dublin’s Class A office vacancy is 13.8 percent currently, the same from last quarter but improved from 21.7 percent one year ago. The Dublin Class A office gross absorption was 274,764 square feet one quarter ago and lands at 282,752 square feet to end the year. Oddly, the average asking rental rate for the Dublin Class A office market dropped from $1.99 per square foot full service to $1.92 per square foot full service this quarter.

San Ramon The San Ramon Class A office market once again showed the lowest vacancy rate in the Tri-Valley office market at 8.4 percent (or 637,218 square feet) and down from last quarter’s 9.5 percent. The San Ramon Class A office net absorption was 284,037 square feet three months ago and is now 85,815 square feet. Unlike in Pleasanton and Dublin, the San Ramon Class A office market’s gross absorption outpaced itself from the previous year by 119,159 square feet. Their current gross absorption is 562,876 square feet and came in at 443,717 square feet one year ago. 76,699 square feet of deals were completed at Bishop Ranch, with the largest contribution coming from the migration and expansion (from Pleasanton) of Five9, Inc. to Bishop Ranch 8 with 46,414 square feet. This deal certainly represents one of the largest leases completed in the Tri-Valley Class A office market in the past year. The San Ramon Class A office market’s average asking rental rate moved down from $1.84 per square foot full service last quarter to $1.80 per square foot full service this quarter.

Looking Forward With another year in the books, the macroeconomic indicators from 2011 signal positive momentum with the most focus remaining on unemployment numbers. To note, the quarter closed with jobless claims coming in at their lowest rates since the first half of the year. Two of the largest obstacles that the commercial real estate market (and the overall economy) will face during 2012 will be the threat of a Eurozone recession and the 2012 U.S. Presidential election. Although European leaders have agreed to a financial rescue package to help the debt crisis in the Eurozone, this global obstacle will constrict the U.S. economy’s improvement in employment, keeping pressure on any possible wage expansion and weaken trade volumes. Additionally, banks will continue to practice risk averse strategies and the housing market will likely remain tepid. On a microeconomic (commercial real estate market) level, effective rental rates may tick upward (likely through reductions in landlord concessions), vacancy rates should improve across all property types and economic fluctuations will be within a much narrower range. A bright spot in 2012 should include investors stepping up and becoming more proactive in taking advantage of commercial real estate as an asset class, focusing on market selection and the ability to leverage unheard of (low) interest rates. Some properties in top-tier markets (San Francisco and the Peninsula) which have been slightly insulated from the economic collapse have already begun their return to peak pricing. However, the larger global macroeconomic issues and the instability and wavering confidence that an election year brings will constrain the greater U.S. economy and will protract the commercial real estate market’s recovery.

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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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