Third Quarter 2016 / Office Market Report. San Diego. Market Overview. San Diego Office Vacancy Tightens, As Rents Surge Ahead

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1 Market Facts 5.0% County Unemployment Rate As Of August ,695 SF Positive Net Absorption Current Quarter Positive 884,637 SF Year-To-Date 10.3% Total Vacancy Rate Up From 10.7% In Q $2.64 PSF Asking Rental Rate Weighted Average Market Overview Office Vacancy Tightens, As Rents Surge Ahead The office market continued to make steady gains as of the third quarter of Vacancy is gradually getting tighter, while rent increases have not slowed down. The market is supported by diverse industries and desirable geography while benefitting from strong demand for space by healthcare innovators, independent research institutes and sectors that work closely with the local military. The San Diego County unemployment rate, as of the third quarter of 2016 dropped to 5.0% from 5.1% one year earlier. Vacancy was 10.3% at the end of the third quarter of 2016, down from 11.5% at the same point in While vacancy is tighter year-overyear post-recession, vacancy in the third quarter is also down from the previous quarter. Rental increases are not expected to slow, even as new construction is introduced. Office space is spending less time on the market, and fewer months vacant. The rental rate average for all classes reached $2.64 psf FSG at, up from Q3 2015, when rents were at $2.53 psf FSG. The highest rents were in the Central Coast submarket at $3.26 psf FSG with the next highest in the Downtown submarket at $2.55 psf FSG, followed by the North County Coastal area at $2.52 psf FSG. In the past 12-month period, County recorded a net absorption of positive 1,186,023 sf.

2 Sales Sales volume for the past twelve months has reached $2.6 billion, down moderately from the previous twelve months which reached $3.1 billion. This total includes local portions of larger portfolio sales. Class A inventory has increased in trading volume during the past twelve months, while Class B experienced a retraction after being heavily favored in The average sale price per square foot is up over the past twelve months, to $240 psf, from the previous twelve months of $212 psf. Transaction Volume by Property Sector County Investment Sale 401 Mile of Cars Way National City The largest investment sale during the third quarter was Sorrento Gateway, a two-building life science campus in Sorrento Mesa, purchased by Kilroy Realty Corporation for $355 psf. In total, the buildings were approximately 56% occupied by a single tenant at the time of sale. The next largest deal was South Bay Corporate Center, at 401 Mile of Cars Way in National City, purchased by Bosa Development Corporation, for $225 psf. The building was 77% leased to multiple tenants. Another significant sale consisted of three properties at multiple locations; Bernardo Regency Centre and Foremost Professional Plaza, both in Rancho Bernardo, and Three Governor Park, in Governor Park. The multi-tenant portfolio was 90% leased, and sold to Omninet Capital for $209 psf. Construction The office market had ten investment-grade office projects under construction at the third quarter of 2016, including life science projects. These projects amount to more than 1,382,213 sf of new inventory that will be delivered throughout 2016 and 2017, approximately 83% of which is already pre-committed, with the remainder currently on the market. All new office construction is currently located in the Central Coast and North County areas. The three largest projects reflect the growing needs of the life science sector in the Central Coast area of. Construction 3420 Carmel Mountain Road Del Mar Heights In total there is nearly one million square feet of space under construction with designated lab buildout to accommodate life science companies. The Rancho Santa Fe market saw the completion of Palma De La Reina, a 20,461 square foot multi-tenant office building, constructed without tenant pre-commitments. There is currently nearly 15 million square feet of proposed office development on record in the county, which is an increase of more than 60% from the same time in the previous year.

3 Asking Rent Vacancy Rates Net Absorption $ % 1,200,000 $ % 900,000 $ ,000 $ % 300,000 $ % 0 $ Q Q Q Q Q3 8.0% 2011 Q Q Q Q Q3 300, Q Q Q Q Q3 Top Leases Tenant Type Address Submarket SF WeWork New 600 B Street Downtown 88,273 Sorrento Therapeutics - Lab Space New 4955 Directors Place Sorrento Mesa 76,687 AutoGenomics - Lab Space New 1600 Faraday Avenue Carlsbad 59,860 Department of Child Support Services New 3666 Kearny Villa Road Kearny Mesa 58,222 Novatel Wireless, Inc. Sublease 9605 Scranton Road Sorrento Mesa 41,383 Top Sales Address Buyer Seller Price SF Directors Place, Sorrento Mesa - Life Science HCP, Inc. Kilroy Realty Corporation $49,000, , Mile Of Cars Way, National City Bosa Development Corporation Walton Street Capital, LLC $42,750, ,588 Rancho Bernardo/Governor Park, Portfolio Omninet Capital The Blackstone Group LP $30,500, , Wateridge Circle, Sorrento Mesa Angelo, Gordon & Co. SteelWave, Inc. $28,000, , Campbell Place, Carlsbad Testa Family, LP II Oddo Family Trust $13,000,000 41,000 Under Construction Address Developer SF Completion Executive Dr, UTC - Lab Space Biomed Realty 316, Campus Point Dr, UTC - Lab Space Alexandria Real Estate Equities, Inc. 304,326 Q Illumina Way, UTC - Lab Space Alexandria Real Estate Equities, Inc. 295,609 Q W Bernardo Dr, Rancho Bernardo Sharp Rees-Stealy 100,000 Q Towne Centre Dr, UTC The Irvine Company 96,435 Q1 2017

4 By The Numbers Inventory (SF) North County Coastal Vacancy (SF) Vacancy (%) Q Vacancy (%) Current Quarter Absorption Year-To-Date Absorption Rental Rates Q Rental Rates Qtr/Qtr Change (%) Current Quarter Deliveries YTD Deliveries Remaining 2016 Completions Scheduled 2017 Completions Class A 2,437, , % 16.3% 13,716 42,675 $2.69 $ % ,461 0 Class B Vacancy Net Absorption Avg. Advertised Rates (FS) Construction Pipeline 6,716, , % 12.2% 1,133 6,479 $2.47 $ % 90,000 90, ,632 Class C 411,677 74, % 19.0% 9,810 9,974 $1.73 $ % Total 9,566,107 1,343, % 13.5% 24,659 59,128 $2.52 $ % 90,000 90,000 20,461 30,632 North County Inland Class A 5,462, , % 5.4% 39, ,955 $2.79 $ % Class B 6,103, , % 9.1% 65, ,696 $2.23 $ % ,000 Class C 564,502 42, % 8.3% 5,589 7,809 $1.56 $ % Total 12,130, , % 7.4% 110, ,460 $2.31 $ % ,000 Central Coast Class A 14,462,834 1,511, % 11.0% 28, ,350 $3.71 $ % , ,168 Class B 11,982,630 1,634, % 13.3% -14,864 44,273 $2.79 $ % 0 127, ,588 61,755 Class C 631,077 29, % 4.2% -4,801 10,152 $2.09 $ % Total 27,076,541 3,175, % 11.9% 8, ,925 $3.26 $ % 0 127, , ,923 Central City Class A 5,365, , % 9.5% 42, ,179 $2.96 $ % Class B 11,220, , % 8.6% 102, ,702 $2.20 $ % Class C 3,923, , % 8.4% ,013 $1.64 $ % Total 20,509,645 1,607, % 8.8% 144, ,894 $2.28 $ % Downtown Business District Class A 6,683, , % 6.3% 72,445 91,798 $2.93 $ % Class B 4,176,576 1,057, % 28.2% 11, ,747 $2.26 $ % Class C 1,522, , % 8.5% ,108 $2.27 $ % Total 12,382,535 1,658, % 13.9% 83, ,653 $2.56 $ % East County Class A 233,830 10, % 4.7% 0 8,157 $2.37 $ % Class B 2,224,417 76, % 4.7% 2,538 39,061 $2.47 $ % Class C 957,558 66, % 6.8% -1,220-1,195 $1.33 $ % Total 3,415, , % 4.5% 1,318 46,023 $2.11 $ % South Bay Class A 447, , % 28.1% ,704 $2.28 $ % Class B 2,016, , % 28.1% ,776 $1.83 $ % Class C 332,559 22, % 7.8% -1,223 6,924 $2.00 $ % Total 2,796, , % 10.7% ,404 $2.02 $ % County Class A 35,093,369 3,281, % 9.5% 196, ,118 $3.20 $ % , ,168 Class B 44,441,116 5,084, % 12.0% 167, ,734 $2.40 $ % 90, , , ,387 Class C 8,343, , % 8.4% 7,067 74,785 $1.78 $ % Total 87,877,749 9,052, % 10.7% 371, ,637 $2.64 $ % 90, , , ,555 VacancybyRegion Rental Rate by Region 25.0% $ % $ % $ % $ % $ % 2006 Q Q Q Q Q Q Q Q Q Q3 North Coastal North Inland Central Coast Central City Downtown East County South Bay $ Q Q Q Q Q Q Q Q Q Q3 North Coastal North Inland Central Coast Central City Downtown East County South Bay

5 Office Markets Total Market including owner occupied space Leased Market Carlsbad 5,248, % 30,632 5,036, % 17.9% 8,358 $2.52 Encinitas/Solana Beach/Del Mar/RSF 1,632, % 20,461 1,603, % 4.9% 1,333 $3.46 Oceanside 796, % 0 733, % 13.1% 4,076 $2.03 San Marcos 1,097, % 0 783, % 15.0% 13,276 $2.41 Vista 791, % 0 765, % 14.7% -4,349 $1.92 North County Coastal 9,566, % 51,093 8,922, % 14.7% 22,694 $2.52 Escondido 848, % 0 781, % 11.4% 2,121 $1.93 Miramar/Mira Mesa 1,470, % 0 1,448, % 9.1% 9,496 $2.04 Poway 1,149, % 0 739, % 6.5% 1,898 $2.50 Carmel Mountain Ranch/Rancho Bernardo 6,287, % 100,000 4,717, % 6.4% 54,773 $2.56 Scripps Ranch 2,374, % 0 1,714, % 12.1% 41,788 $2.28 North County Inland 12,130, % 100,000 9,402, % 8.3% 110,076 $2.32 Del Mar Heights/Carmel Valley 4,504, % 93,733 4,454, % 12.2% 13,668 $4.10 Governor Park 794, % 0 794, % 6.2% 79,466 $2.62 La Jolla 1,297, % 0 1,297, % 10.5% -36,258 $3.22 Sorrento Mesa 9,153, % 0 6,066, % 17.2% -10,415 $2.58 Sorrento Valley 512, % 0 448, % 4.5% -807 $2.12 Torrey Pines 2,280, % 63,000 1,120, % 9.0% 1,633 $3.64 UTC 8,532, % 1,074,387 8,172, % 15.7% -38,426 $3.36 Central Coast 27,076, % 1,231,120 22,355, % 14.2% 8,861 $3.26 Bankers Hill/Hillcrest/Mission Hills/North Park 2,018, % 0 1,581, % 8.4% 18,346 $2.35 Kearny Mesa 9,708, % 0 7,060, % 10.7% 56,867 $2.12 Mission Valley 6,292, % 0 5,782, % 8.9% 50,526 $2.42 Old Town/Sports Arena/Point Loma 1,711, % 0 1,313, % 7.8% -4,279 $2.15 Pacific Beach/Rose Canyon/Morena 779, % 0 619, % 6.1% 916 $2.02 Central City 20,509, % 0 16,358, % 9.5% 122,376 $2.25 Downtown 12,382, % 0 12,129, % 13.7% 83,298 $2.55 Downtown Business District 12,382, % 0 12,129, % 13.7% 83,298 $2.55 College Area 938, % 0 819, % 5.5% -423 $2.46 El Cajon/La Mesa/Lemon Grove/Santee 2,078, % 0 1,902, % 4.3% 1,288 $2.17 Mission Gorge 398, % 0 339, % 8.1% 0 $1.11 East County 3,415, % 0 3,061, % 5.0% 865 $2.11 Chula Vista 1,863, % 0 1,471, % 14.9% 18,526 $2.24 Coronado/Imperial Beach National 83, % 0 57, % 20.3% -11,561 - City/Southeast Otay 676, % 0 595, % 12.9% -10,997 $1.49 Mesa 174, % 0 174, % 4.2% 663 $1.86 South Bay 2,796, % 0 2,297, % 13.7% -3,369 $2.02 County Total 87,877, % 1,382,213 74,527, % 12.0% 344,801 $2.64

6 A Growing, Multinational Presence Avison Young at a Glance Founded: 1978 Total Real Estate Professionals: 2,400 Offices: 79 Brokerage Professionals: 900+ Property Under Management: 100 million sf Avison Young is the world s fastest-growing commercial real estate services firm. Headquartered in Toronto, Canada, Avison Young is a collaborative, global firm owned and operated by its principals. Founded in 1978, the company comprises 2,400 real estate professionals in 79 offices, providing value-added, client-centric investment sales, leasing, advisory, management, financing and mortgage placement services to owners and occupiers of office, retail, industrial and multi-family properties. EDMONTON CALGARY SAN FRANCISCO OAKLAND SAN MATEO VANCOUVER SACRAMENTO RENO LETHBRIDGE DENVER MINNEAPOLIS CHICAGO (2) CLEVELAND DETROIT COLUMBUS PITTSBURGH LAS VEGAS INDIANAPOLIS PHOENIX NASHVILLE DALLAS MEMPHIS HOUSTON AUSTIN KNOXVILLE SAN ANTONIO TAMPA LOS ANGELES (4) ORANGE COUNTY SAN DIEGO REGINA ST. LOUIS WINNIPEG ORLANDO MEXICO CITY TORONTO (2) TORONTO NORTH TORONTO WEST WATERLOO REGION JACKSONVILLE OTTAWA MONTREAL WEST PALM BEACH BOCA RATON FORT LAUDERDALE MIAMI QUEBEC CITY MONCTON HALIFAX BOSTON HARTFORD FAIRFIELD/WESTCHESTER LONG ISLAND NEW YORK CITY PHILADELPHIA NEW JERSEY SUBURBAN MARYLAND WASHINGTON, DC TYSONS CORNER RALEIGH-DURHAM (2) CHARLOTTE GREENVILLE CHARLESTON ATLANTA COVENTRY LONDON (2) THAMES VALLEY HAMBURG BERLIN DUESSELDORF FRANKFURT MUNICH Contact Information - Southern California, United States Los Angeles - Downtown 555 S Flower St, Ste 3200 Los Angeles, CA Primary Contact: Ted Simpson ted.simpson@ Los Angeles - West Wilshire Blvd, Ste 2100 Los Angeles, CA Primary Contact: Jonathan Larsen jonathan.larsen@ Los Angeles - North 6711 Forest Lawn Dr Los Angeles, CA Primary Contact: Mark Evanoff mark.evanoff@ Los Angeles - Santa Monica 301 Arizona Ave, Ste 303 Santa Monica, CA Primary Contact: Randy Starr randy.starr@ Orange County - Irvine 2030 Main Street, Ste 150 Irvine, CA Primary Contact: Stan Yoshihara stan.yoshihara@ - La Jolla 4225 Executive Sq, Ste 600 La Jolla, CA Primary Contact: Jerry Keeney jerry.keeney@ Regional Managing Director: Chris Cooper - Corporate 555 S Flower St, Ste 3200 Los Angeles, CA chris.cooper@ Report Prepared By: Amber Jagers - Research Manager 4225 Executive Sq, Ste 600 La Jolla, CA amber.jagers@ Avison Young - Southern California, Ltd. All rights reserved. E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young.