Silicon Valley. c o l l i e r s i n t e r n at i o n a l M a r k e t R e p o rt. O V E RV I E W F i r s t Q u a r t e r

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1 $. Office dollars per sf, Fs/Month $. $. avg. starting rent c o l l i e r s i n t e r n at i o n a l M a r k e t R e p o rt Silicon Valley dollars per sf, Gross/Month square Feet in Millions square Feet in Millions $. $.5 $.7 $.6 $. $. $. $ avg. starting rent improved space added to avail. supply net absorption % % VILILITY.5 %.77% avg. starting RTE rent bsorption square Feet in Millions r&d office industrial Warehouse 8% % % 8% % 9% % Industrial O V E RV I E W F i r s t Q u a r t e r 7 Steady as She Goes ommercial real estate activity levels in Silicon Valley were steady in 6, with quarterly gross absorption ranging between 5.67 and 6.76 million square feet. That trend continued through the start of 7 as the year s first quarter recorded 5.7 million square feet of gross absorption. While activity is slightly off pace of olliers annualized forecast of 5. million square feet of gross absorption, it is certainly within reach. Warehouse Rollover space, the amount of vacant space coming back on to the market, continues to stay at low levels. Over the years, olliers has been closely tracking rollover space and the current trend is that rollover space has been decreasing annually over the past three years, contributing to nine consecutive quarters of positive net absorption. Historically, low amounts of rollover space translates into gains in occupancy. The amount of vacant space added to the market in the first quarter of 7 was.55 million square feet and the net occupancy gain measured.6 million square feet. Rollover space is far from the 8 to million square feet per quarter the Valley saw added during the early s, which led to heavy net occupancy losses. Gross absorption The national economy exhibited signs of caution during the first quarter, as the probability of a recession occurring in the United States within the next six months rose from % in February to 8% in March, according to Moody s Economy.com The recent rebound in equity markets, strong job creation, and the fact that consumer confidence levels are still very high, has kept the risk from being greater. roken down by region, the probability of a recession is higher (than the national average) in the East and West North entral regions, while the West South entral and South tlantic regions are of the lowest risk in the country. The Pacific region is on par with the national average. Silicon Valley s economic picture continues to look good. Venture capital activity remained strong through the first quarter of 7. While seven fewer deals were completed compared to the same quarter last year, we saw a increase in venture capital investment. ccording to Dow Jones VentureOne, $. billion was invested in local companies during the first quarter of 7. Employment in the counties of Santa lara and San enito is gradually improving as,5 jobs were added during the twelve month span ending on March. The month of March alone added, jobs, and the unemployment rate decreased from. in February to.% in March. 6 NET SORPTION vs. ROLLOVER SPE Rollover vs. avg. Net starting bsorption rent 5 SILION VLLEY Gross bsorption Market Indicators Gross NET SORPTIOn Q 6 Q 7 6,757, SF 5,77,5 SF,55,78 SF,56,6 SF UPdate SILION VLLEY availability improved space added to avail. supply net absorption LL Product square Feet in Millions r&d office industrial Warehouse olliers International

2 SILION VLLEY OVERVIEW First Quarter 7 Office rents increased dramatically during the first quarter. The average starting rate for office leases was $.8 per square foot (full service), a 6.% increase from the $.5 per square foot average start rate recorded in the final quarter of 6. dollars per sf, Fs/Month R&D VILILITY and RENT TRENDS $. $.5 OFFIE VILILITY and RENT TRENDS $. $. $. R&D Market The R&D sector is off to a good start in 7, as activity picked up during the first quarter. Gross absorption measured. million square feet, breaking the -quarter trend of R&D gross absorption below. million square feet. Gross absorption increased by.% compared to the fourth quarter of 5, keeping olliers s 7 forecast of. million square feet of R&D activity in sight. R&D net absorption totaled 5, square feet in the first quarter, marking nine consecutive quarters of positive net absorption. The for R&D space dropped from 8.8% to 7.8 during the quarter, reflecting a reduction of 987,8 square feet of available space. The five largest R&D markets posted solid activity levels. Fremont generated 69,79 square feet of R&D gross absorption, the highest amount of activity since the third quarter of 5. San Jose had a busy first quarter as R&D activity measured 9,6 square feet, the highest since the fourth quarter of 5, and the highest Q level since the first quarter of. Of the five largest R&D markets, only Sunnyvale recorded a net occupancy loss (-,7 square feet), the first time since third quarter of 5, and the greatest occupancy loss since the fourth quarter of. One of the larger R&D deals in Q was the 8,86 square foot lease by dvanced Medical Optics, Inc. on ottonwood Drive in Milpitas. Other significant R&D transactions included Nuova Systems 79,8 square foot sublease on Plumeria Drive in San Jose, arracuda Networks lease of 6, square feet on Winchester oulevard in ampbell, and Space Systems Loral s 5,66 square foot lease on ayshore Parkway in Mountain View. The average start rate for R&D transactions was per square foot (NNN) in the first quarter of 7, down.5 per square foot from the previous quarter. While the average start rate fell in Q, it is surely not indicative of things to come. We are seeing asking rents increase across the Valley and expect that Q R&D comps will cause average lease rates to rise in Q. Office Market fter posting three consecutive quarters of office activity above.8 million square feet, office gross absorption measured. million square feet in Q 7. While that figure is still a significant amount of activity, it is down from the. million square feet posted in the prior quarter. Net absorption of office space totaled,668 square feet in Q, the eighth consecutive quarter of net occupancy gain in the Valley, but the lowest one-quarter gain during that span. The office stood at. at the end of Q, below the 7. one year ago. Of the Silicon Valley s. million square feet of office activity, 58.% of it took place in San Jose. San Jose generated 8,86 square feet of gross absorption, and aside from the.5 million square feet of activity realized in the previous quarter, it is the highest total recorded since the fourth quarter of Selected olliers international Transactions, q 7 L Realty completed a,989 square foot office lease at 5 North First Street in San Jose with tenant Quimonda. Standard Industries, LL purchased Mission Falls usiness Park in Fremont, a four-building, 9,6 square foot R&D project plus 5. additional acres of land. TI Realty was the seller. arracuda Networks signed a 6, square foot R&D lease at 75 Winchester oulevard in ampbell. ryan Family Partnership is the landlord. J & R Investments sold a 77,5 square foot industrial building at 65 Wool reek Drive and a,7 square foot industrial building at Senter Road, both in San Jose, to Intelli, LL. Halrec, Inc. purchased a 5, square foot retail building on 5.55 acres at Stevens reek oulevard in San Jose from llison Motors, Inc. SS Development ompany purchased a, square foot warehouse on.9 acres at 875 Dobbin Drive in San Jose. ntonio Zertuche is the seller. olliers International

3 SILION VLLEY OVERVIEW First Quarter 7. San Jose generated a net occupancy gain of 5,7 square feet in Q, making it eight consecutive quarters of positive net absorption. That result also marks the largest single quarter net occupancy gain San Jose has seen since the fourth quarter of. The four other major office submarkets (Santa lara, Palo lto, upertino, and Sunnyvale) all posted Q activity levels lower than what was generated in the prior quarter. Santa lara and Palo lto both posted negative net absorption totals. San Jose s strong first quarter is largely attributable to one headline transaction, E Systems acquisition of 88 lmaden Drive, a 8, square foot office building that E intends to occupy. Other significant transactions include Magma Design utomation s lease of 6,85 square feet on Technology Drive in San Jose, Qimonda s,989 square foot lease and Kawasaki s 6,9 square foot lease, both on North First Street in San Jose. Office rents increased dramatically during the first quarter. The average starting rate for office leases was $.8 per square foot (full service), a 6.% increase from the $.5 per square foot average start rate recorded in the final quarter of 6. olliers forecasted that office rents would increase at least by the end of 7, and it appears that we are well on track to reach that figure. Industrial Market The industrial market posted lackluster results in the year s first quarter with 77,6 square feet of gross absorption recorded in Q, the lowest level of activity since the third quarter of. s the industrial market continues to tighten with its 6., there is no indication that industrial leasing and sales activity is on the decline for any reason other than limited choices for users. Net absorption measured 7,6 square feet in Q, the lowest net occupancy gain since the first quarter of 5, but the ninth consecutive quarter of positive net absorption. While the Silicon Valley industrial market slowed down as a whole, the city of San Jose posted solid results. San Jose s industrial market generated 78,8 square feet and 8,8 square feet of gross and net absorption in the first quarter, respectively. oth figures were higher than the prior quarter s results. Santa lara, normally coupled with San Jose in generating the bulk of industrial activity in the Valley, remained steady with 88,79 square feet of gross absorption in Q. Fremont, Sunnyvale and Mountain View all posted sub-par results, and all experienced net occupancy losses in the first quarter of the year. Noteworthy industrial transactions in Q include Intevac leasing a 5, square foot industrial building on assett Street in Santa lara. lso in Santa lara, Pega Precision took 9,7 square feet on Ronald Street. RK Electric, Inc. acquired a,9 square foot industrial building on Osgood Road in Fremont. The average starting rate for industrial leases stood at.7 per square foot (NNN) in Q 7. For the past two years, quarter-toquarter average starting rents have fluctuated dollars per sf, Gross/Month Warehouse activity was solid in San Jose, with,7 square feet of gross absorption, representing nearly 6 of total activity in Silicon Valley. The amount of available warehouse space totals. million square feet in San Jose, the lowest amount since the fourth quarter of. INDUSTRIL VILILITY and RENT TRENDS $. % % $.5 8% % % WREHOUSE VILILITY and RENT TRENDS $.7 $.6 $. $. $. $. 8% % 9% % Selected olliers international Transactions, q 7 dvanced Medical Optics, Inc. signed a long term 8,86 square foot R&D lease at 5 ottonwood Drive in Milpitas. istar Financial is the landlord. Great merica Office Partners, LL completed a 9,5 square foot office lease expansion and renewal at 9 unker Hill Lane in Santa lara. Trianz, Inc. is the tenant. Xilinx, Inc. acquired.9 acres of land on Great Oaks oulevard in San Jose from Synopsys. Pega Precision, Inc. completed a 9,7 square foot industrial lease renewal at Ronald Street in Santa lara with landlord, Jerry and Judy Oberthier. Space Systems Loral inked a 5,66 square foot R&D lease at 598 ayshore Parkway in Mountain View. The Milla and Raymond Handley Trust is the landlord. olliers International

4 SILION VLLEY OVERVIEW First Quarter 7 between.6-.7, with three of those quarters posting averages of.7 per square foot Warehouse Market fter finishing off 6 with strong results, Q warehouse leasing and sales activity was the lowest since the second quarter of. Warehouse gross absorption in Silicon Valley totaled 6,7 square feet in the first quarter. Net absorption, on the other hand, was solid, resulting in an occupancy gain of 7,99 square feet, indicative of the tight market. The warehouse now sits at 7.%, with available warehouse inventory below. million square feet for the first time since the first quarter of. Warehouse activity was solid in San Jose, with,7 square feet of gross absorption, representing nearly 6 of total activity in Silicon Valley. The amount of available warehouse space totals. million square feet in San Jose, the lowest amount since the fourth quarter of. Other major warehouse markets experienced modest amounts of activity during the quarter. Fremont s warehouse gross absorption totaled 67,75 square feet, with a net occupancy gain of the same amount, giving Fremont two consecutive quarters of positive net absorption. Fremont s gross and net absorption in Q is attributed to one deal, lphaville Design s 67,75 square foot lease on hristy Street. Other deals in Silicon Valley include Fastrak Manufacturing Services, Inc. leasing, square feet on North 7th Street, and Evercase US s 8,9 square foot lease on Lundy venue. Warehouse rents remained flat in Q with an average starting rate of.9 per square foot (NNN). During the past four quarters, average starting rents have been per square foot. However, as the market for warehouse space gets tighter, we can expect some upward pressure on rental rates. Understanding bsorption olliers uses several measurements to track market conditions and deal flow. While related, the formulas to arrive at these measurements differ. Using the results of the most recent quarter, here is how olliers measures change in availability, net absorption and effective net absorption. hange in vailability: This measurement is simply the difference between the amounts of space available at the end of one period to the next. The table below shows that total available space decreased by,77,56 square feet in the year s Third quarter. Note that change in availability includes adjustments for space that is taken off the market. Space taken off the market is not a factor in net absorption measurements. vailable end of Q6,56,66 Plus: Vacant & occupied space that came available Q6 5,9,68 Q6 vailable + Newly vailable in Q7 = 9,659, Less: Q7 Gross bsorption -5,77,5 Less: Q7 Taken off the Market -,7,9 vailable end of Q7,779,7 Net bsorption: Net absorption measures the change in occupied space from one period to the next. In this measurement, it is important to distinguish that a building may be available, but not vacant (often the case in a sublease situation, for example). Therefore, occupancy is not reduced (negative net absorption) until the space is vacated, and sometimes that does not happen until the space is leased, creating a net absorption wash for the deal and for that particular period. Vacant space that came available Q7 -,,69 Previously available space that was vacated in Q7 -,55,57 Q7 Vacant dded (occupancy loss) -,55,89 Q7 Gross bsorption (occupancy gain) 5,77,5 Q7 Net bsorption (change in occupancy),56,6 Effective Net bsorption: In, olliers created a measurement of effective net absorption. Effective net absorption uses the same formula as the net absorption formula, except that it treats any space that comes available as if it is vacant, whether it is or it isn t. The purpose of the measurement is to get a better real time gauge of occupancy flow in and out of the market, acknowledging that space that is available for lease is likely to be vacated shortly and underutilized presently. Vacant space that came available Q7 -,,69 Occupied space that came available Q7 -,9,6 Q7 vailable dded -5,9,68 Q7 Gross bsorption 5,77,5 Q7 Effective Net bsorption 6,7 66 offices in 56 countries on 6 continents US 95 anada 7 Latin merica 7 sia Pacific 5 EME 85 $5 billion in annual transaction volume 88.8 million square feet under management,7 professionals ontact information San Jose/Silicon Valley 5 West Santa lara Street San Jose, 95 United States Tel: Fax: Jeff Fredericks Managing Partner Tel: jfredericks@colliersparrish.com Jeff Dizon Research Project Manager Tel: jdizon@colliersparrish.com This report and other research materials may be found on our website at com. This is a research document of olliers International San Jose,. Questions related to information herein should be directed to the Research Department at Information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof. olliers International is a worldwide affiliation of independently owned and operated companies, with over 65 offices throughout 56 countries. olliers International

5 olliers International - Silicon Valley First Quarter - 7 Selected Office Market Statistics lass DOWNTOWN SETION Downtown San Jose SUURN SETION San Jose ldgs Inventory vailable Direct Vacant Existing Properties vailable Sublease Vacant Vacancy vailable Direct Occupied vailable Sublease Occupied vailability bsorption Net bsorption urrent Qtr Rents vg sking 5,6,777 5,6.% 5,5 66,5 8.59% 8,8 $.67 5,897,67 6,.% 7,96,6. -7,97 $.9 97,,79,75 8.8% 5,65 65, ,6 $.8 9 7,7,57,,9.9% 87,7 7, ,7 $.7 9,99,5 77,598,89 7.6, 5,79. 5,76 $ ,576,68 7,59,87 8.8% 6,55 5,69.9-5,67 $.7 9,9,7 5,7.99% 77,796 69,9 8.88%,67 $.9 77,678,955,6,598 5,69 9.9% 57,555 7,5.9% 5,7 $.6 Santa lara Palo lto upertino Sunnyvale 8,, 86,85 8, 8.9,9 6,7.9% -8, $.68 97,5,5 599,95 8, ,8 65,5 8.7% -,8 $.98 66,99 7,8.% 7,679 7.%, $ ,,78 96,8 56,88.% 7,78 7,9 5.9% -77,9 $.,7,99 5,86.9% 7,77,59.99% -5,57 $.,,5 8,586.,87,65., $.9 99,756,6 6, % 8,98 8,8.6 6 $. 88 6,,6,55 6,699.7% 7,9 87,9. -5,86 $.8 7 6,65,79.% 6,6 7,68.7%,6 $.,6,555 6,5.69%,8, % -6,67 $.8 5,95,8.59%.59% $.89,,5 77,58.% 85,5 8,5 9. 7,756 $.87 6,599,9 7,78 87,.97%,78.7% 6,66 $.65,7,56 5,7 8.%,75 9,66.% 8,559 $. 7 7, 57,67.9%, ,76 $ ,,5 8,885 87,.% 9,96 9,66 7.%, $. 5 W. Santa lara Street, San Jose, fax The information furnished has been obtained from sources we deem reliable and is submitted subject to errors, omissions and changes. lthough olliers International has no reason to doubt its accuracy, we do not guarantee it. ll information should be verified by the recipient prior to lease, purchase, exchange, or execution of legal documents. olliers International