Office Market Overview

Transcription

1 Q4 OAKLAND, CA YEAR 1999 END 2001 Harrison St, Suite 1750 Oakland, CA Voice: (510) Fax: (510) Office Market Overview The national recession caught up with the Oakland Metropolitan Area, where the regional economy was near the brink of recession by year-end The overall vacancy inched up to 14.9% by the end of the fourth quarter as companies in the area either downsized or folded. By the second half of the year market activity in all of the submarkets had slowed as tenant demand tumbled. Despite the rising vacancy rate, the Oakland Metropolitan Area still ranked as the healthiest region in the Bay Area. We attribute this to the area s diverse tenant base and the fact that people still regarded the Oakland-East Bay as the most affordable area for both businesses and housing. The core submarkets like Downtown Oakland and Downtown Berkeley held steady throughout the year. The surprise at the end of the year came from South Richmond, which was the only submarket that managed to turn out a positive absorption figure through several significant lease transactions. Though the rest of the submarkets softened considerably, Emeryville was the main contributor to the area s rising vacancy. Emeryville s overall vacancy vaulted up to 31.7% from 2.2% last year. This massive increase in available space hit the market after companies downsized or went out of business when the technology boom went bust. Despite the rising vacancy rate, the Oakland Metropolitan Area still ranked as the healthiest region in the Bay Area Major investors were undaunted by these market conditions and actually took advantage of the downturn to make significant purchases throughout the year. PM Realty Advisors acquired the 12-floor Class A building on th Street in the Oakland City Center area. And in Alameda, Limar Realty bought a 5 building, 316,000 square foot office/flex complex from Legacy Partners for $ per square foot. Buyers saw this pause from the previous year s recordbreaking market activity as a great time to invest and hold on to their properties as the market rebounds All Class A Office Oakland Metro Area Class A Market Overall vs. Full Service al Rates Though investors willingly acquired existing office $2.75 buildings, they were reluctant to commence construction on development projects. The only $2.25 $1.75 buildings that are currently under construction Overall Asking Full Service Rent were given the go-ahead a year ago, when there was still high tenant demand. The only significant building being constructed was Shorenstein s 14-floor Class A development at 555 City Center. Other developers decided to place their projects on hold until they attracted anchor tenants or the economic outlook improves. $4.75 $4.25 $3.75 $3.25 Free rent was another consequence of the slowdown in the economy. Did someone say free rent? Low demand has prompted some landlords to offer prospective tenants a few months of free rent in order to entice them to lease their spaces. Slumping market activity gave tenants more leverage to negotiate their deals. Tenants now have more say in lease terms, tenant improvement allowances, and rental rates Harrison St., Suite 1750 Oakland, CA fax: We anticipate market conditions to improve in the next year or two as the economy continues to rebound. Even though rental rates declined precipitously in competitive markets like San Francisco and the Silicon Valley, we expect companies to be lured into the Oakland Metropolitan Area because of its prime location, proximity to their workforce, and the fact that it is still a cheaper place to run their operations. C O L L I E R S I N T E R N A T I O N A L

2 YEAR END 2001 Despite the soft economy, Downtown Oakland continues to gain momentum and critical mass. Excellent infrastructure and competitive rental rates will continue to stimulate leasing activity throughout the Central Business District. Oakland Downtown Office Market Downtown Oakland Class A The Downtown Oakland Class A real estate market closed the books on 2001 in a relatively healthy and stable fashion. Overall vacancy for Class A space is 5.8%, up slightly from the prior quarter and up 2.1% from the previous year. When compared to other sub-markets in the Oakland Metro market or to other regions in the Bay Area, Oakland has faired extremely well in this soft economy. We attribute this phenomenon to one primary factor. Oakland did not experience the frenetic run up in tenant demand and rental rates that other markets experienced since it did not attract an overabundance of fast growing internet related companies. If fact, during that period of time when those firms were aggressively absorbing space in markets like San Francisco, traditional professional office tenants were quietly migrating to Oakland. Those tenants, while not entirely immune to the pressures of a softening economy, are much less prone to closing offices and dumping space on the market. It should be noted that statistically, Shorenstein s new building at City Center is not included in the vacancy rate because the building has not opened. However, if we included that space in the vacancy calculation, the number only jumps up to 12%. Again, in light of the product type and in comparison to other markets, it is still a relatively healthy measure of the market. As a result, net absorbtion, while not on the positive side of the ledger, was only negative 134,000 square feet. Net absorption is essentially the measure of occupied space from one period to the next. The fact that Oakland only lost 134,000 square feet of occupancy is testimony to the fact that the existing tenant base in Oakland is stable. We believe that we have seen the worst of the downsizing trend in the market and anticipate that positive absorption will be the trend for the upcoming year. Consistent with the vacancy and absorbtion trend during the year, we feel that rents have stabilized as well. Though clearly not at the levels reached at the end of 2000, rents in Oakland are at a high compared to historical averages and currently average $3.10 Full Service per square foot per month. This is a 27 % discount compared to the high reached in 2000, but is 34% higher than the average rents in Oakland, along with prime properties in Downtown Berkeley, leads the region in rental rates Oakland Office Class A Oakland Downtown Class A Space $1.50 Overall Oakland Office Class B & C Oakland Class B/C Space $1.00 Overall $4.50 $4.25 $4.00 $3.75 $3.50 $3.25 $3.00 $2.75 $2.25 $1.75 $3.50 $3.25 $3.00 $2.75 $2.25 $1.75 $1.50 $1.25 With the exception of Shorenstein s new building, there are no Class A projects currently under construction. Although several have been planned, designed and entitled, including Ellis Partners 320,000 square foot project at 20th and Broadway and Prentiss Properties 675,000 square foot building at Harrison and Grand, we do not anticipate any speculative construction in the near term. We believe the market in Oakland has stabilized both from a vacancy standpoint as well as from a rental rate standpoint. In our opinion, rents will remain at current levels of $ $39.00 annually for the next 24 months and will begin to show growth thereafter. Oakland Class B/C rates escalated and rents decreased as demand for space cooled over the past year in the Oakland B/C market. Because of the economic boom during the year 2000, asking rents were higher at the end of the fourth quarter at $2.48 Full Service psf/mo than they were in the past even though vacancy rates were higher than they were two years ago. rose to 1 at year-end, which gave tenants in the market more choices than they had in the recent past. Because of these market conditions, we expect landlords to continue to lower their rents next year. Some landlords are even attempting to pique the interest of prospective tenants by offering several months of free rent. Government agencies completed the brunt of the major lease transactions throughout the year. Such deals included the Federal GSA/Social Security s lease at the newly renovated 1111 Jackson Street for 20,700 square feet; California State University s deal at 2201 Broadway for 21,000 square feet; and the County of Alameda s lease at 312 Clay Street and 475 4th Street for a total of 23,000 square feet. We expect the government to take less space in the near future as state agencies continue to cut their budgets. One of the bright spots in the year was Peter Sullivan and Associates acquisition of the Old Oakland office and retail complex. Peter Sullivan purchased the building from Citibank for nearly $200 psf. A variety of space will be available in the building, ranging in size from 1,400 to 10,000 square feet. Despite the soft economy, Downtown Oakland continues to gain momentum and critical mass. Excellent infrastructure and competitive rental rates will continue to stimulate leasing activity throughout the Central Business District. 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3 YEAR END 2001 Oakland Airport Market The Oakland International Airport became increasingly popular with passengers who sought an alternative to traveling through San Francisco. Because of this phenomenon, the commercial area near the Airport garnered more attention from tenants who sought cheaper space in a convenient location. As a result, overall vacancy rates in the Oakland Airport submarket has steadily declined in the past two years and the increased demand successfully boosted asking rental rates. But leasing activity has been sluggish as the slowdown in the economy started to take its toll on the area and bolstered vacancy rates. The overall vacancy rate stood at 17.3% at the end of the fourth quarter while rents dropped to Full Service psf/mo. The Class A sector took the hardest hit as the vacancy rate skyrocketed from 4.2% at the beginning of the year to 19.2% at year-end. Nearly all of the significant leases occurred in Class B/C buildings. San Francisco Estuary Institute leased 10,000 square feet at 7770 Pardee Lane at the beginning of the year while Charcoal Companion took 10,300 square feet at 401 Roland Way. Despite these leases, more spaces became available. The Oakland A s relocated from an 18,000 square foot space at 7677 Oakport Street to an office within the Oakland Coliseum. The Regional Center of the East Bay also placed their 23,000 square foot space on the sublease market at the end of the year, which helped push the vacancy rate up to 16.5%. Even with the rising vacancies, the Oakland Airport area was one of the few office submarkets that still had development projects underway. The Rainin Instruments site on 7305 Edgewater Drive is currently under construction with 180,000 square feet of office/flex and manufacturing space. Zhone Technologies, a telecommunications company that already built their first phase of their campus on 7195 Oakport Drive for 300,000 square feet, is currently constructing the second phase. The Oakland International Airport plans to use the nearby 37-acre Arrowhead land for temporary airport parking while the airport builds a multi-level parking garage on its current parking area. And lastly, WP Investments was in escrow for 10.4 acres on Hegenberger Road and Pardee Lane. WP Investments had plans to construct a light industrial and office/flex facility on the site, though they have reportedly dropped the site. Developers also had their eyes on several sites in the Airport Business Park. Simeon Commercial Properties currently have development rights to The Metroport site, a 22-acre parcel that housed the former Hyatt Regency Hotel. The plans call for 1.3 million square feet of high-rise office space and a 300-room full service hotel, but due to the current economy these plans may be on hold for several years. Other possible development sites in the area included the 7- acre parcel located near Zhone Technologies on Oakport Drive, which were rumored to be the future site for car dealerships and another hotel. These developments, along with the emergence of the Oakland Airport as an attractive alternative to its neighboring submarkets, will continue to enhance its appeal to tenants and investors Oakland Airport Class A Oakland Airport Class A Space 1Q01 2Q01 3Q01 4Q01 Overall $2.60 $2.40 $2.30 $2.20 $2.10 $1.90 $ Oakland Airport Class B & C Oakland Airport Class B/C Space $1.90 $1.85 $1.80 $1.75 $1.70 $1.65 The Oakland International Airport became increasingly popular with passengers who sought an alternative to traveling through San Francisco. Because of this phenomenon, the commercial area near the Airport garnered more attention from tenants who sought cheaper space in a convenient location. 1Q01 2Q01 3Q01 4Q01 $1.60 Overall 3 C O L L I E R S I N T E R N A T I O N A L

4 YEAR END 2001 Market activity in South Richmond was relatively quiet throughout the year, though several large lease transactions managed to push the vacancy rate down to a healthy 10.8% by the end of the fourth quarter. South Richmond Office Market Market activity in South Richmond was relatively quiet throughout the year, though several large lease transactions managed to push the vacancy rate down to a healthy 10.8% by the end of the fourth quarter. This was about 6% lower than the rate at mid-year. As a result, South Richmond was one of a few submarkets that actually ended the year with positive net absorption. Tenants who signed notable leases in South Richmond during the second half of the year included the Department of Justice, who leased 68,000 square feet at Point Richmond II, and Kaiser Permanente, who took 38,000 square feet at Regatta Business Park for their optical research division. Many of the companies chose to relocate to South Richmond because its abundance of R&D/Flex facilities could accommodate their labs. Despite such positive leasing activity, several of the companies that previously had plans to expand their operations in South Richmond had to scale back their plans. During the first half of the year, software maker QRS Corporation placed 93,000 square feet of their two-story office space back on the market for sublease. By the second half of the year, other companies followed suit as the recession took its toll on the economy. Dicon Fiberoptics, who had built a campus at Regatta Business Park to accommodate their expansion from Berkeley, eventually had to place 80,000 square feet back on the sublease market. Despite this flurry of activity in 2001, do not expect as many transactions to take place in this market in It will compete with Emeryville for new deals, and will not see the absorption that took place in South Richmond Office/Flex Space South Richmond Class B/C & Flex Space 1 $ $2.40 $2.30 $2.20 Regatta Business Center $2.10 $1.90 $1.80 1Q01 2Q01 3Q01 4Q01 $1.70 Overall C O L L I E R S I N T E R N A T I O N A L 4

5 YEAR END 2001 Downtown Berkeley The Downtown Berkeley market fared fairly well throughout the year 2001 and closed the year with a 7.4% overall vacancy rate. Leasing activity slowed considerably during the second part of the year, particularly in the Class A sector. In fact, the overall vacancy rate for Class A spaces remained nearly unchanged throughout the year and hovered at around 11%. Class A rents were also fairly stable and asking rents stayed at an average of $3.15 Full Service psf/mo, though there were not enough transactions to gauge where a tenant would have made a deal. Most of the market activity was concentrated in the Class B/C segment, which ended the year with a 5.7% vacancy rate. The most significant transaction in the first half of the year was Xnet s lease for 10,200 square feet at Parker Plaza Office. Noteworthy fourth quarter deals included U.C. Berkeley s 9,634 square foot lease at the Merrill Lynch Building and Financial Engineering Associates 20,500 square foot lease at 2201 Dwight Way. The Downtown Berkeley submarket will continue to feel pressure as the state government s budgetary cuts affect the growth of agencies such as the University of California, the U.C. Regents, Lawrence Berkeley Laboratory, and the State of California Department of Public Health. Berkeley Office Market Seagate Properties purchased six buildings, two on Addison Street from Addison 2201 Dwight Way Investments LLC, and four single story storefronts on Center Street from Wells Fargo Trust. This type of investment activity had initially spurred several owners in the area to put their properties on the market for sale, but unfortunately seller and buyer expectations could not be matched. Sellers still wanted high per square foot prices but buyers were more concerned about where rents were going. West Berkeley Both Downtown and West Berkeley markets continued to feel pressure from neighboring Emeryville s large vacancy rate and depressed rents. This has prompted some owners in West Berkeley to reduce rental rates for their properties to early-1990 s levels. Asking rents ranged from $1.45 to $2.65 Full Service. These rates should benefit small incubator companies who are looking for spaces in the 2,000 to 6,000 square feet range. This means that many of these companies could grow up to help reduce the vacancy and shorten the absorption cycle Downtown Berkeley Office Space Downtown Berkeley Office Space $1.75 $3.25 $3.00 $2.75 $ West Berkeley Office/Flex Space West Berkeley Office/Flex Space $2.75 $2.55 $2.35 $2.15 $1.95 $1.75 The Downtown Berkeley submarket will continue to feel pressure as the state government s budgetary cuts affect the growth of agencies such as the University of California, the U.C. Regents, Lawrence Berkeley Laboratory, and the State of California Department of Public Health. $ C O L L I E R S I N T E R N A T I O N A L

6 Emeryville Office Market YEAR END 2001 Emeryville was particularly vulnerable to the recession because it had attracted so many technology tenants that eventually collapsed. As a result, an increasing number of companies went out of business and gave their spaces back to the landlords. The completion of a new project earlier in the year, Watergate Tower IV, contributed to Emeryville s skyrocketing vacancy rate when Siebel Systems vacated their previous suite in Watergate Tower I to move into the entire 433,000 square feet of Tower IV. However, by the end of the year Siebel Systems placed nearly 120,000 square feet of Tower IV back on the market for sublease. Other major Class A projects like EmeryStation North and Hollis Business Center had a combined total of 185,400 square feet of vacant space. As a result, Emeryville s overall vacancy rate leapt up to 3, with 3 attributable to Class A vacancies. These market conditions and the decreased demand for space prompted cheaper rental rates. Class A offices that commanded up to $4.50 Full Service psf/mo a year ago have been forced to offer rates as little as $2.25. The downward pressure on rates will continue when Sybase moves its operations to their new campus in Dublin, which will ultimately return nearly 300,000 square feet to the market this year. EmeryStation North has been somewhat more successful in finding tenants, Emery Station Horton Street although several full floors still remain vacant. Whole Foods and Fair, Isaac each leased 15,000 square feet, while several other tenants took 5,000 to 6,000 square feet suites. Perhaps the most affected office complex was Equity Office s Watergate Towers, which had nearly 190,000 square feet of vacant space excluding the 120,000 square foot space that Siebel Systems will place on the sublease market. An increase in the available inventory would give prospective tenants more options in the types of space they can lease, ranging from spaces in more traditional Class A office towers to rehabbed office/flex buildings. Despite the recent internet related correction in the employment sector and a dramatic slowdown in tenant demand throughout the entire Bay Area, some tenants are taking advantage of the varieties of available space and lower rents. Some firms expanded or relocated to Emeryville because of its declining office costs and close proximity to the ready supply of labor in the East Bay. In fact, several tenants leased significant portions of Class B and Office/Flex space during the fourth quarter Among these tenants are Silicon Valley College, which signed a deal for 21,000 square feet at EmeryTech Centre; Title IX Sports, which leased 13,000 square feet at The Crown Building; and Wham-O, Inc., which took 12,700 square feet at the Weatherford Building. Despite these transactions, the vacancy rate for the Class B/Flex sector still inched up to 15.2% Emeryville Office Class A Emeryville Class A Office Space Overall $4.50 $4.25 $4.00 $3.75 $3.50 $3.25 $3.00 $2.75 $2.25 Because developers designed much of the newer space in Emeryville for technology users, this submarket will probably continue to decline or stay flat next year and well into the year Rents in San Francisco have fallen to the point where the incentive to move to the East Bay on the basis of price has evaporated. As a result, Emeryville will continue to feel a disproportionate impact of the sluggish economy in comparison to other submarkets in the Oakland Metro Area. Emeryville Office Class B and Flex Emeryville Class B Office & Flex Space $4.25 $4.00 $3.75 $3.50 $3.25 $3.00 $2.75 $2.25 $1.75 $1.50 C O L L I E R S I N T E R N A T I O N A L 6

7 YEAR END 2001 Alameda Office Market The national recession caught up with Alameda in the last half of 2001, especially by year-end. The overall vacancy rate for Alameda ended the year at 17.3%, which is nearly 344% higher than it was last year. Average rents fell by 34.7% to $2.19 Full Service psf/mo in the same period as a response to the influx of available space. Corporate retrenchment characterized the fourth quarter as nearly 292,000 square feet of sublease space came on the market, which made up nearly 55% of the total available space. Lucent Technologies, the telecom giant, put over 130,000 square feet up for sublease at Harbor Bay and Geoworks, an operating system development company, followed with 40,000 square feet at Marina Village. Marina Village continued its dramatic rise in vacancy finishing 400% higher than a year ago. The overall vacancy was 16.2% at year-end 2002, with 5 large spaces on the market, ranging between 16,000 and 48,000 square feet. However, if subleases are deducted, the vacancy drops to 6.1%. With the addition of such large blocks, negative absorption became a forgone conclusion. Asking rents at Marina Village ranged between $1.95 and $3.00 Full Service. Several tenants still signed significant deals in the second half of the year. City National took the 18,000 square foot space that Comerica Bank vacated for $1.70 Net while MBH Architects expanded into a 14,000 square foot space for $1.82 Net. Available space at Harbor Bay exceeded 244,600 square feet, which brought the overall vacancy rate up to 18.4%, up 157% from the prior year. Nearly 160,000 square feet of sublease space came onto the market by year-end from companies that have been affected by the economic slowdown, such as Lucent Technologies, Teksystems, and IDX. Asking rents in the area fell down to the $1.85 to $2.35 Full Service range. However, tenants actually made transactions that were closer to Full Service than $2.35. There was still positive news at Harbor Bay despite all the gloom. Biotech companies like Genteric, Avigen, and TheraSense leased nearly 100,000 square feet. Biotech/lab users now occupy approximately 25% of the business park. On the investor front, Limar Realty completed a significant transaction when it acquired the 5 building, 316,000 square foot complex from Legacy Partners at $ per square foot. The only new development completed in 2001 was Lennar Partners two buildings at Harbor Bay. A variety of tenants leased 70,000 of the 125,000 square foot complex at a starting rent of $1.70 Net. Current market conditions will make it difficult for other developers like Catellus Development Corporation and Vintage Properties to proceed with planned buildings at Alameda Point and Marina Village respectively. Marina Village Office/Flex Space Marina Village Office/Flex Space $1.70 2Q98 3Q98 4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 A total of 139,260 square feet was added to the inventory in the Harbor Bay submarket after a couple of previously owner/user buildings became available vacant space during the fourth quarter These buildings included 75,560 square feet at 1751 Harbor Bay Parkway and 63,700 square feet at 1851 Harbor Bay Parkway, which has affected the year-to-date net absorption figures. $3.70 $3.50 $3.30 $3.10 $2.90 $2.70 $2.30 $2.10 $1.90 We expect activity in both Marina Village and Harbor Bay to remain sluggish in the first half of 2002 as the economy begins to recover. Both markets currently face minimal tenant demand and house a large inventory of available square feet. With 12 buildings offering 16,000 square feet or more of contiguous space, Alameda s recovery will probably be slow and not show any substantial change until the end of Harbor Bay Office/Flex Space Harbor Bay Office/Flex Space $1.50 2Q98 3Q98 4Q98 1Q99 2Q99 3Q99 4Q99 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01 $2.40 $2.30 $2.20 $2.10 $1.90 $1.80 $1.70 $ Harbor Bay Pkwy. The national recession caught up with Alameda in the last half of 2001, especially by year-end. 7 C O L L I E R S I N T E R N A T I O N A L

8 Alvarado Business Park I-80/880 Corridor Overall I-80/880 Corridor Overall Industrial Market vs. Asking NNN Rental Rates $0.25 Limited construction activity and proximity to transportation networks should keep market conditions in the East Bay industrial market steady in Asking NNN Rent Industrial Market Overview $0.75 $0.65 YEAR END 2001 The Oakland Metropolitan Area finally succumbed to the economic slowdown. During the first part of the year rents had continued to climb, though rents had declined to $.57 NNN per square foot per month (psf/mo) by year-end. The overall vacancy rate also pushed its way up to 7.3% as regional economies began to contract. The industrial sector was initially insulated from the slowdown because of the wide range of businesses that are located in the region, but the burst of the dot.com bubble and the slowing high-tech industry in the South Bay and the Peninsula has softened leasing activity. However, the Oakland Metropolitan Area s regional economy should prove to be resilient with its limited industrial inventory and centralized location. Despite the rising vacancy rates, all three product-types still had single digit vacancies. The light industrial sector s vacancy rate bumped up to 5.8%. The vacancy rate in the warehouse segment had the largest increase, jumping from 3.7% last year to 8.9% at year-end. This increase in the vacancy occurred after several large warehouse users put their spaces back on the market. Nearly 980,000 square feet of space became available and vacant since the third quarter alone. The R&D/Flex sector remained fairly stable in comparison to other Bay Area markets. The vacancy rate only rose by 1.8% since last year to $1.24 NNN psf/mo, though its average asking rental rate was the most impacted out of all the product-types. Rents fell by nearly 24% since last year to $1.24 NNN psf/mo by the end of the year. The relative resilience in the R&D/Flex sector can be attributed to the fact that many tech companies located their operations in the I-80/880 Corridor during the boom last year because of lower land costs, greater space availability, and better housing and affordability for employees. We expect the Oakland Metropolitan Area to be one of the first Bay Area economies to expand due to its diverse industrial structure. Many of the tenants are located in the area because the area s close proximity to the Port of Oakland, Oakland International Airport, and vast network of interstate highways. Because the Oakland Metropolitan Area does not have as many tech companies as the other regions in the Bay Area, it does not necessarily have to wait for a turnaround in the technology sector. The regional economy will, however, be driven by greater consumer demand for exports and various services. I-80/880 Corridor Light Industrial I-80/880 Corridor Light Industrial Market vs. Asking NNN Rental Rates Asking NNN Rent $0.75 $ % I-80/880 Corridor Warehouse I-80/880 Corridor Warehouse/Distribution Market vs. Asking NNN Rental Rates Asking NNN Rent I-80/880 Corridor R&D/Flex I-80/880 Corridor R&D/Flex Market vs. Asking NNN Rental Rates $1.70 $1.60 $1.50 $1.40 $1.30 $1.20 $1.10 $1.00 $0.90 $0.54 $0.46 $0.42 $0.38 $0.34 Asking NNN Rent C O L L I E R S I N T E R N A T I O N A L 8

9 YEAR END 2001 Activity in the Richmond submarket slowed down during the second half of 2001, which drove the overall vacancy rate up from 5.7% last year to 8.4% by year-end Significant portions of space came back on the market during the second half of the year, though several deals have managed to keep the vacancy rate relatively stable. This was an indication that tenants continued to see potential in Richmond, which has helped the area grow and develop into a viable submarket. Most of the market activity concentrated at the South Shoreline area as tenants leased spaces at the new R&D/Flex facilities. The Department of Justice/State of California leased 68,000 square feet for the State s new DNA forensics laboratory at Point Richmond Tech II. The tenant will invest in substantial tenant improvements for their lab space. Kaiser Permanente s Optical Research Department signed a 10-year lease with Catellus Development Corporation for 38,000 square feet at Regatta Business Park. Earlier in the year, Contra Costa County signed a ten-year lease with STG Group for its 60,000 square foot building on Hall Avenue. During the fourth quarter, Andros Technology completed and occupied its 64,000 square foot build-to-suit facility at Harbour Business Center. Andros signed a 9.0% lease in the building for 10 years. Market activity for the other product types included Veriflo/Parker Hannifin s 71,150 square foot lease at Point Richmond Research Center, which exercised their purchase option for $6.0 million. Longtime Richmond tenant Navistar International Transportation renewed their lease for another five years on Marina Way. Dreisback Enterprise expanded into another 55,650 square foot space in the old Safeway facility, now owned by ZKS. On the development front, Simeon Properties has an agreement to purchase the prime 86-acre Zenica property. They plan to develop the site into a 1.5 million square foot bioscience business park. The dilapidated Ford Plant also entertained a suitor. A group of artists led by Glen Isackson is in the process of drafting plans to develop the entire 500,000 square foot plant into a facility for the artisan community. Despite such market activity a number of noteworthy spaces came back to the market. Among these spaces was QRS s 93,000 square foot two story office building located on the Richmond Marina. The 131,000 square foot light industrial building at Pinole Point Business Park was shell complete during the second half of the year, and is currently pursuing tenants. Much of the space that impacted the market came from the warehouse sector, Richmond Industrial Market which saw a significant increase in the vacancy rate and ended that year at 10.8%. This increase resulted when Ford Motor Company announced that they will vacate some of their facilities and relocate their western states distribution facility to their new 700,000 square foot building in Manteca completed by Catellus Development Corporation. Ford has put their 263,000 square foot distribution facility on 700 National Court up for sale for $15.0 million. Also, Ford will sublease its 100,000 square foot building on Cutting Boulevard during the second quarter of Lastly, Shoe Pavilion plans to relocate out of Richmond, leaving 92,000 square feet of vacant space at Regatta Business Center. Despite these market conditions, many developers and prospective tenants still held on to the belief that Richmond is an attractive submarket for investment. Richmond will continue to attract tenants from neighboring submarkets like Marin County, Emeryville and Berkeley. We expect vacancy rates to have moderate increases or stabilize in the next year. Richmond Industrial Space Richmond Industrial Space $0.75 $0.65 $0.25 Richmond R&D/Flex Space Richmond R&D/Flex Space A slower economy may affect Richmond as tenants feel less pressure to relocate, but we expect Richmond to remain fairly resilient.tenants in adjacent markets will still have to deal with a lack of available industrial space, which will continue to make Richmond a viable choice Richmond Whse./Dist. Space $ Richmond Warehouse/Distribution Space $1.80 $1.70 $1.60 $1.50 $1.40 $1.30 $1.20 $1.10 $ C O L L I E R S I N T E R N A T I O N A L

10 Oakland Industrial Market YEAR END 2001 The Oakland industrial market performed relatively well through this economic slowdown. Markets for light industrial space and owner/user sales performed well while the warehouse/distribution segment sagged. Most of the transactions were completed in the first half of the year and slowed down by year-end. Despite these conditions, Oakland has weathered the storm better than most other East Bay communities Edgewater Drive The Oakland industrial market performed relatively well through this economic slowdown...oakland has weathered the storm better than most other East Bay communities. The light industrial market remained stable throughout the year. At the beginning of the year asking rents for spaces below 15,000 square feet were at a historical high and ranged between $.65 to $.80 psf. As the year progressed, the inventory increased slightly to, which resulted in a decline in lease rates of nearly 15% by year-end Rates for small industrial space should stabilize in the next year with rents remaining constant between $.50 to $.60 psf. Significant transactions in the first half of the year included Handoza Work Inc. s lease of 5,300 square feet for $.75 psf NNN and Lighthouse for the Blind leased 6,600 square feet in the Bay Bridge Industrial Center for $.80 psf Gross. Year-end deals comprised of Pearson Brothers sublease of 13,000 square feet in the Fruitvale Business Center for $.50 Gross. The warehouse sector was relatively slow with a low volume of lease transactions completed throughout the year. Although overall market activity was down, tenants still completed several large lease transactions that totaled over 1.35 million square feet. One of the highlights of the year occurred when Kaiser Permanente leased the 336,000 square foot warehouse facility at 5800 Coliseum Way. Kaiser leased the space after the troubled dot.com company WebVan gave up the space and filed for bankruptcy. The Donavan of California leased 467,280 square feet at the Former Oakland Army Base. AMB Property Corporation s Edgewater Industrial Center became fully leased when Metropolitan Furniture Corporation leased 214,000 square feet and Evergreen Aviation later leased the remaining 48,000 square feet. These deals helped push the vacancy rate down to a healthy 7.3%. However, outside of these large transactions the leasing activity was relatively anemic in the second half of the year. There were many warehouse buildings for sale in the 30,000 to 70,000 square foot range that have been on the market between 8 to 12 months, which forced owners to either lower the asking rate or complete transactions by 20% to 30% off the asking rate. By the end of the year, rental rates ranged from $.25 to $.60 NNN psf/mo. Transactions completed at the beginning of 2001 were considerably higher than those at the end of the year. Despite the decline in lease rates, the owner/user sale market remained very active as demand exceeded supply. Property values remained firm because only a handful of buildings were available for sale at any given time. We expect the owner/user sale market to remain healthy in 2002 as owners who are unable to lease their buildings begin to put them on the market for sale. These buildings will be particularly attractive for companies looking to secure and control its real estate overhead. The Oakland submarket will continue to be an attractive place for tenants and owner/users looking for great values in the East Bay. Oakland Industrial Space Oakland Warehouse Space Oakland Industrial Space Oakland Warehouse/Distribution Space 1 $ $0.48 $0.46 $0.44 $0.42 $0.38 $0.36 $0.34 $0.32 $0.25 C O L L I E R S I N T E R N A T I O N A L 10

11 YEAR END 2001 San Leandro Industrial Market The San Leandro submarket continued to boast the lowest vacancy rate in the Oakland Metropolitan Area at year-end, with an overall vacancy of 5.1%. Although this vacancy rate was still at historically low levels, it was nearly double what it was last year when the year-end overall vacancy rate was at. Average asking rental rates dropped to $.48 NNN psf/mo from an all time high of $.65 NNN psf/mo during the first quarter of 2001: light industrial rents fell to $.50 NNN, warehouse rents declined to $.45 NNN, and R&D/Flex dropped to $1.30 NNN. Several investors saw this lull in the market as a great opportunity to invest in San Leandro real estate. At mid-year, Berto Development purchased the 55,130 square foot light industrial facility on Aladdin Avenue for $3.9 million, or $70.74 psf. Balco Properties acquired ASP Catalina LLC s 74,320 square foot R&D/light San Leandro Industrial Space 1 1 San Leandro Industrial Space San Leandro Warehouse/ Dist. Space San Leandro Warehouse/Distribution Space San Leandro R&D/Flex Space San Leandro R&D/Flex Space $0.75 $0.65 industrial facility on Doolittle Drive for $6.0 million. Later in the year, Ray Gallagher bought a fully leased warehouse on 999 Beecher Street for $3.5 million Doolittle Drive Leasing activity was sluggish, though several tenants did complete transactions for significant portions of space during the fourth quarter. The Rolls Wood Group leased 32,200 square feet at Doolittle Drive for five years; Simpson Strong Tie Company extended their lease for 64,000 square feet at 1501 Doolittle Drive for one more year; and IntelliSec, Inc. took 20,940 square feet at Northpoint Business Park. Weber Distribution Warehouses also leased 80,080 square feet at AMB Property Corporation s facility at 1934 Fairway Drive. We expect leasing activity to pick up as the economy recovers because there is more available inventory now than there has been in the past two years. Development activity has been slow because of the scarcity of available land in San Leandro. The only new construction was at 2401 Merced Street, a 43,180 square foot R&D/Flex facility that was completed during mid-year Alpha Innotech Corporation leased 35,000 square feet for ten years at the complex during the third quarter. Building A of Creekside Office Park was the only major project currently under construction in San Leandro. TriNet has pre-leased 48,700 square feet at the Class A office development. Tenants have expressed interest in the project because of its competitive rents and close proximity to BART. The only major industrial development site that was available in the area was the 22-acre site formerly occupied by the Hohener Meat Company near the west end of Davis Street. The site is currently is in contract with a Los Angeles based developer and should close escrow during the second quarter More space may become available through the course of the recession, but this may actually boost market activity in this mature submarket % $1.40 $1.30 $1.20 $1.10 $1.00 $0.90 We expect San Leandro to remain healthy next year. More space may become available through the course of the recession, but this may actually boost market activity in this mature submarket. Tenants will be able to focus on the quality of the spaces that are available and the market s close proximity to the Oakland International Airport and the I-880 corridor. 11 C O L L I E R S I N T E R N A T I O N A L

12 YEAR END 2001 As with the other submarkets, we expect Hayward to be slow next year. But the Hayward submarket is in a strong position to ride out the recession. Hayward Industrial Market Because of the general economic slowdown, leasing activity was relatively quiet during year-end The Hayward submarket started to feel strain from neighboring markets in the Silicon Valley, whose high-tech and manufacturing base has been deeply affected by the recession. The overall vacancy rate climbed to 9.2% as several large spaces became available during the fourth quarter. Such spaces included 323,000 square feet at the former Allegiance Healthcare facility on Huntwood Avenue; 296,000 square feet at the former Mervyn s warehouse at Industrial Boulevard; a 176,200 square foot sublease at the good guys facility at Wiegman Road; and 126,000 square feet at San Clemente Street. These spaces combined with the large warehouse availabilities already on the market, totaled approximately 1.25 million square feet of space in five buildings within half of a mile of each other. The average rents in the warehouse sector fell to $0.47 NNN psf/mo in response to this flood of available space, though we expect this submarket to turn around the next year. rates have nearly doubled or tripled throughout the past year depending on the product type. Rates in the light industrial sector rose to 6.3% while rates for the warehouse sector vaulted up to 11.5%. rates in the R&D/Flex sector surged to 9.5%. Rents for all three product-types fell below what their rates were one year ago, though they were still comparatively higher than their rates two years before. These market conditions proved favorable to existing tenants in Hayward, many of who decided to renew existing leases in large facilities. Among these companies was GSC Logistics, who renewed their lease for 376,000 square feet at 24 Cannery Court; Unified Grocers, who extended their lease for their 194,000 square foot space on Cabot Boulevard for another year; and Ditan Distribution, who extended their lease for another five years at the 152,000 square foot facility at Invesco s Hayward Gateway Center. The most significant transactions were signed during the first half of the year, which included Morgan Advanced Ceramics 214,000 square foot lease at the former Ball Facility at 2425 Whipple Road and an investment sale at Clawiter Road to Bob Chan for $5.2 million. Noteworthy R&D/Flex transactions comprised of Zyomex s lease at 4010 Point Eden Way for 45,000 square feet and Guava Tech s sublease at Mt. Eden Business Park for 42,800 square feet. These transactions illustrate that though market activity has slowed significantly over the past year, tenants still selected the Hayward submarket as an ideal location to service the Bay Area. Hayward Industrial Space Hayward Industrial Space $0.90 Despite the rising vacancy rates, the Hayward submarket remained strong. Softening rents may actually keep existing tenants who were starting to feel squeezed out of the submarket as rents escalated during the economic boom. As with the other submarkets, we expect Hayward to be slow next year. But the Hayward submarket is in a strong position to ride out the recession. The lack of developable land and historically strong absorption will help contain vacancy rates. Asking rental rates should also stabilize as the economy starts to grow at a more standard pace. $0.20 Hayward Warehouse/Dist. Space Hayward R&D/Flex Space 1 Hayward Warehouse/Distribution Space $ Hayward R&D/Flex Space $ $ $1.60 $ $0.48 $0.46 $0.44 $ $1.20 $1.00 $0.38 $0.36 $0.34 $0.20 C O L L I E R S I N T E R N A T I O N A L 12

13 YEAR END 2001 Union City Industrial Market The Union City submarket finished 2001 with vacancy rates in all three Industrial product types in or near single digit territory. The overall vacancy rate for the Industrial sector nearly doubled by year-end to 6.3% from last year s 3.3%, while Warehouse properties remained virtually unchanged at 11.2%. The biggest change came from the R&D/Flex sector, which declined significantly from last year s 14.1% to 1.6%. This steep drop was a result of Kaiser Foundation s transaction for 73,128 square feet at Catellus Development Corporation s facility located at Eigenbrodt Way. Market activity in Union City remained sluggish in the fourth quarter 2001 with most of the transactions completed as lease renewals or subleases. Significant leases included California Supply s five-year lease for 46,104 square feet at 2855 Volpey Way, Keebler Company s 87,469 square foot lease in RREEF s Alvarado Business Park, and Toyota s five-year lease at Willowbrook Business Park for 34,200 square feet. Despite these leases, large blocks of existing space returned to the market and bolstered vacancy rates even further. Much of this space is in Catellus Development Corporation s Alvarado Business Center. Schultz Manufacturing vacated their 126,144 square foot facility at 2900 Faber Street, California Supply moved out of their 58,000 square foot space on Ahern Avenue, and an additional 33,000 square feet came onto the market at Ahern Avenue. An entire 306,000 square foot building is also available at Dowe Industrial Center. About 150,000 square feet of the space is offered as a sublease from Pets.com and the balance of the space is available directly from the owner. In addition, the 158,000 square foot U.S. Foods manufacturing facility on Union City Boulevard is still on the market for sale. Union City Industrial Space $0.85 $0.75 $0.65 Despite the emergence of these large spaces, the most significant market activity resulted from large investment sales. This shows that investors are still confident about the long-term prospects of the market and are willing to buy now and hold onto their properties as the market rebounds. Robert and Susan Chang purchased Central Plaza, a 170,086 square foot mixed-use development for $12 million, or $76 psf. Some investors are so confident in the Union City submarket that they paid record prices for their properties. RREEF acquired the 1.25 million square foot Alvarado Business Park for $69.3 million, or $56.00 psf, which set a high watermark for bulk distribu- Union City Industrial Space tion space in the Oakland Metropolitan Industrial Market. Syme/Nearon Ventures also set a record when they bought Principal Capital Group s 323,000 square foot Crossroads Technology Park for $42.0 million, or $130 psf. Although the Union City submarket has seen vacancy rates increase over the past year, the market remains relatively stable. As the economy continues to recover in the next year, we expect vacancy rates to decline as leasing activity resumes a more "normal" pace and tenants absorb the available inventory. 1 Union City R&D/Flex Space Union City R&D/Flex Space $1.60 Although the Union City submarket has seen vacancy rates increase over the past year, the market remains relatively stable. As the economy continues to recover in the next year, we expect vacancy rates to decline as leasing activity resumes a more "normal" pace and tenants absorb the available inventory. Union City Warehouse Space 1 1 $1.50 $ Union City Warehouse Space 1 $1.30 $1.20 $1.10 $ $ C O L L I E R S I N T E R N A T I O N A L

14 YEAR END Offices Worldwide Americas United States Canada Latin America Europe, Middle East & Africa Greater Asia 52 Countries on 6 Continents Argentina Australia Austria Belgium Brazil Canada Chile China Colombia Czech Republic Denmark England France Germany Hong Kong Hungary India Indonesia Israel Italy Kazakhstan Japan Malaysia Mexico Mozambique Netherlands New Zealand Northern Ireland Norway Peru Philippines Poland Portugal Republic of Ireland Romania Russia Scotland Singapore South Africa South Korea Spain Sweden Switzerland Taiwan Thailand Turkey Ukraine United Arab Emirates United States Uruguay Venezuela Vietnam For more information contact Ken Meyersieck at: 1999 Harrison St., #1750 Oakland, CA Tel: (510) Fax: (510) % Colliers International Oakland Metropolitan Area Market Statistics - Year End 2001 Oakland Metropolitan Office Statistics Available Overall Wtd Average Asking Net Leasing Market Inventory Square Feet Full Service Rental Rate Absorption Activity Current Current 4Q00 4Q01 4Q00 4Q01 YTD 2001 YTD 2001 Class A Office Oakland DT 6,301, , % 5.8% $4.27 $ , ,208 South Richmond 0 0 NA NA NA NA 0 0 Berkeley DT 442,721 49, % 11.1% $3.48 $ ,927 11,529 Berkeley West 0 0 NA NA NA NA 0 0 Emeryville 2,235, , % 3 $4.31 $ , ,937 Marina Village 0 0 NA NA NA NA 0 0 Harbor Bay 0 0 NA NA NA NA 0 0 Oakland Airport 453,697 87, % 19.2% $ ,848 4,295 9,433,273 1,353, % 14.3% $4.24 $ , ,969 Class B/C & Flex Oakland DT 5,325, , % 1 $3.31 $ , ,613 South Richmond 1,989, , % 10.8% $2.75 $ , ,074 Berkeley DT 970,789 55, % 5.7% $2.81 $ , ,517 Berkeley West 1,188, , % 17.5% $2.62 $ ,318 42,530 Emeryville 1,613, , % 2 $3.99 $ , ,073 Marina Village 1,542, , % 16.2% $3.43 $ , ,860 Harbor Bay 1,325, , % $2.31 $ , ,209 Oakland Airport 1,089, , % 13.7% $1.93 $ ,753 71,207 15,044,524 2,292, % 15.2% $3.20 $ ,904 1,485,083 Totals Oakland DT 11,627,266 1,168, % 1 $3.85 $ , ,821 South Richmond 1,989, , % 10.8% $2.35 $ , ,074 Berkeley DT 1,413, , % 7.4% $3.02 $ , ,046 Berkeley West 1,188, , % 17.5% $2.62 $ ,318 42,530 Emeryville 3,848,793 1,219, % 31.7% $4.16 $ , ,010 Marina Village 1,542, , % 16.2% $3.43 $ , ,860 Harbor Bay 1,325, , % $2.31 $ , ,209 Oakland Airport 1,542, , % 15.3% $2.05 $ ,601 75,502 Grand Total 24,477,797 3,645, % 14.9% $3.64 $ ,878 2,031,052 Oakland Metropolitan Industrial Statistics Available Overall Wtd Average Asking Net Lease/Sale Market Inventory Square Feet NNN Rental Rate Absorption Activity Current Current 4Q00 4Q01 4Q00 4Q01 YTD 2001 YTD 2001 Industrial Richmond 5,039, , % $0.64 $0.65-4, ,522 Oakland 21,909,000 1,097, % $0.67 $ ,018 1,604,069 San Leandro 11,750, , % 5.6% $ , ,042 Hayward 16,486,971 1,034, % 6.3% $0.72 $ , ,656 Union City 15% 7,911, , % $ , ,057 63,097,6349% 3,661, % 5.8% $0.69-1,169,106 3,284,346 Warehouse 3% Richmond 4,144, , % 10.8% $ , ,790 Oakland 10,791, , % 7.3% $0.44 $ ,139 1,833,307 San Leandro 14,356, , % 4.6% $ , ,451 60% Hayward 21,062,645 2,412, % 11.5% $0.48 $0.47-1,806,242 1,461,954 Union City 6,755, , % 11.2% $0.51 $ , ,815 57,109,417 5,067, % 8.9% -2,801,321 4,504,317 R&D/Flex Richmond 1,701, , % 6.6% $1.66 $ , ,829 Oakland 230,000 20, % 8.9% $1.65 $ ,456 10,000 San Leandro 804,200 45, % 5.7% $0.94 $ ,482 67,429 Hayward 4,544, , % 9.5% $1.63 $ , ,816 Union City 870,672 14, % 1.6% $1.40 $ , ,021 8,150, , % 7.7% $1.54 $ , ,095 Totals Richmond 10,884, , % 8.4% $0.72 $ ,544 1,053,141 Oakland 32,930,000 1,904, % 5.8% $0.59 $ ,701 3,447,376 San Leandro 26,911,503 1,375, % $0.61 $ , ,922 Hayward 42,094,466 3,880, % 9.2% -2,461,699 2,596,426 Union City 15,537,030 1,280, % 8.2% $0.71 $ , ,893 Grand Total 128,357,873 9,356, % 7.3% $0.66 $0.57-3,933,579 8,568,758 Colliers International is pleased to provide the above information and in doing so believes it s validity. However, we cannot guarantee its accuracy or take responsibility for its use. 14 C O L L I E R S I N T E R N A T I O N A L