The CoStar Office Report

Transcription

1 The CoStar Office Report T H I R D Q U A R T E R Seattle/Puget Sound Office Market

2 Seattle/Puget Sound Office Market THIRD QUARTER 2013 SEATTLE/PUGET SOUND Table of Contents Table of Contents A Methodology B Terms & Definitions C Market Highlights & Overview CoStar Markets & Submarkets Inventory & Development Analysis Inventory & Development Analysis Select Top Deliveries Select Top Under Construction Properties Figures at a Glance Figures at a Glance by Class & Market Figures at a Glance by Class & Submarket Figures at a Glance Grouped by CBD vs Suburban Historical Figures at a Glance Leasing Activity Analysis Select Top Lease Transactions Sales Activity Analysis Sales Activity Analysis Select Top Sales Transactions Analysis of Individual CoStar Submarket Clusters Downtown Seattle Market Eastside Market Northend Market Southend Market Tacoma Market 2013 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT A

3 SEATTLE/PUGET SOUND THIRD QUARTER 2013 Seattle/Puget Sound Office Market Methodology The CoStar Office Report, unless specifically stated otherwise, calculates office statistics using CoStar Group s entire database of existing and under construction office buildings in each metropolitan area. Included are office, office condominium, office loft, office medical, all classes and all sizes, and both multi-tenant and single-tenant buildings, including owner-occupied buildings. CoStar Group's national database includes approximately 80.7 billion square feet of coverage in 3.5 million properties. All rental rates reported in the CoStar Office Report have been converted to a Full Service equivalent rental rate. For information on subscribing to CoStar s other products and services, please contact us at COSTAR, or visit our web site at Copyright 2013 CoStar Group, Inc. All Rights Reserved. Although CoStar makes efforts to ensure the accuracy and reliability of the information contained herein, CoStar makes no guarantee, representation or warranty regarding the quality, accuracy, timeliness or completeness of the information. The publication is provided as is and CoStar expressly disclaims any guarantees, representations or warranties of any kind, including those of MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. CoStar Group, Inc L ST NW Washington, DC (800) NASDAQ: CSGP B THE COSTAR OFFICE REPORT 2013 COSTAR GROUP, INC.

4 Seattle/Puget Sound Office Market THIRD QUARTER 2013 SEATTLE/PUGET SOUND Terms & Definitions Availability Rate: The ratio of available space to total rentable space, calculated by dividing the total available square feet by the total rentable square feet. Available Space: The total amount of space that is currently being marketed as available for lease in a given time period. It includes any space that is available, regardless of whether the space is vacant, occupied, available for sublease, or available at a future date. Build-to-Suit: A term describing a particular property, developed specifically for a certain tenant to occupy, with structural features, systems, or improvement work designed specifically for the needs of that tenant. A build-to-suit can be leased or owned by the tenant. In a leased build-to-suit, a tenant will usually have a long term lease on the space. Buyer: The individual, group, company, or entity that has purchased a commercial real estate asset. Cap Rate: Short for capitalization rate. The Cap Rate is a calculation that reflects the relationship between one year s net operating income and the current market value of a particular property. The Cap Rate is calculated by dividing the annual net operating income by the sales price (or asking sales price). CBD: Abbreviation for Central Business District. (See also: Central Business District) Central Business District: The designations of Central Business District (CBD) and Suburban refer to a particular geographic area within a metropolitan statistical area (MSA) describing the level of real estate development found there. The CBD is characterized by a high density, well organized core within the largest city of a given MSA. Class A: A classification used to describe buildings that generally qualify as extremely desirable investment-grade properties and command the highest rents or sale prices compared to other buildings in the same market. Such buildings are well located and provide efficient tenant layouts as well as high quality, and in some buildings, one-of-a-kind floor plans. They can be an architectural or historical landmark designed by prominent architects. These buildings contain a modern mechanical system, and have above-average maintenance and management as well as the best quality materials and workmanship in their trim and interior fittings. They are generally the most attractive and eagerly sought by investors willing to pay a premium for quality. Class B: A classification used to describe buildings that generally qualify as a more speculative investment, and as such, command lower rents or sale prices compared to Class A properties. Such buildings offer utilitarian space without special attractions, and have ordinary design, if new or fairly new; good to excellent design if an older non-landmark building. These buildings typically have average to good maintenance, management and tenants. They are less appealing to tenants than Class A properties, and may be deficient in a number of respects including floor plans, condition and facilities. They lack prestige and must depend chiefly on a lower price to attract tenants and investors. Class C: A classification used to describe buildings that generally qualify as no-frills, older buildings that offer basic space and command lower rents or sale prices compared to other buildings in the same market. Such buildings typically have below-average maintenance and management, and could have mixed or low tenant prestige, inferior elevators, and/or mechanical/electrical systems. These buildings lack prestige and must depend chiefly on a lower price to attract tenants and investors. Construction Starts: Buildings that began construction during a specific period of time. (See also: Deliveries) Contiguous Blocks of Space: Space within a building that is, or is able to be joined together into a single contiguous space. Deliveries: Buildings that complete construction during a specified period of time. In order for space to be considered delivered, a certificate of occupancy must have been issued for the property. Delivery Date: The date a building completes construction and receives a certificate of occupancy. Developer: The company, entity or individual that transforms raw land to improved property by use of labor, capital and entrepreneurial efforts. Direct Space: Space that is being offered for lease directly from the landlord or owner of a building, as opposed to space being offered in a building by another tenant (or broker of a tenant) trying to sublet a space that has already been leased. : The square footage of buildings that have received a certificate of occupancy and are able to be occupied by tenants. It does not include space in buildings that are either planned, under construction or under renovation. Flex Building: A type of building designed to be versatile, which may be used in combination with office (corporate headquarters), research and development, quasi-retail sales, and including but not limited to industrial, warehouse, and distribution uses. A typical flex building will be one or two stories with at least half of the rentable area being used as office space, have ceiling heights of 16 feet or less, and have some type of drive-in door, even though the door may be glassed in or sealed off. Full Service Rental Rate: Rental rates that include all operating expenses such as utilities, electricity, janitorial services, taxes and insurance. Gross Absorption: The total change in occupied space over a given period of time, counting space that is occupied but not space that is vacated by tenants. Gross absorption differs from leasing Activity, which is the sum of all space leased over a certain period of time. Unless otherwise noted Gross Absorption includes direct and sublease space. Growth in Inventory: The change in size of the existing square footage in a given area over a given period of time, generally due to the construction of new buildings. Industrial Building: A type of building adapted for such uses as the assemblage, processing, and/or manufacturing of products from raw materials or fabricated parts. Additional uses include warehousing, distribution, and maintenance facilities. The primary purpose of the space is for storing, producing, assembling, or distributing product. Landlord Rep: (Landlord Representative) In a typical lease transaction between an owner/landlord and tenant, the broker that represents the interests of the owner/landlord is referred to as the Landlord Rep. Leased Space: All the space that has a financial lease obligation. It includes all leased space, regardless of whether the space is currently occupied by a tenant. Leased space also includes space being offered for sublease. Leasing Activity: The volume of square footage that is committed to and signed under a lease obligation for a specific building or market in a given period of time. It includes direct leases, subleases and renewals of existing leases. It also includes any pre-leasing activity in planned, under construction, or under renovation buildings. Market: Geographic boundaries that serve to delineate core areas that are competitive with each other and constitute a generally accepted primary competitive set of areas. Markets are buildingtype specific, and are non-overlapping contiguous geographic designations having a cumulative sum that matches the boundaries of the entire Region (See also: Region). Markets can be further subdivided into Submarkets. (See also: Submarkets) 2013 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT C

5 SEATTLE/PUGET SOUND THIRD QUARTER 2013 Seattle/Puget Sound Office Market Multi-Tenant: Buildings that house more than one tenant at a given time. Usually, multi-tenant buildings were designed and built to accommodate many different floor plans and designs for different tenant needs. (See also: Tenancy). Net Absorption: The net change in occupied space over a given period of time. Unless otherwise noted Net Absorption includes direct and sublease space. Net Rental Rate: A rental rate that excludes certain expenses that a tenant could incur in occupying office space. Such expenses are expected to be paid directly by the tenant and may include janitorial costs, electricity, utilities, taxes, insurance and other related costs. New Space: Sometimes called first generation space, refers to space that has never been occupied and/or leased by a tenant. Occupied Space: Space that is physically occupied by a tenant. It does not include leased space that is not currently occupied by a tenant. Office Building: A type of commercial building used exclusively or primarily for office use (business), as opposed to manufacturing, warehousing, or other uses. Office buildings may sometimes have other associated uses within part of the building, i.e., retail sales, financial, or restaurant, usually on the ground floor. Owner: The company, entity, or individual that holds title on a given building or property. Planned/Proposed: The status of a building that has been announced for future development but not yet started construction. Preleased Space: The amount of space in a building that has been leased prior to its construction completion date, or certificate of occupancy date. Price/SF: Calculated by dividing the price of a building (either sales price or asking sales price) by the Rentable Building Area (RBA). Property Manager: The company and/or person responsible for the day-to-day operations of a building, such as cleaning, trash removal, etc. The property manager also makes sure that the various systems within the building, such as the elevators, HVAC, and electrical systems, are functioning properly. Quoted Rental Rate: The asking rate per square foot for a particular building or unit of space by a broker or property owner. Quoted rental rates may differ from the actual rates paid by tenants following the negotiation of all terms and conditions in a specific lease. RBA: Abbreviation for Rentable Building Area. (See also: Rentable Building Area) Region: Core areas containing a large population nucleus, that together with adjacent communities have a high degree of economic and social integration. Regions are further divided into market areas, called Markets. (See also: Markets) Relet Space: Sometimes called second generation or direct space, refers to existing space that has previously been occupied by another tenant. Rentable Building Area: (RBA) The total square footage of a building that can be occupied by, or assigned to a tenant for the purpose of determining a tenant s rental obligation. Generally RBA includes a percentage of common areas including all hallways, main lobbies, bathrooms, and telephone closets. Rental Rates: The annual costs of occupancy for a particular space quoted on a per square foot basis. Sales Price: The total dollar amount paid for a particular property at a particular point in time. Sales Volume: The sum of sales prices for a given group of buildings in a given time period. Seller: The individual, group, company, or entity that sells a particular commercial real estate asset. SF: Abbreviation for Square Feet. Single-Tenant: Buildings that are occupied, or intended to be occupied by a single tenant. (See also: Build-to-suit and Tenancy) Sublease Space: Space that has been leased by a tenant and is being offered for lease back to the market by the tenant with the lease obligation. Sublease space is sometimes referred to as sublet space. Submarkets: Specific geographic boundaries that serve to delineate a core group of buildings that are competitive with each other and constitute a generally accepted primary competitive set, or peer group. Submarkets are building type specific (office, industrial, retail, etc.), with distinct boundaries dependent on different factors relevant to each building type. Submarkets are non-overlapping, contiguous geographic designations having a cumulative sum that matches the boundaries of the Market they are located within (See also: Market). Suburban: The Suburban and Central Business District (CBD) designations refer to a particular geographic area within a metropolitan statistical area (MSA). Suburban is defined as including all office inventory not located in the CBD. (See also: CBD) Tenancy: A term used to indicate whether or not a building is occupied by multiple tenants (See also: Multi-tenant) or a single tenant. (See also: Single-tenant) Tenant Rep: Tenant Rep stands for Tenant Representative. In a typical lease transaction between an owner/landlord and tenant, the broker that represents the interests of the tenant is referred to as a Tenant Rep. Time On Market: A measure of how long a currently available space has been marketed for lease, regardless of whether it is vacant or occupied. Under Construction: The status of a building that is in the process of being developed, assembled, built or constructed. A building is considered to be under construction after it has begun construction and until it receives a certificate of occupancy. Rate: A measurement expressed as a percentage of the total amount of physically vacant space divided by the total amount of existing inventory. Under construction space generally is not included in vacancy calculations. Vacant Space: Space that is not currently occupied by a tenant, regardless of any lease obligation that may be on the space. Vacant space could be space that is either available or not available. For example, sublease space that is currently being paid for by a tenant but not occupied by that tenant, would be considered vacant space. Likewise, space that has been leased but not yet occupied because of finish work being done, would also be considered vacant space. Weighted Average Rental Rate: Rental rates that are calculated by factoring in, or weighting, the square footage associated with each particular rental rate. This has the effect of causing rental rates on larger spaces to affect the average more than that of smaller spaces. The weighted average rental rate is calculated by taking the ratio of the square footage associated with the rental rate on each individual available space to the square footage associated with rental rates on all available spaces, multiplying the rental rate by that ratio, and then adding together all the resulting numbers. Unless specifically specified otherwise, rental rate averages include both Direct and Sublet available spaces. Year Built: The year in which a building completed construction and was issued a certificate of occupancy. YTD: Abbreviation for Year-to-Date. Describes statistics that are cumulative from the beginning of a calendar year through whatever time period is being studied. D THE COSTAR OFFICE REPORT 2013 COSTAR GROUP, INC.

6 Seattle/Puget Sound Office Market OVERVIEW THIRD QUARTER 2013 SEATTLE/PUGET SOUND Seattle/Puget Sound s Decreases to 10.2% Net Absorption Positive 616,750 SF in the Quarter Investor sentiment that Seattle is an improving office market is ringing true. Following a series of record prices paid in Downtown Seattle, Lake Union and Bellevue, vacancy is falling and Class A rents are on the rise. The driving force has been rapid tech expansion, led foremost by Amazon.com, which continues to lease up and acquire space at a frenetic pace. By the time Amazon s 3.3 MSF South Lake Union campus is completed in 2017 it is estimated that the dot.com giant will occupy 7.3 MSF across the Seattle office market. Other tech tenants including Google, Microsoft, and Zulily have been expanding as well, and as Seattle s employment growth has outpaced national averages, the market has even seen the return of Class A speculative construction (357,425 SF Dexter Station, with an expected delivery of first quarter 2015). The Seattle/Puget Sound Office market ended the third quarter 2013 with a vacancy rate of 10.2%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 616,750 square feet in the third quarter. Vacant sublease space decreased in the quarter, ending the quarter at 849,511 square feet. Rental rates ended the third quarter at $26.44, an increase over the previous quarter. A total of four buildings delivered to the market in the quarter totaling 217,710 square feet, with 1,487,947 square feet still under construction at the end of the quarter. Absorption Net absorption for the overall Seattle/Puget Sound office market was positive 616,750 square feet in the third quarter That compares to positive 397,655 square feet in the second quarter 2013, positive 523,328 square feet in the first quarter 2013, and positive 1,046,485 square feet in the fourth quarter. Tenants moving out of large blocks of space in 2013 include: RealNetworks, Inc. moving out of 174,470 square feet at 2601 Elliott (Seattle Trade & Technology Ctr); Dendreon Corporation moving out of 135,498 square feet at Russell Investments Center; and Federal Home Loan Bank of Seattle moving out of 106,651 square feet at Century Square. Tenants moving into large blocks of space in 2013 include: UW School of Medicine moving into 197,616 square feet at UW Medicine Research; Davita moving into 186,612 square feet at nd Ave S; and Amazon.com moving into 150,186 square feet at 1800 Ninth, as well as 110,000 square feet at 202 Westlake Ave N. The Class-A office market recorded net absorption of positive 646,986 square feet in the third quarter 2013, compared to positive 387,945 square feet in the second quarter 2013, positive 233,361 in the first quarter 2013, and positive 834,525 in the fourth quarter. The Class-B office market recorded net absorption of negative (3,327) square feet in the third quarter 2013, compared to negative (50,269) square feet in the second quarter 2013, positive 252,438 in the first quarter 2013, and positive 77,913 in the fourth quarter. The Class-C office market recorded net absorption of negative (26,909) square feet in the third quarter 2013 compared to positive 59,979 square feet in the second quarter 2013, positive 37,529 in the first quarter 2013, and positive 134,047 in the fourth quarter. Rates by Class A B C Total Market 20% 18% 16% 14% Rate 12% 10% 8% 6% 4% 2% 0% COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 1

7 SEATTLE/PUGET SOUND THIRD QUARTER 2013 Seattle/Puget Sound Office Market OVERVIEW Net absorption for Seattle/Puget Sound s Central Business District (CBD) was positive 214,736 square feet in the third quarter That compares to negative (82,909) square feet in the second quarter 2013, negative (31,372) in the first quarter 2013, and positive 83,779 in the fourth quarter. Net absorption for the suburban markets was positive 402,014 square feet in the third quarter That compares to positive 480,564 square feet in second quarter 2013, positive 554,700 in the first quarter 2013, and positive 962,706 in the fourth quarter. The office vacancy rate in the Seattle/Puget Sound market area decreased to 10.2% at the end of the third quarter The vacancy rate was 10.5% at the end of the second quarter 2013, 10.4% at the end of the first quarter 2013, and 10.6% at the end of the fourth quarter. Class-A projects reported a vacancy rate of 11.7% at the end of the third quarter 2013, 12.6% at the end of the second quarter 2013, 12.5% at the end of the first quarter 2013, and 12.7% at the end of the fourth quarter. Class-B projects reported a vacancy rate of 10.5% at the end of the third quarter 2013, 10.5% at the end of the second quarter 2013, 10.4% at the end of the first quarter 2013, and 10.7% at the end of the fourth quarter. Class-C projects reported a vacancy rate of 6.4% at the end of the third quarter 2013, 6.4% at the end of second quarter 2013, 6.6% at the end of the first quarter 2013, and 6.8% at the end of the fourth quarter. The overall vacancy rate in Seattle/Puget Sound s CBD at the end of the third quarter 2013 decreased to 12.3%. The vacancy rate was 12.8% at the end of the second quarter 2013, 12.4% at the end of the first quarter 2013, and 12.3% at the end of the fourth quarter. The vacancy rate in the suburban markets decreased to U.S. Comparison Past 9 Quarters Rate 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% Seattle/Puget Sound United States 9.5% in the third quarter The vacancy rate was 9.7% at the end of the second quarter 2013, 9.8% at the end of the first quarter 2013, and 10.1% at the end of the fourth quarter. Largest Lease Signings The largest lease signings occurring in 2013 included: the 218,900-square-foot lease signed by State Farm Insurance at The Russell Bldg in the Tacoma market; the 148,112-square-foot deal signed by Zulily at 2601 Elliott (Seattle Trade & Technology Ctr) in the Downtown Seattle market; and the 133,582-square-foot lease signed by Amazon.com, Inc. at Metropolitan Park North Tower in the Downtown Seattle market. Sublease The amount of vacant sublease space in the Seattle/Puget Sound market decreased to 849,511 square feet by the end of the third quarter 2013, from 964,695 square feet at the end of the second quarter There was 1,065,432 square feet vacant at the end of the first quarter 2013 and 1,139,510 square feet at the end of the fourth quarter. Seattle/Puget Sound s Class-A projects reported vacant sublease space of 565,831 square feet at the end of third quarter 2013, up from the 542,098 square feet reported at the end of the second quarter There were 526,151 square feet of sublease space vacant at the end of the first quarter 2013, and 585,830 square feet at the end of the fourth quarter. Class-B projects reported vacant sublease space of 243,027 square feet at the end of the third quarter 2013, down from the 391,986 square feet reported at the end of the second quarter At the end of the first quarter 2013 there were 512,896 square feet, and at the end of the fourth quarter there were 521,291 square feet vacant. Class-C projects reported increased vacant sublease space from the second quarter 2013 to the third quarter Sublease vacancy went from 30,611 square feet to 40,653 square feet during that time. There was 26,385 square feet at the end of the first quarter 2013, and 32,389 square feet at the end of the fourth quarter. Sublease vacancy in Seattle/Puget Sound s CBD stood at 487,564 square feet at the end of the third quarter It was 500,418 square feet at the end of the second quarter 2013, 530,531 square feet at the end of the first quarter 2013, and 589,520 square feet at the end of the fourth quarter. Sublease vacancy in the suburban markets ended the third quarter 2013 at 361,947 square feet. At the end of the second quarter 2013 sublease vacancy was 464,277 square feet, was 534,901 square feet at the end of the first quarter 2013, and was 549,990 square feet at the end of the fourth quarter. 2.0% 0.0% Source: CoStar Property 4q 2q 4q q 2013 Rental Rates The average quoted asking rental rate for available office space, all classes, was $26.44 per square foot per year at the end of the third quarter 2013 in the Seattle/Puget Sound market area. 2 THE COSTAR OFFICE REPORT 2013 COSTAR GROUP, INC.

8 Seattle/Puget Sound Office Market OVERVIEW THIRD QUARTER 2013 SEATTLE/PUGET SOUND This represented a 0.3% increase in quoted rental rates from the end of the second quarter 2013, when rents were reported at $26.36 per square foot. The average quoted rate within the Class-A sector was $32.54 at the end of the third quarter 2013, while Class-B rates stood at $24.51, and Class-C rates at $ At the end of the second quarter 2013, Class-A rates were $31.92 per square foot, Class-B rates were $24.47, and Class-C rates were $ The average quoted asking rental rate in Seattle/Puget Sound s CBD was $29.82 at the end of the third quarter 2013, and $25.23 in the suburban markets. In the second quarter 2013, quoted rates were $29.08 in the CBD and $25.39 in the suburbs. Deliveries and Construction During the third quarter 2013, four buildings totaling 217,710 square feet were completed in the Seattle/Puget Sound market area. This compares to six buildings totaling 565,196 square feet that were completed in the second quarter 2013, three buildings totaling 130,372 square feet completed in the first quarter 2013, and 624,634 square feet in five buildings completed in the fourth quarter. There were 1,487,947 square feet of office space under construction at the end of the third quarter Some of the notable 2013 deliveries include: Boeing Everett Delivery Center, a 180,000-square-foot facility that delivered in second quarter 2013 and is now 100% occupied, and UW Medicine Research, a 173,899-square-foot building that delivered in second quarter 2013 and is now 100% occupied. The largest projects underway at the end of third quarter 2013 were Amazon Phase VI, a 377,000-square-foot building with 100% of its space pre-leased, and Dexter Station, a 357,425- square-foot facility that is 5% pre-leased. Inventory Total office inventory in the Seattle/Puget Sound market area amounted to 184,010,481 square feet in 7,562 buildings as of the end of the third quarter The Class-A office sector consisted of 56,703,374 square feet in 256 projects. There were 2,965 Class-B buildings totaling 97,026,294 square feet, and the Class-C sector consisted of 30,280,813 square feet in 4,341 buildings. Within the Office market there were 411 owner-occupied buildings accounting for 26,048,025 square feet of office space. Sales Activity Tallying office building sales of 15,000 square feet or larger, Seattle/Puget Sound office sales figures rose during the second Absorption & Deliveries Past 9 Quarters Millions SF Source: CoStar Property q Net Absorption quarter 2013 in terms of dollar volume compared to the first quarter of In the second quarter, 12 office transactions closed with a total volume of $611,990,000. The 12 buildings totaled 1,738,548 square feet and the average price per square foot equated to $ per square foot. That compares to 16 transactions totaling $592,574,436 in the first quarter The total square footage in the first quarter was 2,284,782 square feet for an average price per square foot of $ Total office building sales activity in 2013 was down compared to. In the first six months of 2013, the market saw 28 office sales transactions with a total volume of $1,204,564,436. The price per square foot averaged $ In the same first six months of, the market posted 33 transactions with a total volume of $1,528,902,261. The price per square foot averaged $ Cap rates have been lower in 2013, averaging 5.99% compared to the same period in when they averaged 6.37%. One of the largest transactions that has occurred within the last four quarters in the Seattle/Puget Sound market is the sale of the Amazon Corporate Offices in Seattle. The 1,859,838-squarefoot South Lake Union office campus sold on 12/21/ for $1,154,269,079 or $ per square foot. Reports compiled by: Research Manager, Colin Maly and Researcher, Drew Peters q q Deliveries q COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 3

9 SEATTLE/PUGET SOUND THIRD QUARTER 2013 Seattle/Puget Sound Office Market MARKETS CoStar Submarket Clusters & Submarkets In analyzing metropolitan areas, CoStar has developed geographic designations to help group properties together, called Markets, Submarket Clusters and Submarkets. Markets are the equivalent of metropolitan areas, or areas containing a large population nucleus, that together with adjacent communities have a high degree of economic and social integration. Markets are then divided into Submarket Clusters, which are core areas within a metropolitan area that are known to be competitive with each other in terms of attracting and keeping tenants. Markets are then further subdivided into smaller units called Submarkets, which serve to delineate a core group of buildings that are competitive with each other and constitute a generally accepted competitive set, or peer group. Submarket Clusters Submarkets Downtown Seattle Ballard/U Dist Belltown/Denny Regrade Capitol Hill/Central Dist Lake Union Pioneer Sq/Waterfront Queen Anne/Magnolia S Seattle Seattle CBD* Eastside 520 Corridor Bellevue CBD* Coal Creek/Issaquah E King County I-90 Corridor Kirkland Mercer Island Redmond Suburban Bellevue Northend Bothell/Kenmore Edmonds/Lynnwood Everett CBD* Mill Creek/Woodinville N Snohomish County Northgate/N Seattle S Everett/Harbor Point S Snohomish County Southend Federal Way/Auburn Kent Valley Renton/Tukwila Seatac/Burien Tacoma Dupont E Pierce County Fort Lewis Gig Harbor/W Pierce Co Puyallup Spanaway Tacoma CBD* Tacoma Suburban Univ. Place/Lakewood * Submarkets comprising the CBD. For statistics reference the CBD vs Suburban Figures at a Glance Page. 4 THE COSTAR OFFICE REPORT 2013 COSTAR GROUP, INC.

10 Seattle/Puget Sound Office Market INVENTORY & DEVELOPMENT THIRD QUARTER 2013 SEATTLE/PUGET SOUND Historical Deliveries Deliveries 8.8 Average Delivered SF Millions of SF * Future deliveries based on current under construction buildings. Construction Activity Markets Ranked by Under Construction Square Footage Under Construction Inventory Average Bldg Size Market # Bldgs Total RBA Preleased SF Preleased % All Existing U/C Downtown Seattle 4 1,024, , % 43, ,007 Eastside 1 327,570 3, % 33, ,570 Northend 2 79,000 75, % 14,194 39,500 Tacoma 1 57,350 57, % 10,594 57,350 Southend % 19,149 0 Totals 8 1,487, , % 24, ,993 Recent Deliveries Leased & Un-Leased SF in Deliveries Since 2009 Future Deliveries Preleased & Un-Leased SF in Properties Scheduled to Deliver 6.0 Leased Un-Leased 800 Preleased Un-Leased Millions of SF Thousands of SF T q q COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 5

11 SEATTLE/PUGET SOUND THIRD QUARTER 2013 Seattle/Puget Sound Office Market INVENTORY & DEVELOPMENT Historical Construction Starts & Deliveries Square Footage Per Quarter Starting and Completing Construction 1.6 Construction Starts Deliveries Millions of SF q q 2q 4q 2q 4q q 2013 Recent Deliveries by Project Size Breakdown of Year-to-Date Development Based on RBA of Project Building Size # Bldgs RBA SF Leased % Leased Avg Rate Single-Tenant Multi-Tenant < 50,000 SF 6 116,669 88, % $ ,669 50,000 SF - 99,999 SF 3 192, , % $ , ,000 SF - 249,999 SF 4 604, , % $ , , ,000 SF - 499,999 SF % $ >= 500,000 SF % $ Recent Development by Tenancy Comparison Based on RBA Developed for Single & Multi Tenant Use Based on Total RBA 2013 Deliveries Currently Under Construction By Class By Space Type 39% 0% 16% 25% 61% 100% 53% 31% 75% Multi Single Multi Single Class A Class B Class C Multi Single 6 THE COSTAR OFFICE REPORT 2013 COSTAR GROUP, INC.

12 Seattle/Puget Sound Office Market INVENTORY & DEVELOPMENT THIRD QUARTER 2013 SEATTLE/PUGET SOUND 2013 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 7

13 SEATTLE/PUGET SOUND THIRD QUARTER 2013 Seattle/Puget Sound Office Market INVENTORY & DEVELOPMENT 8 THE COSTAR OFFICE REPORT 2013 COSTAR GROUP, INC.

14 Seattle/Puget Sound Office Market FIGURES AT A GLANCE THIRD QUARTER 2013 SEATTLE/PUGET SOUND Class A Market Statistics Third Quarter 2013 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Downtown Seattle ,144,001 4,207,433 4,444, % 939, ,492 1,024,027 $32.73 Eastside ,013,324 1,335,089 1,437, % 23, ,570 $33.46 Northend 17 1,917, , , % 167, ,000 0 $26.00 Southend 8 1,164, , , % 17, $25.39 Tacoma 10 1,464, , , % 120, ,000 0 $28.53 Totals ,703,374 6,045,959 6,611, % 1,268, ,492 1,351,597 $32.54 Class B Market Statistics Third Quarter 2013 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Downtown Seattle ,417,056 2,784,287 2,837, % 62,234 83,000 0 $27.55 Eastside ,029,923 2,358,710 2,457, % 6,236 18,414 0 $27.01 Northend ,128,237 1,608,344 1,652, % 3,908 28,000 79,000 $22.83 Southend ,796,326 1,962,476 1,979, % 93, $20.13 Tacoma ,654,752 1,223,084 1,251, % 33,417 3,372 57,350 $21.19 Totals 2,965 97,026,294 9,936,901 10,179, % 198, , ,350 $24.51 Class C Market Statistics Third Quarter 2013 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Downtown Seattle 1,000 9,839, , , % (3,331) 0 0 $20.50 Eastside 565 4,059, , , % (59,801) 0 0 $23.87 Northend 902 5,202, , , % 7, $17.55 Southend 614 4,222, , , % 45, $17.25 Tacoma 1,260 6,956, , , % 80, $17.24 Totals 4,341 30,280,813 1,906,020 1,946, % 70, $19.19 Total Office Market Statistics Third Quarter 2013 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Downtown Seattle 1,697 74,400,965 7,398,451 7,716, % 998, ,492 1,024,027 $29.72 Eastside 1,419 48,103,052 3,988,725 4,198, % (30,538) 18, ,570 $29.04 Northend 1,497 21,248,256 2,211,922 2,264, % 179, ,000 79,000 $22.32 Southend 1,054 20,183,238 2,376,676 2,394, % 155, $19.91 Tacoma 1,895 20,074,970 1,913,106 2,164, % 234, ,372 57,350 $20.85 Totals 7, ,010,481 17,888,880 18,738, % 1,537, ,278 1,487,947 $ COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 9

15 SEATTLE/PUGET SOUND THIRD QUARTER 2013 Seattle/Puget Sound Office Market FIGURES AT A GLANCE Class A Submarket Statistics Third Quarter 2013 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates 520 Corridor 23 3,301,625 54,042 54, % 36, $26.34 Ballard/U Dist 3 211,108 17,296 17, % 2, ,000 $35.37 Bellevue CBD 25 7,521, , , % 27, $36.11 Belltown/Denny Regrade 13 2,782, , , % 103,144 77,000 0 $26.84 Bothell/Kenmore 4 346,297 15,016 15, % (15,016) 0 0 $0.00 Capitol Hill/Central Dist 3 307,648 47,540 52, % 34,781 50,000 0 $36.20 Coal Creek/Issaquah 6 917, , % $30.36 Dupont 1 48,000 3,400 3, % $0.00 E King County % $0.00 E Pierce County % $0.00 Edmonds/Lynnwood 8 833, , , % 10, $26.00 Everett CBD 1 88, % $0.00 Federal Way/Auburn 1 88,000 6,500 6, % 8, $33.33 Fort Lewis % $0.00 Gig Harbor/W Pierce Co 1 85,903 28,051 28, % $32.63 I-90 Corridor 19 2,727, , , % (89,192) 0 0 $30.16 Kent Valley 1 57, % $0.00 Kirkland 12 1,028,841 50,622 61, % 23, $34.88 Lake Union 27 5,590, , , % 258, , ,425 $33.69 Mercer Island 1 105,796 21,266 21, % 1, $34.44 Mill Creek/Woodinville % $0.00 N Snohomish County % $0.00 Northgate/N Seattle 2 205,361 16,630 16, % (7,507) 0 0 $26.00 Pioneer Sq/Waterfront 9 1,793, , , % 225, $31.56 Puyallup 1 83,268 17,720 17, % $42.50 Queen Anne/Magnolia 12 1,797, , , % 36,543 48,883 0 $33.70 Redmond 19 2,176, , , % (20,336) 0 0 $29.48 Renton/Tukwila 4 590, % $0.00 S Everett/Harbor Point 2 444, % 180, ,000 0 $0.00 S Seattle 5 959, , , % 85, ,602 $37.07 S Snohomish County % $0.00 Seatac/Burien 2 427, , , % 8, $24.43 Seattle CBD 42 20,702,121 2,737,477 2,957, % 193, $32.68 Spanaway % $0.00 Suburban Bellevue 2 234, , , % 44, ,570 $45.54 Tacoma CBD 6 1,204,935 62, , % 125, ,000 0 $26.03 Tacoma Suburban % $0.00 Univ. Place/Lakewood 1 42,000 6,290 6, % (6,290) 0 0 $33.37 Totals ,703,374 6,045,959 6,611, % 1,268, ,492 1,351,597 $ THE COSTAR OFFICE REPORT 2013 COSTAR GROUP, INC.

16 Seattle/Puget Sound Office Market FIGURES AT A GLANCE THIRD QUARTER 2013 SEATTLE/PUGET SOUND Class B Submarket Statistics Third Quarter 2013 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates 520 Corridor 101 5,155, , , % 9, $24.25 Ballard/U Dist 108 3,479,900 80,291 80, % 77,882 18,000 0 $24.29 Bellevue CBD 30 1,407, , , % (6,170) 0 0 $31.19 Belltown/Denny Regrade 43 2,910, , , % 83, $26.74 Bothell/Kenmore 95 4,373, , , % 34, ,000 $24.60 Capitol Hill/Central Dist 85 4,016, , , % (25,387) 0 0 $38.70 Coal Creek/Issaquah 58 1,372, , , % 25, $30.77 Dupont 6 1,065,501 1,280 1, % $0.00 E King County , , , % (27,089) 0 0 $23.46 E Pierce County ,280 56,534 58, % 5, $21.87 Edmonds/Lynnwood 137 2,894, , , % 77,830 4,000 75,000 $21.35 Everett CBD 83 1,963, , , % (134,707) 0 0 $20.91 Federal Way/Auburn 134 3,583, , , % 173, $18.67 Fort Lewis 1 1, % $0.00 Gig Harbor/W Pierce Co 73 1,088, , , % (23,752) 3,372 0 $21.81 I-90 Corridor 44 3,190, , , % (200,089) 0 0 $28.77 Kent Valley 69 2,239, , , % (70,011) 0 0 $21.72 Kirkland 137 3,570, , , % 55, $26.08 Lake Union 89 5,418, , , % 52, $27.33 Mercer Island ,295 4,115 5, % 2, $28.69 Mill Creek/Woodinville ,955 85,869 85, % 18,713 24,000 0 $26.83 N Snohomish County ,417 69,061 69, % 8, $16.49 Northgate/N Seattle 56 1,343, , , % (12,351) 0 0 $23.45 Pioneer Sq/Waterfront 56 3,532, , , % (54,354) 0 0 $25.42 Puyallup 60 1,149, , , % (2,693) 0 0 $23.20 Queen Anne/Magnolia 65 2,647, , , % 25,689 65,000 0 $22.50 Redmond 99 4,992, , , % 94, $23.40 Renton/Tukwila 169 7,685, , , % (32,587) 0 0 $21.22 S Everett/Harbor Point 81 1,887, , , % 5, $23.39 S Seattle 83 2,439, , , % 11, $23.48 S Snohomish County ,373 18,164 18, % 6, $22.40 Seatac/Burien 60 1,288, , , % 22, $19.42 Seattle CBD 54 5,970, , , % (108,889) 0 0 $28.84 Spanaway ,152 85,344 85, % 22, $19.66 Suburban Bellevue 197 5,038, , , % 50,719 18,414 0 $27.12 Tacoma CBD 85 3,076, , , % (15,925) 0 57,350 $20.65 Tacoma Suburban 225 3,189, , , % 42, $20.14 Univ. Place/Lakewood 89 1,105,058 83,848 83, % 6, $21.09 Totals 2,965 97,026,294 9,936,901 10,179, % 198, , ,350 $ COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 11

17 SEATTLE/PUGET SOUND THIRD QUARTER 2013 Seattle/Puget Sound Office Market FIGURES AT A GLANCE Class C Submarket Statistics Third Quarter 2013 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates 520 Corridor ,006 37,155 37, % (5,089) 0 0 $19.42 Ballard/U Dist 311 1,454,447 26,986 26, % 1, $21.74 Bellevue CBD ,806 16,714 16, % (4,969) 0 0 $26.75 Belltown/Denny Regrade ,279 47,647 47, % (7,298) 0 0 $20.33 Bothell/Kenmore ,350 16,756 16, % (4,143) 0 0 $21.26 Capitol Hill/Central Dist 138 1,749,329 36,753 43, % (30,700) 0 0 $24.74 Coal Creek/Issaquah ,095 7,518 7, % 3, $25.49 Dupont % $0.00 E King County ,569 20,277 20, % (6,025) 0 0 $19.68 E Pierce County ,917 7,400 7, % (42) 0 0 $17.95 Edmonds/Lynnwood 174 1,132,490 88,517 88, % 1, $19.10 Everett CBD 242 1,568, , , % (7,507) 0 0 $16.80 Federal Way/Auburn 203 1,709,948 62,506 62, % (9,380) 0 0 $18.30 Fort Lewis 8 28, % $0.00 Gig Harbor/W Pierce Co ,291 41,779 41, % 10, $17.86 I-90 Corridor ,555 11,590 11, % (3,488) 0 0 $19.43 Kent Valley ,273 45,762 45, % 39, $15.21 Kirkland ,703 34,281 34, % 4, $26.11 Lake Union ,304 35,622 36, % 39, $16.50 Mercer Island ,566 25,271 25, % 2, $24.58 Mill Creek/Woodinville ,031 24,061 24, % 5, $19.45 N Snohomish County ,156 33,460 33, % 5, $14.56 Northgate/N Seattle ,410 35,602 35, % (1,704) 0 0 $18.60 Pioneer Sq/Waterfront 46 1,141,615 69,209 75, % (28,135) 0 0 $20.44 Puyallup ,748 21,865 21, % 4, $20.60 Queen Anne/Magnolia 127 1,072,435 99, , % 12, $21.77 Redmond ,745 43,941 43, % (8,155) 0 0 $26.46 Renton/Tukwila ,468 77,052 77, % 16, $20.84 S Everett/Harbor Point ,663 28,606 28, % 4, $14.62 S Seattle 207 1,962,816 75,716 81, % 5, $16.83 S Snohomish County ,423 9,031 9, % 4, $14.87 Seatac/Burien ,809 59,752 59, % (928) 0 0 $14.65 Seattle CBD ,683 15,041 15, % 3, $24.06 Spanaway ,540 25,412 27, % (2,182) 0 0 $18.18 Suburban Bellevue 184 1,563,760 98, , % (42,400) 0 0 $23.98 Tacoma CBD 164 1,894, , , % 27, $16.24 Tacoma Suburban 486 2,313, , , % 44, $16.30 Univ. Place/Lakewood 199 1,081, , , % (3,944) 0 0 $18.17 Totals 4,341 30,280,813 1,906,020 1,946, % 70, $ THE COSTAR OFFICE REPORT 2013 COSTAR GROUP, INC.

18 Seattle/Puget Sound Office Market FIGURES AT A GLANCE THIRD QUARTER 2013 SEATTLE/PUGET SOUND Total Office Submarket Statistics Third Quarter 2013 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates 520 Corridor 142 8,750, , , % 41, $24.29 Ballard/U Dist 422 5,145, , , % 81,953 18, ,000 $24.72 Bellevue CBD 87 9,218, , , % 16, $34.44 Belltown/Denny Regrade 110 6,440, , , % 178,898 77,000 0 $26.36 Bothell/Kenmore 199 5,107, , , % 15, ,000 $24.51 Capitol Hill/Central Dist 226 6,073, , , % (21,306) 50,000 0 $36.25 Coal Creek/Issaquah 103 2,482, , , % 29, $30.46 Dupont 7 1,113,501 4,680 4, % $0.00 E King County 152 1,318, , , % (33,114) 0 0 $22.97 E Pierce County ,197 63,934 65, % 5, $21.20 Edmonds/Lynnwood 319 4,860, , , % 89,774 4,000 75,000 $22.40 Everett CBD 326 3,620, , , % (142,214) 0 0 $19.65 Federal Way/Auburn 338 5,380, , , % 172, $18.73 Fort Lewis 9 29, % $0.00 Gig Harbor/W Pierce Co 160 1,625, , , % (12,706) 3,372 0 $22.35 I-90 Corridor 82 6,107, , , % (292,769) 0 0 $29.29 Kent Valley 195 3,039, , , % (30,452) 0 0 $20.28 Kirkland 247 5,226, , , % 83, $27.95 Lake Union ,906, , , % 350, , ,425 $28.27 Mercer Island ,657 50,652 51, % 5, $29.27 Mill Creek/Woodinville 84 1,019, , , % 23,875 24,000 0 $25.37 N Snohomish County 175 1,090, , , % 13, $16.09 Northgate/N Seattle 179 2,272, , , % (21,562) 0 0 $22.55 Pioneer Sq/Waterfront 111 6,468, , , % 142, $26.15 Puyallup 198 1,776, , , % 1, $23.86 Queen Anne/Magnolia 204 5,517, , , % 74, ,883 0 $27.16 Redmond 188 7,514, , , % 66, $25.37 Renton/Tukwila 318 9,271, , , % (16,474) 0 0 $21.18 S Everett/Harbor Point 159 2,816, , , % 190, ,000 0 $22.27 S Seattle 295 5,362, , , % 103, ,602 $28.03 S Snohomish County ,796 27,195 27, % 10, $20.68 Seatac/Burien 203 2,491, , , % 30, $19.53 Seattle CBD ,486,870 3,508,230 3,739, % 88, $31.67 Spanaway 194 1,112, , , % 19, $19.14 Suburban Bellevue 383 6,835, , , % 52,433 18, ,570 $29.24 Tacoma CBD 255 6,175, , , % 137, ,000 57,350 $20.95 Tacoma Suburban 711 5,503, , , % 86, $18.80 Univ. Place/Lakewood 289 2,228, , , % (3,785) 0 0 $19.66 Totals 7, ,010,481 17,888,880 18,738, % 1,537, ,278 1,487,947 $ COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 13

19 SEATTLE/PUGET SOUND THIRD QUARTER 2013 Seattle/Puget Sound Office Market FIGURES AT A GLANCE Class A Market Statistics Third Quarter 2013 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates CBD 74 29,516,474 3,300,637 3,752, % 346, ,000 0 $33.03 Suburban ,186,900 2,745,322 2,859, % 921, ,492 1,351,597 $32.01 Totals ,703,374 6,045,959 6,611, % 1,268, ,492 1,351,597 $32.54 Class B Market Statistics Third Quarter 2013 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates CBD ,417,379 1,565,670 1,601, % (265,691) 0 57,350 $25.95 Suburban 2,713 84,608,915 8,371,231 8,578, % 464, ,786 79,000 $24.26 Totals 2,965 97,026,294 9,936,901 10,179, % 198, , ,350 $24.51 Class C Market Statistics Third Quarter 2013 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates CBD 457 4,567, , , % 19, $17.92 Suburban 3,884 25,713,101 1,524,480 1,565, % 51, $19.40 Totals 4,341 30,280,813 1,906,020 1,946, % 70, $19.19 Class A & B Market Statistics Third Quarter 2013 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates CBD ,933,853 4,866,307 5,353, % 81, ,000 57,350 $30.52 Suburban 2, ,795,815 11,116,553 11,437, % 1,385, ,278 1,430,597 $26.03 Totals 3, ,729,668 15,982,860 16,791, % 1,467, ,278 1,487,947 $27.27 Total Office Market Statistics Third Quarter 2013 YTD Net YTD Under Quoted Market # Blds Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates CBD ,501,565 5,247,847 5,735, % 100, ,000 57,350 $29.82 Suburban 6, ,508,916 12,641,033 13,002, % 1,437, ,278 1,430,597 $25.23 Totals 7, ,010,481 17,888,880 18,738, % 1,537, ,278 1,487,947 $ THE COSTAR OFFICE REPORT 2013 COSTAR GROUP, INC.

20 Seattle/Puget Sound Office Market FIGURES AT A GLANCE THIRD QUARTER 2013 SEATTLE/PUGET SOUND Class A Market Statistics Third Quarter 2013 Net Deliveries UC Inventory Period # Blds Total RBA Direct SF Total SF Vac % Absorption # Blds Total RBA # Blds Total RBA Rates ,703,374 6,045,959 6,611, % 646, , ,351,597 $ q ,572,664 6,585,968 7,128, % 387, , ,312 $ ,049,882 6,467,078 6,993, % 233, , ,094 $ q ,922,882 6,513,760 7,099, % 834, , ,094 $ ,318,590 6,680,174 7,329, % 81, , ,574,386 $ q ,167,098 6,628,121 7,260, % 1,019, , ,676,995 $ ,009,282 7,495,839 8,121, % 389, ,834,811 $ ,009,282 7,868,854 8,510, % 2,337, ,818, ,350,202 $ ,191,049 8,187,626 9,030, % 1,394, ,768, ,184,049 $ ,422,926 7,888,175 8,657, % (156,325) 14 3,938, ,171,812 $ ,484,660 3,854,671 4,562, % 402, ,751, ,625,561 $ ,732,933 2,713,355 3,213, % 1,437, ,472, ,011,208 $ ,260,774 2,409,709 3,178, % 2,011, ,084, ,484,763 $ ,176,774 2,794,892 4,106, % 1,166, , ,676,500 $ ,134,774 4,314,216 5,231, % 449, , ,666,000 $ ,690,554 3,874,897 5,236, % 883, ,220 $25.83 Quoted Class B Market Statistics Third Quarter 2013 Net Deliveries UC Inventory Quoted Period # Blds Total RBA Direct SF Total SF Vac % Absorption # Blds Total RBA # Blds Total RBA Rates ,965 97,026,294 9,936,901 10,179, % (3,327) 3 87, ,350 $ q 2,963 97,059,294 9,817,615 10,209, % (50,269) 2 42, ,350 $ ,961 97,016,880 9,604,022 10,116, % 252, , ,764 $ q 2,960 97,013,508 9,844,693 10,365, % 77, , ,136 $ ,958 96,993,166 9,898,596 10,423, % 23, , ,128 $ q 2,955 96,915,675 9,841,191 10,369, % 259, , ,205 $ ,955 96,948,820 10,176,827 10,662, % (151,761) 2 11, ,303 $ ,953 96,937,291 9,962,723 10,499, % 877, , ,450 $ ,943 96,547,312 10,099,376 10,986, % 871, , ,853 $ ,921 96,122,124 10,400,212 11,433, % (362,610) 37 1,304, ,635 $ ,887 94,875,552 8,997,534 9,824, % 1,463, ,811, ,263,623 $ ,825 92,086,640 7,950,220 8,498, % 1,375, ,326, ,124,542 $ ,773 91,126,895 8,360,590 8,913, % 2,441, , ,768,382 $ ,726 90,550,066 10,225,743 10,778, % 3,035, ,709, ,557 $ ,677 88,892,768 11,394,213 12,156, % 241, , ,559,051 $ ,643 88,516,947 11,123,010 12,022, % 527, , ,984 $19.99 Total Office Market Statistics Third Quarter 2013 Net Deliveries UC Inventory Quoted Period # Blds Total RBA Direct SF Total SF Vac % Absorption # Blds Total RBA # Blds Total RBA Rates , ,010,481 17,888,880 18,738, % 616, , ,487,947 $ q 7, ,923,127 18,303,092 19,267, % 397, , ,662 $ , ,380,144 18,057,027 19,122, % 523, , ,108,858 $ q 7, ,249,772 18,375,905 19,515, % 1,046, , ,099,230 $ , ,646,187 18,755,327 19,958, % 120, , ,662,514 $ q 7, ,436,652 18,664,530 19,869, % 1,208, , ,800,200 $ , ,360,864 19,847,640 21,002, % 190, , ,948,114 $ , ,365,683 19,981,496 21,197, % 3,342, ,219, ,470,652 $ , ,176,248 20,584,434 22,349, % 2,099, ,193, ,570,902 $ , ,052,191 20,502,506 22,325, % (1,076,275) 53 5,249, ,500,447 $ , ,898,123 14,498,353 16,095, % 1,681, ,625, ,895,814 $ , ,348,296 12,113,610 13,227, % 2,983, ,824, ,189,781 $ , ,109,869 12,625,806 13,972, % 4,621, ,021, ,271,815 $ , ,437,012 15,002,016 16,921, % 4,162, ,819, ,581,693 $ , ,695,778 17,625,472 19,342, % 998, ,363, ,290,670 $ , ,917,736 17,243,242 19,563, % 1,152, , ,998,936 $ COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 15

21 SEATTLE/PUGET SOUND THIRD QUARTER 2013 Seattle/Puget Sound Office Market LEASING ACTIVITY Historical Rental Rates Based on Full-Service Equivalent Rental Rates A B C Total Market Dollars/SF/Year $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $ by Available Space Type by Class Percent of All Vacant Space in Direct vs. Sublet Percent of All Vacant Space by Class Seattle/Puget Sound United States Seattle/Puget Sound United States 5% 4% 10% 17% 55% 35% 49% 34% 95% 96% Direct Sublet Direct Sublet Class A Class B Class C Class A Class B Class C U.S. Rental Rate Comparison Based on Full-Service Equivalent Rental Rates Future Space Available Space Scheduled to be Available for Occupancy* $30.00 Seattle/Puget Sound United States $ Dollars/SF/Year $20.00 $15.00 $10.00 $5.00 Millions $0.00 4q 2q 4q q q q q 2015 * Includes Under Construction Spaces 16 THE COSTAR OFFICE REPORT 2013 COSTAR GROUP, INC.

22 Seattle/Puget Sound Office Market LEASING ACTIVITY THIRD QUARTER 2013 SEATTLE/PUGET SOUND Select Top Office Leases Based on Leased Square Footage For Deals Signed in 2013 Building Submarket SF Qtr Tenant Name Tenant Rep Company Landlord Rep Company 1 The Russell Bldg Tacoma CBD 218,900 2nd State Farm Insurance Flinn Ferguson Corporate R.E. Neil Walter Company Elliott (Seattle Trade & Technology Ctr) Belltown/Denny Regrade 148,112 2nd Zulily N/A Jones Lang LaSalle 3 Metropolitan Park North Tower Seattle CBD 133,582 2nd Amazon.com, Inc. N/A Colliers International 4 Millennium Corporate Park - Bldg C Redmond 99,945 2nd Microsoft CBRE Jones Lang LaSalle 5 Sammamish Park Place Coal Creek/Issaquah 95,600 1st Costco Colliers International Washington Partners Corporate Real 6 Home Plate Center - North Bldg S Seattle 85,676 2nd RealNetworks, Inc. Kidder Mathews CBRE 7 Columbia Bank Center Tacoma CBD 73,004 2nd State Farm Flinn Ferguson Corporate R.E. Neil Walter Company 8 One Union Square* Seattle CBD 71,461 3rd Stoel Rives LLP Cushman & Wakefield of Oregon, Inc. Direct Deal 9 Columbia Center Seattle CBD 64,838 3rd U.S. Department of Health and Human Services N/A The CAC Group 10 City Center Bellevue* Bellevue CBD 54,290 1st HDR Engineering N/A N/A 11 Second & Spring Bldg Seattle CBD 51,190 3rd N/A N/A Urbis Partners Union Station Pioneer Sq/Waterfront 49,724 1st Intel Jones Lang LaSalle CBRE 13 Overlake Medical Pavilion Suburban Bellevue 47,427 2nd Overlake Hospital N/A CBRE 14 Russell Investments Center Seattle CBD 45,166 2nd Zillow, Inc. Flinn Ferguson Corporate R.E. CBRE 15 West Building Puyallup 44,661 3rd N/A N/A CBRE Carillon Point Kirkland 42,122 3rd N/A N/A Broderick Group, Inc. 17 Sixty 1 Hundred S Seattle 40,321 3rd N/A N/A The Andover Company, Inc. 18 Sunset Corporate Campus - Bldg 2 I-90 Corridor 37,468 3rd Booking.Com CBRE CBRE 19 One Bellevue Center Bellevue CBD 37,458 2nd EBay N/A Broderick Group, Inc. 20 Highlands Campus Tech Ctr - Bldg A Bothell/Kenmore 36,081 1st N/A N/A Broderick Group, Inc. 21 Laguna South 520 Corridor 34,738 3rd N/A N/A Colliers International 22 Zetron Headquarters Redmond 34,661 2nd N/A N/A Broderick Group, Inc. 23 Bdg A th Court Suburban Bellevue 34,360 1st Trane CBRE Jones Lang LaSalle 24 Smith Tower Seattle CBD 32,593 2nd Dolce Vita Footwear, Inc N/A CBRE University Pioneer Sq/Waterfront 32,000 1st Synapse N/A Kidder Mathews 26 Ranch Building Kent Valley 29,761 1st Puget Sound Energy N/A Hill-Raaum-Pietromonaco 27 Kirkland 405 Corporate Center - Bldg A2* Kirkland 28,941 2nd Market Leader, Inc. Washington Partners Corporate Real N/A 28 Kirkland 405 Corporate Center - Bldg A2* Kirkland 28,941 1st Market Leader, Inc. Direct Deal N/A North 34th Lake Union 25,761 1st Tableau Software Llc N/A Jones Lang LaSalle 30 IBM Building Seattle CBD 24,518 2nd University of Washington N/A Unico Properties LLC 31 Redmond Hilltop Bldg 19* Redmond 23,919 1st Microvision, Inc. Washington Partners Corporate Real Broderick Group, Inc. 32 Columbia Center Seattle CBD 23,761 3rd NBC News N/A The CAC Group 33 Overlake Medical Pavilion Suburban Bellevue 23,664 3rd Eating Recovery Center N/A CBRE Elliott (Seattle Trade & Technology Ctr) Belltown/Denny Regrade 22,905 3rd Zulily N/A Jones Lang LaSalle 35 5th & Bell Bldg Belltown/Denny Regrade 22,624 1st Institute for Health Metrics and Evaluation Kinzer Real Estate Services Broderick Group, Inc. 36 Ridgewood CS/Bldg G Suburban Bellevue 22,461 2nd Regus CBRE CBRE 37 Wells Fargo Center Seattle CBD 22,179 2nd Madrona Ventures N/A Jones Lang LaSalle 38 Smith Tower Seattle CBD 22,056 2nd N/A N/A CBRE 39 Ridgewood CS/Bldg G Suburban Bellevue 21,361 1st CompuCom N/A CBRE 40 Metropolitan Park West Seattle CBD 20,061 1st N/A N/A Broderick Group, Inc. * Renewal 2013 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 17

23 SEATTLE/PUGET SOUND THIRD QUARTER 2013 Seattle/Puget Sound Office Market SALES ACTIVITY The Optimist Sales Index Average of Two Highest Price/SF's and Two Lowest Cap Rates Per Quarter 9.0% Cap Rate Price/SF $700 Cap Rate Percentage 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% $600 $500 $400 $300 $200 $100 Dollars/SF 0.0% q 2q 4q 2q 4q q $0 Source: CoStar COMPS Sales Volume & Price Sales Analysis by Building Size Based on Office Building Sales of 15,000 SF and Larger Based on Office Building Sales From July - June 2013 Sales Volume Price/SF Bldg Size # RBA $ Volume Price/SF Cap Rate $3,000 $600 Millions of Sales Volume Dollars $2,500 $2,000 $1,500 $1,000 $500 $500 $400 $300 $200 $100 Price/SF < 50,000 SF 146 1,534,183 $ 270,454,033 $ % 50K-249K SF 20 2,008,744 $ 492,799,600 $ % 250K-499K SF 9 3,315,873 $ 1,223,121,936 $ % $ $0 >500K SF 4 4,555,192 $ 2,467,603,799 $ % Source: CoStar COMPS Source: CoStar COMPS U.S. Price/SF Comparison Based on Office Building Sales of 15,000 SF and Larger U.S. Cap Rate Comparison Based on Office Building Sales of 15,000 SF and Larger $520 Seattle/Puget Sound US 9.0% Seattle/Puget Sound US Dollars per SF $470 $420 $370 $320 $270 $220 $170 $120 $70 Cap Rate Percentage 8.0% 7.0% 6.0% 5.0% 4.0% $ q q 2q 4q 2q 4q q 3.0% q q 2q 4q 2q 4q q Source: CoStar COMPS Source: CoStar COMPS 18 THE COSTAR OFFICE REPORT 2013 COSTAR GROUP, INC.

24 Seattle/Puget Sound Office Market SALES ACTIVITY THIRD QUARTER 2013 SEATTLE/PUGET SOUND 2013 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 19