The CoStar Office Report

Transcription

1 The CoStar Office Report M I D - Y E A R

2 MID-YEAR 2007 SAN DIEGO Table of Contents Table of Contents A Methodology B Terms & Definitions C Market Highlights & Overview CoStar Markets & Submarkets Employment & Tenant Analysis Employment & Unemployment Analysis Tenant Profiles Inventory & Development Analysis Construction Activity Map 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 Leasing Activity Map Leasing Activity Analysis Select Top Lease Transactions Sales Activity Analysis Sales Activity Analysis Select Top Sales Transactions Select Same Building Sales Select Land Sales Analysis of Individual CoStar Markets Central Suburban Market Downtown Market Hwy-78 Corridor Market I-15 Corridor Market North Cities Market North County West Market South/Southeast Corridor Market 2007 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT A

3 SAN DIEGO MID-YEAR 2007 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 33.6 billion square feet of coverage in 1.2 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 Advisory reports, or for information on CoStar s other products and services, please contact us at COSTAR, or visit our web site at Copyright 2007 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. 2 Bethesda Metro Center Bethesda, MD USA (800) NASDAQ: CSGP B THE COSTAR OFFICE REPORT 2007 COSTAR GROUP, INC.

4 MID-YEAR 2007 SAN DIEGO 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) 2007 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT C

5 SAN DIEGO MID-YEAR 2007 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 2007 COSTAR GROUP, INC.

6 OVERVIEW MID-YEAR 2007 SAN DIEGO San Diego s Increases to 10.9% Net Absorption Positive 589,875 SF in the Quarter The San Diego Office market ended the second quarter 2007 with a vacancy rate of 10.9%. The vacancy rate was up over the previous quarter, with net absorption totaling positive 589,875 square feet in the second quarter. Vacant sublease space decreased in the quarter, ending the quarter at 1,051,088 square feet. Rental rates ended the second quarter at $31.95, an increase over the previous quarter. A total of 27 buildings delivered to the market in the quarter totaling 763,399 square feet, with 4,397,028 square feet still under construction at the end of the quarter. Absorption Net absorption for the overall San Diego office market was positive 589,875 square feet in the second quarter That compares to positive 398,548 square feet in the first quarter 2007, positive 361,968 square feet in the fourth quarter 2006, and negative (64,214) square feet in the third quarter Tenants moving out of large blocks of space in 2007 include: Conexant Systems moving out of 85,497 square feet at Conexant Bldg; NextWave Wireless, Inc. moving out of 56,816 square feet at Corporate Plaza Bldg A; and Qualcomm, Inc. moving out of 34,615 square feet at Pacific Technology Center. Tenants moving into large blocks of space in 2007 include: Broadcom Company moving into 94,794 square feet at Discovery Corporate Center - Bldg. A; Amylin Pharmaceuticals, Inc. moving into 71,510 square feet at 9880 Campus Point Dr; and ViaSat moving into 60,000 square feet at Legacy NorthPointe - Bldg E - ViaSat Corporat. The Class-A office market recorded net absorption of positive 172,880 square feet in the second quarter 2007, compared to positive 614,776 square feet in the first quarter 2007, positive 127,947 in the fourth quarter 2006, and negative (206,504) in the third quarter The Class-B office market recorded net absorption of positive 363,794 square feet in the second quarter 2007, compared to negative (187,275) square feet in the first quarter 2007, positive 198,017 in the fourth quarter 2006, and negative (15,406) in the third quarter The Class-C office market recorded net absorption of positive 53,201 square feet in the second quarter 2007 compared to negative (28,953) square feet in the first quarter 2007, positive 36,004 in the fourth quarter 2006, and positive 157,696 in the third quarter Net absorption for San Diego s central business district was positive 230,372 square feet in the second quarter That compares to negative (110,800) square feet in the first quarter 2007, negative (1,782) in the fourth quarter 2006, and positive 38,964 in the third quarter Net absorption for the suburban markets was positive 359,503 square feet in the second quarter That compares to positive 509,348 square feet in first quarter 2007, positive 363,750 in the fourth quarter 2006, and negative (103,178) in the third quarter The office vacancy rate in the San Diego market area increased to 10.9% at the end of the second quarter The vacancy rate was 10.8% at the end of the first quarter 2007, 10.3% at the end of the fourth quarter 2006, and 9.7% at the end of the third quarter Rates by Class % Class A Class B Class C Total Market 18% 16% Rate 14% 12% 10% 8% 6% 4% COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 1

7 SAN DIEGO MID-YEAR 2007 OVERVIEW Class-A projects reported a vacancy rate of 16.3% at the end of the second quarter 2007, 15.8% at the end of the first quarter 2007, 15.0% at the end of the fourth quarter 2006, and 14.2% at the end of the third quarter Class-B projects reported a vacancy rate of 10.8% at the end of the second quarter 2007, 10.9% at the end of the first quarter 2007, 10.3% at the end of the fourth quarter 2006, and 9.5% at the end of the third quarter Class-C projects reported a vacancy rate of 5.7% at the end of the second quarter 2007, 6.0% at the end of first quarter 2007, 5.8% at the end of the fourth quarter 2006, and 6.0% at the end of the third quarter The overall vacancy rate in San Diego s central business district at the end of the second quarter 2007 decreased to 12.8%. The vacancy rate was 14.6% at the end of the first quarter 2007, 11.6% at the end of the fourth quarter 2006, and 10.8% at the end of the third quarter The vacancy rate in the suburban markets increased to 10.6% in the second quarter The vacancy rate was 10.3% at the end of the first quarter 2007, 10.1% at the end of the fourth quarter 2006, and 9.6% at the end of the third quarter Largest Lease Signings The largest lease signings occurring in 2007 included: the 220,092 square-foot lease signed by Amylin Pharmaceuticals, Inc. at Bridge Pointe Corporate Center in the North Cities market; the 168,066 square-foot lease signed by QUALCOMM at Parkway Business Center _ Bldg A in the North Cities market and the 158,076-square-foot lease signed by General Atomics at Parkway Business Center Bldg A in the I-15 Corridor market.. Sublease The amount of vacant sublease space in the San Diego market decreased to 1,051,088 square feet by the end of the second quarter 2007, from 1,197,268 square feet at the end of the first quarter There was 1,171,439 square feet vacant at the end U.S. Comparison Past 8 Quarters Rate 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% San Diego United States q q q q 2007 of the fourth quarter 2006 and 1,165,389 square feet at the end of the third quarter San Diego s Class-A projects reported vacant sublease space of 588,145 square feet at the end of second quarter 2007, down from the 625,044 square feet reported at the end of the first quarter There were 600,156 square feet of sublease space vacant at the end of the fourth quarter 2006, and 506,872 square feet at the end of the third quarter Class-B projects reported vacant sublease space of 390,657 square feet at the end of the second quarter 2007, down from the 512,897 square feet reported at the end of the first quarter At the end of the fourth quarter 2006 there were 525,802 square feet, and at the end of the third quarter 2006 there were 564,168 square feet vacant. Class-C projects reported increased vacant sublease space from the first quarter 2007 to the second quarter Sublease vacancy went from 59,327 square feet to 72,286 square feet during that time. There was 45,481 square feet at the end of the fourth quarter 2006, and 94,349 square feet at the end of the third quarter Sublease vacancy in San Diego s central business district stood at 89,091 square feet at the end of the second quarter It was 95,413 square feet at the end of the first quarter 2007, 99,983 square feet at the end of the fourth quarter 2006, and 70,409 square feet at the end of the third quarter Sublease vacancy in the suburban markets ended the second quarter 2007 at 961,997 square feet. At the end of the first quarter 2007 sublease vacancy was 1,101,855 square feet, was 1,071,456 square feet at the end of the fourth quarter 2006, and was 1,094,980 square feet at the end of the third quarter Rental Rates The average quoted asking rental rate for available office space, all classes, was $31.95 per-square-foot per year at the end of the second quarter 2007 in the San Diego market area. This represented a 0.6% increase in quoted rental rates from the end of the first quarter 2007, when rents were reported at $31.77 per-square-foot. The average quoted rate within the Class-A sector was $37.00 at the end of the second quarter 2007, while Class-B rates stood at $30.31, and Class-C rates at $ At the end of the first quarter 2007, Class-A rates were $37.29 per-square-foot, Class-B rates were $29.87, and Class-C rates were $ The average quoted asking rental rate in San Diego s CBD was $32.88 at the end of the second quarter 2007, and $31.84 in the suburban markets. In the first quarter 2007, quoted rates were $32.83 in the CBD and $31.65 in the suburbs. Deliveries and Construction During the second quarter 2007, 27 buildings totaling 763,399 square feet were completed in the San Diego market area. This compares to 10 buildings totaling 1,045,032 square Source: CoStar Property 2 THE COSTAR OFFICE REPORT 2007 COSTAR GROUP, INC.

8 OVERVIEW MID-YEAR 2007 SAN DIEGO feet that were completed in the first quarter 2007, 20 buildings totaling 985,711 square feet completed in the fourth quarter 2006, and 696,492 square feet in 13 buildings completed in the third quarter There were 4,397,028 square feet of office space under construction at the end of the second quarter Some of the notable 2007 deliveries include: Qualcomm Towers, a 450,000-square-foot facility that delivered in first quarter 2007 and is now 100% occupied, and DiamondView Tower, a 306,750-square-foot building that delivered in first quarter 2007 and is now 86% occupied. The largest projects underway at the end of second quarter 2007 were La Jolla Commons Office Tower, a 347,019-squarefoot building with 0% of its space pre-leased, and Cardinal Health, a 318,000-square-foot facility that is 100% pre-leased. Inventory Total office inventory in the San Diego market area amounted to 99,838,822 square feet in 4,445 buildings as of the end of the second quarter The Class-A office sector consisted of 25,964,833 square feet in 210 projects. There were 1,473 Class-B buildings totaling 47,428,073 square feet, and the Class-C sector consisted of 26,445,916 square feet in 2,762 buildings. Within the Office market there were 278 owner-occupied buildings accounting for 7,318,614 square feet of office space. Sales Activity Tallying office building sales of 15,000 square feet or larger, San Diego office sales figures fell during the first quarter 2007 in terms of dollar volume compared to the fourth quarter of In the first quarter, 15 office transactions closed with a total volume of $454,404,000. The 15 buildings totaled 1,601,874 square feet and the average price per square foot equated to $ per square foot. That compares to 21 transactions totaling $535,865,657 in the fourth quarter The total square footage in the fourth quarter was 1,863,719 square feet for an average price per square foot of $ Absorption & Deliveries Past 8 Quarters Millions SF (0.2) Source: CoStar Property 1.01 Net Absorption Total office building sales activity in 2007 was down compared to In the first three months of 2007, the market saw 15 office sales transactions with a total volume of $454,404,000. The price per square foot averaged $ In the same first three months of 2005, the market posted 21 transactions with a total volume of $897,437,136. The price per square foot averaged $ Cap rates have been higher in 2007, averaging 6.62% compared to the same period in 2005 when they averaged 6.50%. One of the largest transactions that has occurred within the last 4 quarters in the San Diego market is the sale of 401 W A St in San Diego. This 553,715 square foot office building sold for $181,000,000, or $ per square foot. The property sold on 3/7/2007. Reports compiled by: Paula Bonner CoStar Property and COMPS Research Manager, and Luke Andreen Research Associate (0.06) 0.36 Deliveries q q q q COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 3

9 SAN DIEGO MID-YEAR 2007 MARKETS CoStar Markets & Submarkets In analyzing metropolitan areas in the U.S., CoStar has developed geographic designations to help group properties together, called Regions, Markets and Submarkets. Regions 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. Regions are then divided into Markets, 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. Markets Central Suburban Downtown Hwy-78 Corridor Submarkets City Heights/University Kearny Mesa Mission Gorge Mission Valley Old Town Point Loma Rose Canyon/Morena Uptown/Hillcrest Downtown* Oceanside San Marcos/Vista I-15 Corridor Escondido Rancho Bernardo/Poway Scripps Ranch North Cities North County West South/Southeast Corridor Del Mar Hts/Carmel Valley Governor Park La Jolla Miramar Sorrento Mesa Torrey Pines/Sorrento Val UTC Carlsbad North Beach Cities East County South San Diego * Submarkets comprising the CBD. For statistics reference the CBD vs Suburban Figures at a Glance Page. 4 THE COSTAR OFFICE REPORT 2007 COSTAR GROUP, INC.

10 EMPLOYMENT AND TENANT MID-YEAR 2007 SAN DIEGO Total Employment by Industry Percent of Total Employment by Industry Total Employment Growth Total Number of Jobs Added Per Year 0% 7% 8% Natural Resources & Mining Construction 3.0% San Diego U.S. Average 16% Manufacturing 17% 4% 3% 6% Trade, Transportation & Utilities Information Financial Activities Professional & Business Services Education & Health Services Leisure & Hospitality Percent Growth 2.0% 1.0% 0.0% 12% Other Services 10% 17% Government -1.0% Source: Department of Labor, Bureau of Labor Statistics Office* Employment Growth Cumulative Growth in Office* Jobs Over the Past 5 Years Market Employment Growth Inventory Growth Difference Atlanta 7.90% 5.10% 2.80% Boston 5.20% 2.30% 2.90% Source: Department of Labor, Bureau of Labor Statistics Office* Employment Growth Number of Office* Jobs Added Per Year 4.0% San Diego U.S. Average 3.0% Chicago 7.00% 3.40% 3.60% Dallas/Ft Worth 15.10% 5.40% 9.70% Denver 6.50% 3.80% 2.70% Los Angeles 5.80% 1.80% 4.00% New York City 6.60% 1.20% 5.40% Seattle/Puget Sound 13.30% 3.60% 9.70% Tampa/St Petersburg 19.20% 6.60% 12.60% Percent Growth 2.0% 1.0% 0.0% -1.0% Washington 12.60% 7.90% 4.70% San Diego 6.10% 8.50% -2.40% Source: Department of Labor, Bureau of Labor Statistics Historical Unemployment Rates -2.0% Source: Department of Labor, Bureau of Labor Statistics. * Office employment is defined as jobs in the Information, Financial Activities, and Professional & Business Services industries 7.0% San Diego U.S. Average 6.0% Percent Unemployment 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% q q q q q q q q q Source: Department of Labor, Bureau of Labor Statistics COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 5

11 SAN DIEGO MID-YEAR 2007 EMPLOYMENT AND TENANT Tenant by Size Range Based on Total Number of Tenants Tenants by Lease Expiration Based on Total Square Footage of Tenants 75,000 SF & Up 1.7% % 50,000-74,999 SF 1.2% % 25,000-49,999 SF 3.0% % 10,000-24,999 SF 11.0% % 5,000-9,999 SF 16.4% 2,500-4,999 SF 22.4% % Up to 2,499 SF 44.3% % 0% 10% 20% 30% 40% 50% 0% 5% 10% 15% 20% Percentage of Tenants Percentage of Tenants Source: CoStar Tenant Source: CoStar Tenant Tenants by Industry SF Per Employee by Industry Based on Total Square Footage of Tenants Based on All Tenants Finance/Ins/RE 22.5% Law Firms Services 15.2% Services Manufacturing 13.7% Manufacturing Business-Service 11.3% Accountants Law Firms 8.9% Government Medical 8.9% Medical Retailers/Wholes 4.0% Engineers/Archit Government 3.9% Finance/Ins/RE Engineers/Archit 3.5% Retailers/Wholes Agri/Mining/Util 3.5% Business-Service Communications 2.7% Transportation Accountants 1.5% Agri/Mining/Util Transportation 0.5% Communications % 5% 10% 15% 20% 25% Percentage of Tenants SF Per Employee Source: CoStar Tenant Source: CoStar Tenant 6 THE COSTAR OFFICE REPORT 2007 COSTAR GROUP, INC.

12 INVENTORY & DEVELOPMENT MID-YEAR 2007 SAN DIEGO Construction Highlights in Select CoStar Markets Color Coded by Under Construction Square Footage as a Percentage of 2007 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 7

13 SAN DIEGO MID-YEAR 2007 INVENTORY & DEVELOPMENT Historical Deliveries Deliveries 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 I-15 Corridor 13 1,287, , % 20,276 99,075 Central Suburban , % 18,231 73,138 North Cities 5 920, , % 52, ,013 North County West , , % 15,761 11,329 Hwy-78 Corridor ,593 47, % 12,270 22,447 South/Southeast Corridor , , % 10,113 12,206 Downtown 1 80,000 60, % 51,448 80,000 Totals 116 4,397,028 1,530, % 22,461 37,905 Recent Deliveries Leased & Un-Leased SF in Deliveries Since 2003 Future Deliveries Preleased & Un-Leased SF in Properties Scheduled to Deliver 3.0 Leased Un-Leased 1,800 Preleased Un-Leased 2.5 1,600 1,400 Millions of SF Thousands of SF 1,200 1, T q q THE COSTAR OFFICE REPORT 2007 COSTAR GROUP, INC.

14 INVENTORY & DEVELOPMENT MID-YEAR 2007 SAN DIEGO Historical Construction Starts & Deliveries Square Footage Per Quarter Starting and Completing Construction 1.6 Construction Starts Deliveries Millions of SF q q q q q q q 2007 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 , , % $ , ,530 50,000 SF - 99,999 SF 6 445, , % $ , , ,000 SF - 249,999 SF 2 212,391 10, % $ , ,000 SF - 499,999 SF 2 756, , % $ , ,750 >= 500,000 SF % $ Recent Development by Tenancy Comparison Based on RBA Developed for Single & Multi Tenant Use Based on Total RBA 2007 Deliveries Currently Under Construction By Class By Space Type 37% 10% 26% 19% % 26% 81% 63% 90% Multi Single Multi Single Class A Class B Class C Multi Single 2007 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 9

15 SAN DIEGO MID-YEAR 2007 INVENTORY & DEVELOPMENT 10 THE COSTAR OFFICE REPORT 2007 COSTAR GROUP, INC.

16 INVENTORY & DEVELOPMENT MID-YEAR 2007 SAN DIEGO 2007 COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 11

17 SAN DIEGO MID-YEAR 2007 FIGURES AT A GLANCE Class A Market Statistics Mid-Year 2007 YTD Net YTD Under Quoted Market # Bldgs Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Central Suburban 28 3,233, , , % (141,566) 31, ,869 $35.44 Downtown 14 5,816,662 1,001,266 1,059, % 137, ,750 0 $35.09 Hwy-78 Corridor 4 316,523 9,409 12, % 14, ,336 $33.91 I-15 Corridor 22 2,311, , , % 115, ,178 1,161,754 $38.21 North Cities ,894, ,500 1,227, % 578, , ,851 $39.87 North County West 37 2,048, , , % 27, ,972 95,000 $33.83 South/Southeast Corridor 5 343,869 49,601 54, % 56,489 40,202 43,830 $28.54 Totals ,964,833 3,646,022 4,234, % 787,656 1,322,324 2,949,640 $37.00 Class B Market Statistics Mid-Year 2007 YTD Net YTD Under Quoted Market # Bldgs Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Central Suburban ,597,011 1,133,006 1,196, % 96,729 18,000 54,921 $26.73 Downtown 52 3,685, , , % (14,394) 0 80,000 $29.53 Hwy-78 Corridor 120 1,817, , , % 6,213 15, ,257 $28.94 I-15 Corridor 209 6,023, , , % (35,548) 66, ,222 $29.67 North Cities ,249,983 1,348,750 1,528, % (139,655) 0 375,215 $33.57 North County West 337 5,905, , , % 244, , ,483 $30.61 South/Southeast Corridor 120 3,149, , , % 18,489 44, ,290 $28.18 Totals 1,473 47,428,073 4,741,607 5,132, % 176, ,204 1,447,388 $30.31 Class C Market Statistics Mid-Year 2007 YTD Net YTD Under Quoted Market # Bldgs Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Central Suburban 1,112 11,078, , , % (9,580) 0 0 $20.96 Downtown 179 3,102, , , % (3,069) 0 0 $25.66 Hwy-78 Corridor 178 1,571,981 80,960 96, % (1,605) 4,903 0 $22.97 I-15 Corridor 311 2,654, , , % 6, $22.69 North Cities 146 2,687, , , % 19, $25.50 North County West 210 1,250,588 56,077 57, % 7, $26.49 South/Southeast Corridor 626 4,101, , , % 4,617 5,000 0 $19.06 Totals 2,762 26,445,916 1,436,687 1,508, % 24,248 9,903 0 $22.11 Total Office Market Statistics Mid-Year 2007 YTD Net YTD Under Quoted Market # Bldgs Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Central Suburban 1,476 26,909,305 2,254,378 2,387, % (54,417) 49, ,790 $27.74 Downtown ,604,681 1,521,242 1,610, % 119, ,750 80,000 $32.88 Hwy-78 Corridor 302 3,705, , , % 19,321 20, ,593 $29.50 I-15 Corridor ,989,418 1,592,503 1,691, % 86, ,701 1,287,976 $32.69 North Cities ,831,070 2,364,754 2,924, % 457, , ,066 $35.94 North County West 584 9,204,142 1,346,702 1,478, % 280, , ,483 $31.70 South/Southeast Corridor 751 7,594, , , % 79,595 89, ,120 $25.62 Totals 4,445 99,838,822 9,824,316 10,875, % 988,423 1,808,431 4,397,028 $ THE COSTAR OFFICE REPORT 2007 COSTAR GROUP, INC.

18 FIGURES AT A GLANCE MID-YEAR 2007 SAN DIEGO Class A Submarket Statistics Mid-Year 2007 YTD Net YTD Under Quoted Market # Bldgs Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Carlsbad 34 1,880, , , % (2,527) 143,972 95,000 $33.51 City Heights/University % $0.00 Del Mar Hts/Carmel Valley 41 3,390, , , % 91, ,832 $46.73 Downtown 14 5,816,662 1,001,266 1,059, % 137, ,750 0 $35.09 East County 2 126,465 3,019 4, % (700) 0 43,830 $27.17 Escondido 1 12,139 5,651 5, % 6, ,777 $39.91 Governor Park 3 208,528 52,605 52, % (12,060) 0 0 $28.82 Kearny Mesa 13 1,029, , , % (112,803) 31, ,780 $34.25 La Jolla 4 304,882 1,800 1, % 6, $35.10 Miramar 1 447, % $0.00 Mission Gorge % $0.00 Mission Valley 13 2,091, , , % (28,763) 0 91,089 $36.48 North Beach Cities 3 167,913 19,544 21, % 30, $41.74 Oceanside % ,610 $36.57 Old Town % $0.00 Point Loma 2 112,929 8,724 8, % $33.52 Rancho Bernardo/Poway 17 1,960, , , % 108, ,178 1,082,977 $38.41 Rose Canyon/Morena % $0.00 San Marcos/Vista 4 316,523 9,409 12, % 14, ,726 $33.43 Scripps Ranch 4 338,816 60,149 63, % $33.24 Sorrento Mesa 23 3,720, , , % 432, ,000 0 $32.77 South San Diego 3 217,404 46,582 49, % 57,189 40,202 0 $31.87 Torrey Pines/Sorrento Val 1 79, % $0.00 Uptown/Hillcrest % $0.00 UTC 27 3,743, , , % 59, ,019 $43.44 Totals ,964,833 3,646,022 4,234, % 787,656 1,322,324 2,949,640 $37.00 Class B Submarket Statistics Mid-Year 2007 YTD Net YTD Under Quoted Market # Bldgs Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Carlsbad 148 3,693, , , % 153, , ,674 $28.23 City Heights/University ,450 46,236 51, % 21, $24.40 Del Mar Hts/Carmel Valley ,433 57,659 68, % 4, $41.35 Downtown 52 3,685, , , % (14,394) 0 80,000 $29.53 East County ,000 31,110 31, % 4,248 7,555 66,000 $21.79 Escondido ,988 46,004 65, % 21,249 40,911 42,600 $29.95 Governor Park ,853 40,973 43, % 13, $36.67 Kearny Mesa 136 6,043, , , % 84,759 18,000 48,000 $26.19 La Jolla 36 1,013,500 30,504 30, % 14, $33.81 Miramar , , , % (29,987) 0 0 $24.50 Mission Gorge ,036 36,582 36, % 3, $23.86 Mission Valley 62 3,080, , , % (50,240) 0 0 $27.26 North Beach Cities 189 2,211, , , % 91,114 49,000 50,809 $36.85 Oceanside ,905 68,187 68, % 3,735 15, ,215 $28.62 Old Town ,449 25,479 27, % 4, $30.32 Point Loma ,217 98, , % 20, $28.19 Rancho Bernardo/Poway 97 4,047, , , % (116,588) 25,612 83,622 $30.58 Rose Canyon/Morena ,275 30,885 30, % (2,452) 0 0 $26.96 San Marcos/Vista 80 1,258,272 99,134 99, % 2, ,042 $29.22 Scripps Ranch , , , % 59, $26.78 Sorrento Mesa 98 4,675, , , % (185,355) 0 375,215 $30.23 South San Diego 69 2,197, , , % 14,241 36, ,290 $28.64 Torrey Pines/Sorrento Val 47 2,900, , , % (176,390) 0 0 $38.58 Uptown/Hillcrest 50 1,173,288 40,416 41, % 14, ,921 $26.66 UTC 58 3,355, , , % 219, $35.61 Totals 1,473 47,428,073 4,741,607 5,132, % 176, ,204 1,447,388 $ COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 13

19 SAN DIEGO MID-YEAR 2007 FIGURES AT A GLANCE Class C Submarket Statistics Mid-Year 2007 YTD Net YTD Under Quoted Market # Bldgs Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Carlsbad ,043 39,914 39, % (7,718) 0 0 $23.67 City Heights/University 205 1,171,241 50,212 50, % 6, $20.61 Del Mar Hts/Carmel Valley % $0.00 Downtown 179 3,102, , , % (3,069) 0 0 $25.66 East County 317 2,273, , , % 6, $17.49 Escondido 209 1,228,540 70,050 71, % 12, $20.84 Governor Park % $0.00 Kearny Mesa 130 2,282, , , % 17, $20.44 La Jolla ,717 12,429 12, % 20, $30.86 Miramar ,073 69,675 69, % (5,188) 0 0 $18.39 Mission Gorge 83 1,074, , , % (79,684) 0 0 $18.96 Mission Valley 62 1,482, , , % (18,599) 0 0 $21.54 North Beach Cities ,545 16,163 17, % 15, $37.15 Oceanside ,742 19,096 19, % 20,884 4,903 0 $33.94 Old Town ,307 11,530 11, % 7, $21.07 Point Loma 100 1,165,439 16,551 16, % 5, $20.27 Rancho Bernardo/Poway 89 1,164,238 74,228 78, % (10,845) 0 0 $25.67 Rose Canyon/Morena 167 1,351,159 51,562 54, % 11, $20.66 San Marcos/Vista 118 1,214,239 61,864 77, % (22,489) 0 0 $20.44 Scripps Ranch ,385 20,832 20, % 5, $19.16 Sorrento Mesa ,695 46,446 58, % (16,992) 0 0 $22.75 South San Diego 309 1,827,425 52,204 60, % (1,616) 5,000 0 $24.69 Torrey Pines/Sorrento Val ,568 26,939 26, % 21, $26.29 Uptown/Hillcrest 317 1,955,827 65,510 65, % 40, $23.84 UTC 3 35,000 1,015 1, % (1,015) 0 0 $38.74 Totals 2,762 26,445,916 1,436,687 1,508, % 24,248 9,903 0 $22.11 Total Office Submarket Statistics Mid-Year 2007 YTD Net YTD Under Quoted Market # Bldgs Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates Carlsbad 257 6,014,413 1,202,416 1,308, % 143, , ,674 $30.48 City Heights/University 222 1,695,691 96, , % 27, $22.20 Del Mar Hts/Carmel Valley 65 4,195, , , % 95, ,832 $45.15 Downtown ,604,681 1,521,242 1,610, % 119, ,750 80,000 $32.88 East County 370 3,352, , , % 9,781 7, ,830 $19.52 Escondido 295 2,240, , , % 40,104 40, ,377 $30.00 Governor Park ,381 93,578 96, % 1, $34.49 Kearny Mesa 279 9,355, , , % (10,352) 49, ,780 $27.58 La Jolla 120 2,076,099 44,733 44, % 41, $33.17 Miramar 43 1,651, , , % (35,175) 0 0 $23.62 Mission Gorge 98 1,583, , , % (75,829) 0 0 $19.84 Mission Valley 137 6,654, , , % (97,602) 0 91,089 $30.10 North Beach Cities 327 3,189, , , % 137,220 49,000 50,809 $37.29 Oceanside ,647 87,283 87, % 24,619 20, ,825 $30.73 Old Town ,756 37,009 39, % 12, $27.70 Point Loma 124 1,946, , , % 26, $26.59 Rancho Bernardo/Poway 203 7,172,650 1,157,742 1,231, % (19,331) 375,790 1,166,599 $34.20 Rose Canyon/Morena 189 1,658,434 82,447 85, % 8, $23.40 San Marcos/Vista 202 2,789, , , % (5,298) 0 190,768 $28.97 Scripps Ranch 44 1,576, , , % 65, $27.20 Sorrento Mesa 147 9,001, ,881 1,107, % 230, , ,215 $30.98 South San Diego 381 4,242, , , % 69,814 81, ,290 $28.37 Torrey Pines/Sorrento Val 63 3,914, , , % (155,056) 0 0 $36.92 Uptown/Hillcrest 367 3,129, , , % 54, ,921 $24.66 UTC 88 7,133, , , % 277, ,019 $40.27 Totals 4,445 99,838,822 9,824,316 10,875, % 988,423 1,808,431 4,397,028 $ THE COSTAR OFFICE REPORT 2007 COSTAR GROUP, INC.

20 FIGURES AT A GLANCE MID-YEAR 2007 SAN DIEGO Class A Market Statistics Mid-Year 2007 YTD Net YTD Under Quoted Market # Bldgs Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates CBD 14 5,816,662 1,001,266 1,059, % 137, ,750 0 $35.09 Suburban ,148,171 2,644,756 3,174, % 650,621 1,015,574 2,949,640 $37.41 Totals ,964,833 3,646,022 4,234, % 787,656 1,322,324 2,949,640 $37.00 Class B Market Statistics Mid-Year 2007 YTD Net YTD Under Quoted Market # Bldgs Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates CBD 52 3,685, , , % (14,394) 0 80,000 $29.53 Suburban 1,421 43,742,273 4,401,886 4,764, % 190, ,204 1,367,388 $30.36 Totals 1,473 47,428,073 4,741,607 5,132, % 176, ,204 1,447,388 $30.31 Class C Market Statistics Mid-Year 2007 YTD Net YTD Under Quoted Market # Bldgs Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates CBD 179 3,102, , , % (3,069) 0 0 $25.66 Suburban 2,583 23,343,697 1,256,432 1,325, % 27,317 9,903 0 $21.82 Totals 2,762 26,445,916 1,436,687 1,508, % 24,248 9,903 0 $22.11 Class A & B Market Statistics Mid-Year 2007 YTD Net YTD Under Quoted Market # Bldgs Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates CBD 66 9,502,462 1,340,987 1,427, % 122, ,750 80,000 $33.57 Suburban 1,617 63,890,444 7,046,642 7,939, % 841,534 1,491,778 4,317,028 $33.26 Totals 1,683 73,392,906 8,387,629 9,366, % 964,175 1,798,528 4,397,028 $33.29 Total Office Market Statistics Mid-Year 2007 YTD Net YTD Under Quoted Market # Bldgs Total RBA Direct SF Total SF Vac % Absorption Deliveries Const SF Rates CBD ,604,681 1,521,242 1,610, % 119, ,750 80,000 $32.88 Suburban 4,200 87,234,141 8,303,074 9,265, % 868,851 1,501,681 4,317,028 $31.84 Totals 4,445 99,838,822 9,824,316 10,875, % 988,423 1,808,431 4,397,028 $ COSTAR GROUP, INC. THE COSTAR OFFICE REPORT 15