NEWSLETTER. Colton Commercial & Partners, Inc. Quick Trends Statistics COLTON. State of the Market. San Francisco Q The Calm Before the Storm?

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1 Colton Commercial & Partners, Inc. Quick Trends Statistics The Calm Before the Storm? Citywide Average Vacancy Citywide Average Asking Rates Class A Buildings Asking Rates Class B Buildings Asking Rates Sublease Inventory Unemployment Rate Money is like gasoline on a road trip. You don t want to run out of gas on your trip, but you re not doing a tour of gas stations. - Tim O Reilly, O Reilly Media COLTON commercial & PARTNERS An API Global Affiliate Albeit the commercial office market is still bustling in, it is interesting to eamine the market dynamics from a historical perspective. Of the eight office buildings currently under construction in that are over 100,000 square feet in size, only two have been preleased: 270 Brannan St. (182,000 square feet) with Splunk as the anchor tenant and 375 Beale St. (529,232 square feet) with the MTC and Twilio as the anchor tenants. Below is a list of other large new office buildings currently available and larger than 100,000 square feet, as of the date of this publication: Salesforce Tower 1,420,081 square feet +/60% preleased Park Tower at Transbay 751,500 square feet +/0% preleased The Echange at 16th 740,000 square feet +/- 0% preleased 350 Bush St. 432,975 square feet +/0% preleased 181 Fremont St. 432,094 square feet +/0% preleased 100 Hooper 408,000 square feet +/- 0% preleased The above inventory alone accounts for 4,184,650 +/- square feet of new direct space available by landlords. However, it will take one to two years before these buildings are ready for occupancy. However, for now the game changer, in terms of rents, may be the amount of sublease inventory currently on the market. There are 271 sublease spaces currently available, consisting of over 1,620,000 square feet. What are the conclusions? When the amount of sublease space rises to these levels, history shows us that rents will be driven downward as landlords are forced to compete on a dollarfor-dollar basis with lesser priced sublease space. Additionally, a majority of sublease spaces are offered on a plug and play basis. This phenomenon has been true of the last three down cycles. The question is, are we at the precipice of a down cycle? 565 Commercial Street, 4th Floor, CA P: F:

2 COLTON COMMERCIAL & PARTNERS RECENTLY CLOSED TRANSACTIONS Top 10 Recent Leases* TENANT ADDRESS LEASE TYPE SQUARE FEET +/- Airbnb 999 Brannan St. 150,000 Location: 1244 Sutter Street Represented: ARGONAUT Quantcast WeWork 795 Folsom St. 600 California St. 94,988 72,963 Location: 2720 Taylor Street Represented: SF Medical Society Broker: Jay D. Shaffer Bain & Company 415 Mission St. 69,489 Location: 446 Bryant Street Represented: CMG Landscape Architecture Broker: M. Walker Restoration Hardware Twilio Pier Main St. 60,000 58,290 Location: 425 Bush St. Represented: JHANA Broker: J. Shaffer, A. Galindo Uber 1455 Market St. 48,876 Location: 1151 Mission Street Represented: 1151 Mission, LLC Tea Collection Spigit Pier Battery St. 45,000 43,438 Location: 505 Sansome Street Represented: Undisclosed Law Firm Location: 501 2nd Street Represented: Quizlet Broker: M. Walker, A. Galindo Property: Mied-Use Building Location: 1292 Market Street Represented: RAMS Broker: J. Shaffer Location: 109 Stevenson Street Represented: Landlord & Tenant, I. Osborne Sephora USA, Inc. 525 Market St. Top 5 Recent Sales** ADDRESS PRICE PRICE persf RBA 1355 Market St. $917,427,000 $ ,046, Fremont St. $640,000,000 $ ,412 28,277 * Year to Date BUYER JPMorgan Asset Management Salesforce Location: 605 Market Street Represented: Virtually Live Broker: J. Shaffer, A. Galindo, I. Osborne Location: 1 California Street Represented: LendingHome Broker: J. Shaffer 333 Bush St Brannan St. 160 Spear St. $378,500,000 $307,065,500 $197,700,000 $ $ $ , , ,253 Tishman Speyer TIAA-CREF Tishman Speyer ** Within the past 12 months

3 Market Data Asking Rents Are Being Driven By The Top 5% Of The Market SUB MARKET AVG ANNUAL ASKING RATE PER SF VACANCY RATE RENTAL RATE TREND N. Financial District $ % S. Financial District $ % Jackson Square $ % North Waterfront $ % Union Square $ % Yerba Buena $ % Civic Center $ % Rincon / South Beach $ % SOMA $ % Mission $ % S.F. Historical Unemployment Data 10% 8% 6% 4% 2% * *Projected Citywide Vacancy 10% 8% 6% 4% 2% 0% * *Projected

4 Picking the Right Space Before A Lease Gets Inked When searching for your company s net office space with your commercial real estate broker, there are countless variables that come into play. Your search likely starts with narrowing down the nearby availabilities based on desired location, followed by filters of square footage, lease term, and building amenities offered. If your real estate broker is savvy enough, he or she will advise you that these variables are just one piece of the equation. Getting a good understanding of the eisting conditions of the office space s interior build-out is critical for determining if the economies of the deal will make sense. Comparing an office suite in raw shell condition with a suite that was recently improved is like comparing apples and grapefruits. As early in the process as touring office space before a lease offer or before a Letter of Intent (LOI) is drafted, it should be acknowledged that the build-out planning process has begun. In many cases, it can be helpful to enlist the epertise of an architect to conduct what is called a fit plan, to determine how well the tenant will fit in the prospective suite. The architect will often see how many workstations, offices, conference rooms, and other rooms will fit into the eisting space. Once a fit plan has been developed, with input from other industry partners, a high-level estimate and schedule can be developed for the proposed space. In some spaces with a lot of eisting improvements, it may be strategic to reuse as much as possible; however in more shell condition spaces, it will be necessary to spend more tenant improvement dollars. Once the team has a 30,000 foot high view of what the tenant improvements should be, the economics of the leasing deal will start to present itself. Using the broker as the liaison, lease offers can be compared at each building based on how the total improvements compare to the landlord s contribution, i.e. the total out of pocket tenant improvements. There are other considerations one should consider when comparing potential spaces through the lens of a builder. Some questions to ask for contrasting a short list of office spaces: Do any of the candidate spaces have a higher risk for unforeseen conditions to present themselves? Older buildings or eisting tenant improvements that have not been updated in very long periods of time could present a greater chance of hidden conditions such as hazardous materials. Do any of the candidate spaces inherit code compliance issues that will be triggered when a permit is pulled? This could range from anything from ADA upgrades, life safety device coverage, sprinkler coverage, Title 24 upgrades, etc. What are some of the requirements of the building management and ownership at the various properties? It s helpful to know if one property has any special rules and regulations such as when certain activities can be performed. This can potentially sway the budget. Do the candidate buildings require union labor? If all things are equal but one building requires union labor and one doesn t, you guessed it, the build-out in the non-union labor building will not be as epensive as the one requiring union labor. These considerations will give you a nice head start in making sure your future build-out project runs smoothly before agreeing to move forward with selecting the suite in the first place. For more Information on Project Management Services Please Contact: Adam Felson afelson@coltoncommercialsf.com

5 Colton Commercial & Partners, Inc. Colton Commercial & Partners is a full-service commercial real estate firm specializing in Leasing, Investment Sales, Property Management and Project Management in and the Greater Bay Area. With over 160 years of combined eperience, our team of commercial real estate brokers bring service and epertise to a whole new level. Bradley L. Colton President bcolton@coltoncommercialsf.com License # Featured Transactions: Jay D. Shaffer Partner & Co-Founder jshaffer@coltoncommercialsf.com License # Robert J. Walker Broker Associate bwalker@coltoncommercialsf.com License # Mark D. Walker Senior Vice President mwalker@coltoncommercialsf.com License # R. Ian Osborne Senior Associate iosborne@coltoncommercialsf.com License # TENANT REPRESENTATION SERVICES is pleased to announce announce its representation representationof its Argonaut in the leasing and renovation of its new headquarters, the historic Avalon Ballroom building, located at 1244 Sutter Street in. Adon P. Galindo Senior Associate agalindo@coltoncommercialsf.com License # Adam K. Felson Argonaut was represented by: or of Project Management afelson@coltoncommercialsf.com Bradley L. Colton President Lic # Jay D. Shaffer Partner & Co-Founder Lic # Sonia C. Santiago Senior Project Manager ssantiago@coltoncommercialsf.com CONTACT US: or go to coltoncommercialsf.com COLTON commercial & PARTNERS 565 Commercial Street, 4th Floor, CA P: F: The foregoing is based upon information provided by others which we believe is accurate, however, no guarantee, warranty or representation is made. We recommend that all interested parties independently verify its accuracy and completeness.