San Mateo County Retail Report

Transcription

1 San Mateo County Retail Report Mid-Year 2011 Report Published By: Offices in Burlingame, Capitola, Monterey, Oakland, Palo Alto, Pleasanton, Sacramento, Salinas, San Francisco, San Jose, San Rafael, Santa Clara, Santa Rosa, Walnut Creek Burlingame Office 1350 Bayshore Highway Suite 900 Burlingame, CA Tel Fax Broker Lic #

2 San Mateo C TREND REVIEW Market Summary Office Report First Quarter 2010 Vacancy Rate As of the mid-year mark of 2011, shopping center vacancy within the San Mateo County retail market stood at 3.6%, reflecting a negligible increase in vacancy. Six months ago this number stood at 3.5%. One year ago, it stood at 4.2%. Despite the recent uptick, vacancy levels remain extremely tight. Asking rents for retail space in the region currently range anywhere from $12.00 to $45.00 per square foot (on an annual, triple net basis). The current average asking rent for shop space is $29.94 per square foot, down slightly from the $30.83 per square foot mark that was posted six months ago. Not all of the region s submarkets, however, have performed equally over the first half of Asking Rents Anchor Vacancy Shop Vacancy New Construction While overall vacancy is up nominally, vacancy numbers actually decreased in the North County trade area. This area includes the Brisbane, Burlingame, Colma, Daly City, Millbrae, Pacifica, San Bruno and South San Francisco communities and accounts for over 3.8 million square feet of space. Vacancy here dropped from 5.3% to 5.2% over the course of the past six months. Asking rents currently range from $18.00 to $45.00 per square foot, with an average asking rate for shop space of $ This is down from the $35.47 rate recorded six months ago. The Central County, with its inventory of nearly 2.5 million square feet of space, saw vacancy creep up ever so slightly from 2.5% to 2.6% over the past six months. This trade area includes the Foster City, Redwood Shores and San Mateo submarkets. The average asking rent for shop space here is $22.23 per square foot, down from $23.54 six months ago. Throughout this trade area we are currently tracking asking rents as low as $12.00 and as high as $36.00 per square foot. The South County market includes the Belmont, East Palo Alto, Half Moon Bay, Menlo Park, Redwood City and San Carlos trade areas. This market consists of 30 shopping centers and more than 3.8 million square feet of space. As with San Mateo s Central County markets, vacancy levels here remain extremely tight despite this quarter s uptick. Vacancy here climbed from 2.4% to 2.5% over the first half of Asking rents here range from $21.00 to $42.00 per square foot, but the marketwide average stands at $ This is up slightly from the $30.83 mark recorded at the close of Retail Review If one were to just look at the vacancy numbers, it would be easy to assume that the market had reached its high-water mark (in terms of retailer demand) as of the close of The Alameda, Contra Costa, Marin, Napa and San Mateo County retail markets all recorded modest increases in vacancy over the first six months of None of these were huge jumps and, indeed, the trends were not even within these trade areas. While overall vacancy at the county level may have notched up a few basis points, many of the individual submarkets within these trade areas still recorded decreased vacancy. Only the Santa Clara, Solano and Sonoma County markets recorded overall decreased vacancy levels. Yet, despite these numbers, retailer demand was up substantially over the past six months. Especially against the backdrop of the ongoing economic turmoil, it may be hard for anyone to believe that there has been some good news to report, but there actually is. In terms of retailer demand, the market has only seen continued improvement over the past six months. This quarter s Terranomics/Chainlinks National Retailer Demand Index places the current retailer demand level at seven, indicating a level of retailer demand that is slightly above average. At the same time last year, this reading stood at four, indicating a level of demand that is slightly below

3 San Mateo C Office Report First Quarter 2010 average. Only six of the 57 markets we surveyed failed to see increased demand levels over the past twelve months. The San Francisco retail market recorded a current retailer demand level of eight (indicating above average demand), compared to last year s reading of five (indicating the low end of average demand levels). For both the Oakland/East Bay and San Jose/Silicon Valley markets, these numbers translated into a current retailer demand level of seven (indicating slightly above average demand levels), up from last year s reading of five. Higher retailer demand and increased deal activity has also led to a strengthening position for landlords. This quarter s Terranomics/Chainlinks National Market Equilibrium Index reading was three, indicating that conditions currently favor tenants. One year ago this number stood at two, reflecting a marketplace where conditions heavily favored tenants. The numbers were much better for the Bay Area. The San Francisco retail market recorded a current equilibrium level of five (indicating equilibrium with a slight edge for tenants), compared to last year s reading of four (indicating that conditions slightly favor tenants). Both the Oakland/East Bay and San Jose/Silicon Valley markets also recorded current equilibrium index level of five, up from last year s reading of three (indicating conditions that favor tenants). Of course, considering the current economic storm clouds it is unclear if this trend will continue. There is a lag time in most real estate decisions, particularly for retailers. The expansion plans laid out in January might not result in deals being done until June with new stores possibly not opening until December. We have been watching retailer growth plans increase since the midyear point of As of Spring 2011 they stood at levels 40% above those recorded one year earlier. Heading into May s International Council of Shopping Centers event most retailers were still upping growth plans for late 2011 and early We have yet to see many backing away from those plans yet. However, should the current crisis of confidence worsen into a real recession, demand levels will almost certainly drop quickly. Of course, this does not fully explain why vacancy crept up (even if only by a modest amount) in five of the eight Bay Area markets that we track. How could demand and leasing activity be up, yet vacancy not drop? Certainly there is the issue of space being returned to the marketplace. The collapse of Blockbuster and Borders has translated into millions of square feet of space being returned to the market across the nation. But throughout the Bay Area, this has equated into just under 500,000 square feet of space being returned to the marketplace. This has been one factor mitigating growth over the first half of However, there is one other factor to consider. There is a disparity in trends that emerges when you break any given marketplace down by class. First-tier shopping centers in every market, even those with the highest levels of current vacancy, are posting improvement. They remain in high demand, are seeing the highest levels of deal activity and, in most cases, are already posting rental rate growth. We would define these properties as those that are within vibrant urban marketplaces, or located on top suburban intersections or trade corridors. They boast successful anchor tenants that help drive traffic to their centers and they have strong existing tenant mixes. There is a shortage of available space at these centers. We are also seeing improvement in second-tier shopping centers. Deal activity is spilling over from first-tier location to these centers. We define second-tier centers as being those that may be situated within vibrant urban marketplaces or even located on top suburban intersections or trade

4 San Mateo C Office Report First Quarter 2010 corridors, but if so, they are lacking either in terms of strong anchor tenants or tenant mix. More often, however, in built-out markets they are in secondary locations not on the main drag, but around the corner. They tend to be near the action, but near it. They also can be in primary locations in small trade areas, such as being the only supermarket-anchored shopping center in a small, bedroom community. Meanwhile, third-tier shopping centers remain challenged in nearly every single Bay Area market. These would be defined as the weakest locations within the urban or suburban core or weaker centers in smaller or rural areas. Unanchored strip retail, with a few exceptions, would largely fall into this category. This category also includes aging shopping centers challenged by obsolescence issues or in dire need of upgrades. The lack of small retail start-ups in the marketplace is having a particularly profound impact on these shopping centers. They uniformly boast the highest vacancy levels and rents remain under extreme downward pressure as owners of these properties are in fierce competition with one another to land tenants. Retailer demand remains strongly focused on first-tier centers. Our brokers report to us that in most of the Bay Area s markets that there is a shortage of this type of space. Many of these space users have opted to sign deals at second-tier centers. However, many other retailers have opted instead to sign deals at strong freestanding or urban retail locations. Because our survey only covers shopping centers, the occupancy growth being reflected by these property types are not reflected in our statistics. Lease Rate Trends Just as we are seeing a division in demand between first-tier, second-tier and third tier shopping centers, we are also seeing a divergence in lease rate trends for all of these properties throughout the Bay Area. First-tier properties throughout the region are recording rental rate growth and are succeeding in commanding top dollar for their spaces. However, vacancy for these centers is extremely tight. The region now has a shortage of premium space available and this is starting to impact deal flow. Developers are beginning to be active again, with multiple projects in the final pre-development stages, but it will likely be 2012 before we begin to see most of the projects in the pipeline moving dirt. With first-tier space increasingly hard to find, much of this activity has spilled over to stronger freestanding or urban retail locations (which our statistics do not track) or second-tier shopping centers. Rents have largely stabilized for second-tier shopping centers, with most of these posting rental rate growth, however, the strength of these gains are almost entirely dependent upon local submarket vacancy levels. For some second-tier centers, the growth has been strong. For others, it has been modest at best. Third-tier centers, however, continue to face challenges. Competition for tenants remains fierce for these projects and downward pressure on rents continue to be the norm. With both first and second-tier shopping centers recording rental rate growth, it may come as a surprise that a good number of the markets that we track recorded a decline in average asking rents over the first half of The average asking rent for shop space in Alameda, Marin, Napa, San Mateo and Sonoma Counties all posted modest overall decreases. This would seem counter-intuitive considering that some of these trade areas are where vacancy levels remain extremely low. There is a simple explanation for this. Our average asking rent numbers are based upon spaces that are currently available and being marketed for lease. They are not based on actual completed deals. In many of these markets (such as San Mateo County), vacancy levels are now so low that what is still left on the market is often the most challenged space. In other words, it is not unlike the clearance rack that has been picked over at a bargain sale what little remains continues to see price reductions.

5 San Mateo C Office Report First Quarter 2010 This is also why we saw modest increases in the asking rates for some of the trade areas in the region where vacancy is slightly higher. The Contra Costa, Santa Clara and Solano County markets all posted modest overall increases. All of these markets have vacancy levels that remain above the 5% mark. Though vacancy ticked up slightly over the first half of the year in the Contra Costa marketplace, Santa Clara and Solano Counties both recorded occupancy growth. Yet, in all of these cases, there remains enough premium space available in the marketplace that rental rate growth being recorded by first and second-tier properties is being reflected in average asking rate totals. Here there still remains quality space available for lease, though, like everywhere else in the Bay Area, it is moving relatively quickly. Looking Forward As this report went to press, the entire U.S. economy stood at a crossroads. Revised numbers from the Commerce Department painted a picture of a weakening economy during the first half of First quarter GDP growth was downgraded to just 0.4% and second quarter numbers came in at just 1.3%. Meanwhile, consumer spending, which had held its own even in the face of rising gas prices, finally fell in June the first decline since September of Job cuts reached a 16- month high in July. But all of this bad news was overshadowed by the circus of the debt ceiling debate, a fiasco that unnecessarily damaged confidence in the U.S. economy at a time in which it was already fragile. The damage in confidence was enough that, even with a last minute deal in place, stocks plummeted throughout the week in Wall Street s worst performance since the height of the Great Recession. This was followed by the announcement from Standard & Poor s that they were lowering the United States long-term sovereign credit rating from AAA to AA+. In explaining their announcement, Standard & Poor explained, We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process Our lowering of the rating was prompted by our view on the rising public debt burden and our perception of greater policymaking uncertainty, consistent with our criteria. For the past year, we have been warning that a lack of governmental policy clarity was one of the factors holding back the economic recovery. We now have reached a painful point at which governmental dysfunction itself may now be the biggest threat to the economy. Sadly, if the debate over the debt ceiling is the blueprint for our political discourse until the next election, it appears that we may have fifteen more months of contention. Considering the impact on investor confidence that we are now seeing over this one, the signs are foreboding. It is still uncertain what the full impact of S&P s downgrade will be. Most analysts believe it will almost certainly result in increased borrowing costs for the government and higher interest rates on most consumer loans, ranging from credit cards and auto loans to variable rate mortgages. This, of course, is coming at a time in which the economy needs it least. But there is no doubt as to what the short-term impact of all of this news is. As this report went to press, the stock market had plummeted and had yet to stabilize. Ironically, though the debt ceiling debate and S&P s ensuing downgrade of U.S. credit were the touchstones of these events, little else has actually changed in the U.S. economy. The underlying fundamentals are those of a fragile economy struggling to find footing in a weak recovery not those of a recessionary economy. Corporate profits and balance sheets are up. Employment growth, though exceedingly weak, has remained in modestly positive territory. Energy prices the culprit behind much of the

6 San Mateo C Office Report First Quarter 2010 economic weakness recorded over the first half of the year are retreating. The problem is not that the economic picture worsened that much. It is that the nation currently finds itself in the midst of a politically self-inflicted crisis of confidence. Ironically, even in the panicked selloff of stocks, what did many investors turn to? Bonds, backed by the full faith and credit of you guessed it, the United States of America the one asset that actually was directly impacted by S&P s downgrade. It is unclear what the impact of this ongoing crisis of confidence will be. Should the stock market stabilize quickly, much of the damage we have seen in early August can be undone. But, if cooler heads do not prevail quickly, there could be dire consequences. We would not have made this statement a month ago, but the threat of a double-dip recession is now real, although we still think unlikely. Wells Fargo and Bank of America economists put the current chances at about one in three. Other analysts estimate the chances ranging from 50/50 to one in four. The economy is clearly at a crossroads. If cooler heads prevail, this crisis of confidence will fade. With the exception of June s weak numbers, consumer spending has been one of the few bright spots of the recovery. Despite all of the recent bad economic news, retail sales actually increased by 0.5% in July. This is the biggest increase that the market has seen in four months. Yet, on the same day that this good news broke, there also came foreboding news regarding consumer sentiment. The Thomsen Reuters/University of Michigan preliminary index of consumer sentiment dropped from 63.7 in June to 54.9 in July. This marks the lowest level that this survey has recorded since May The relationship between consumer confidence and consumer spending is a loose one. Throughout the recession we saw months where confidence surged as sales fell and vice versa. But, in the long run, consumer spending patterns almost always follow consumer confidence ratings. It just sometimes takes a few months for low sentiment to translate into depressed spending or for improved confidence to play out as increased sales activity. That being said, the real question ahead of us now is whether consumers will continue to spend and keep this fragile economy afloat. While retailer demand has been up across the board, it is difficult to imagine a scenario in which it is not impacted in the immediate future. Should the stock market stabilize, consumer sentiment improve and consumer sales hold up, we will avert a double-dip recession. The jitters of August would then likely just translate into another delay on the road to a more robust recovery. In this case, we would expect the impact on retail demand to be minimal. This would especially be the case in the Bay Area thanks to its current strength as one of the top retail markets in the U.S. and because moves made by well-funded tech companies in the region (the San Francisco, San Mateo and Silicon Valley Office and R&D markets are currently experiencing a massive boom in leasing activity), point to strong job growth in the region in Should, however, the economy fall into a double-dip recession, many retailers will pull back from planned growth for Worse yet, should the current crisis of confidence turn into another recession, it is a certainty that there will be more retailer bankruptcies and more space returned to the market.

7 San Mateo C Notable Lease Transactions at Mid-Year 2011 Tenant Address City Rentable SF Office Report First Quarter Verizon Wireless Carlmont Village Belmont 1,959 2 Yoppi Yogurt Carlmont Village Belmont 1,221 3 SportsZal Belmont Plaza Belmont 1,193 4 Union Bank Safeway Center Burlingame 3,767 5 Pizza My Heart Safeway Center Burlingame 2,082 6 Massage Envy 1209 Howard Ave Burlingame 4,475 7 Cooking Papa Restaurant Edgewater Place Foster City 3,700 8 Great Clips 979 Broadway Millbrae 1,098 9 Ike s Sandwich 2655 Broadway Redwood City 1, Old Spaghetti Factory On Broadway Center Redwood City 10, San Mateo Credit Union On Broadway Center Redwood City 4, Fitness Woodside Rd Redwood City 6, Big 5 Sporting Goods 855 El Camino Real San Bruno 9, Supercuts The Crossings San Bruno 1, Patelco Credit Union The Crossings San Bruno 2, Bedrooms and More 280 El Camino Real San Carlos 6, Chase Bank Central Park San Mateo 3, Max s Café 164 S. B St San Mateo 4, Sally Beauty Supply Parkside Plaza San Mateo 3, The Habit Burger Park Place at Bay Meadows San Mateo 2,524 Retail Investment Outlook Over the first six months of the year, just under $6 billion in commercial properties were traded throughout the Bay Area. Retail investment properties accounted for 20% of all transactions, or approximately $1.2 billion in total sales volume. We are aware of a total of 46 properties that have traded throughout the Bay Area over the first six months of the year (this total does not include user sales), with an average cap rate of 7.1%. Over the course of 2010, the average cap rate for retail investment sales was 8.3%. Over the course of last year, a total of 40 retail investment properties traded accounting for just under $1.3 billion in total volume. Through the first six months of this year we have already seen more properties traded than last year and total deal volume has almost matched last year s totals. Of the 46 properties traded so far this year, 18 were in the East Bay, 12 were in the Silicon Valley, eight were in the North Bay, five in San Francisco and three were on the San Francisco peninsula. The average price per square foot of retail investment properties sold throughout the Bay Area over the first half of 2011 is $ East Bay properties have averaged $ per square foot with a 6.6% cap rate. North Bay sales have averaged $ per square foot and a 6.0% cap rate. San Francisco retail properties achieved an average price of $ per square foot and an 8.5% cap. Peninsula investment sales averaged $ per square foot and a capitalization rate of 7.6%. Silicon Valley retail investment transactions averaged $ with a 7.5% cap rate. While investment activity has nearly doubled over last year s levels, activity has actually been hampered by a lack of available product for sale. REITs have been extremely active, having

8 San Mateo C Office Report First Quarter 2010 raised over $4 billion on Wall Street over the past couple of years. Meanwhile, the pool of buyers has also increased as equity funds, private and institutional investors have become more active. The pool of would-be buyers has increased substantially, however, investor demand remains mostly focused on just a few property types. Buyers continue to seek the most stable of assets; trophy shopping centers with high levels of occupancy and single-tenant net leased properties. As the year has progressed, we have begun to see investor interest spreading to shopping centers with occupancy issues as well as value-add properties. That being said, the current economic turmoil could change this dynamic. Should the markets return to stability and the economy successfully emerge from the current crisis of confidence, we expect this trend to be slowed somewhat in the near-term, but to escalate as we emerge from the jitters. However, should the economy sink into a double-dip recession, we expect demand for riskier investments to drop substantially. It is unclear as to how the current economic turmoil will impact the investment market. In the short term, it could result in a surge of sales activity. Investors fleeing the instability of the stock market have already shown themselves willing to buy Treasury bills at a return rate as low as 2.1%. The irony here is that government bonds were exactly the investment type that was downgrade by Standard & Poor s. Yet, where have investors gone to seek security? Government bonds. But, keep in mind that a return rate of 2.1% is below the core inflation rate. In other words, in exchange for a safe haven, investors are literally willing to pay the government to hold their money. So, is there a good chance that many investors will seek out retail investment properties? Absolutely, however, they will likely be chasing the very same investment types currently in high demand and short supply; stabilized core assets, trophy shopping centers with high occupancy levels and single-tenant net leased investments that are leased to strong national credit tenants. San Mateo County Retail Market Notable Sale Transactions Mid-Year 2011 Sale Price Total SF Property Sale Date Seller Buyer Price PSF Cap Rate 1. Office Depot $11,840,000 30,978 One Liberty Avery H Smith & 1761 E Bayshore Rd $ /2011 Properties Company East Palo Alto, CA 7.6% 2. Villa Square 4060 S. El Camino Real San Mateo, CA 3. Bridgepointe Shopping Center 2011 Chess Dr San Mateo, CA 4. Watry Building 801 Hamilton St Redwood City, CA 5. Bank Building 195 E 4 th Ave San Mateo, CA 13,562 06/2011 6,000 05/ ,400 06/ ,788 06/2011 VCL Properties United Growth Watry Design Group Syme Trust Tribeca Companies Cashin Company Family Tree Kiely Associates Anton Qui Living Trust $4,800,000 $ N/A $4,350,000 $ % $3,995,000 $ N/A $3,380,000 $ %

9 Leasing Market Summary (Centers 30,000 square feet and greater) City Total Availability Vacancy *Avg. Asking Market Rent Centers Total GLA Anchor Shop Total MY-11 MY-10 Rate (Shop) Range Daly City 8 1,232,238 27,992 28,971 56, % 4.6% $38.31 $24.00-$45.00 Colma 4 602,030 13,660 13,950 27, % 2.6% $39.99 $36.00-$42.00 Brisbane 1 30, % 0.0% N/A N/A S San Francisco 8 587,330 30,000 10,000 40, % 6.8% $42.00 $42.00-$42.00 San Bruno 3 558, ,590 15, % 2.8% $34.35 $30.00-$39.00 Pacifica 3 337, ,579 38, % 11.4% $25.54 $18.00-$30.00 Millbrae 4 401, ,552 18, % 4.6% $30.00 $30.00-$30.00 Burlingame 2 111, ,980 4, % 15.5% N/A $23.40-$30.00 North County Totals 33 3,859,322 71, , , % 5.3% $33.15 $18.00-$45.00 San Mateo 16 1,926, ,083 30, % 1.7% $25.02 $12.00-$36.00 Foster City 4 432, ,125 30, % 6.6% $19.20 $19.20-$19.20 Redwood Shores 1 123, ,084 4, % 3.3% $24.00 $24.00-$24.00 Central County Totals 21 2,482, ,292 64, % 2.6% $22.23 $12.00-$36.00 Belmont 3 177, ,038 7, % 5.4% $25.35 $21.00-$39.00 San Carlos 4 486,612 11,500 1,500 13, % 2.7% $25.20 $25.20-$25.20 Redwood City 13 1,992,033 11,898 44,619 56, % 2.8% $28.64 $15.00-$32.00 Half Moon Bay 2 168, ,700 1, % 1.0% $36.00 $36.00-$36.00 Menlo Park 5 333, ,847 3, % 1.2% $41.26 $39.00-$42.00 East Palo Alto 3 675, ,150 13, % 1.3% $39.00 $39.00-$39.00 South County Totals 30 3,834,011 23,398 71,854 95, % 2.4% $30.99 $21.00-$42.00 Total County: 84 10,175,678 95, , , % 3.5% $29.94 $12.00-$45.00 * Average Asking Rate is Annualized NNN Annual Net Absorption Asking Rate Ranges NNN 150, ,000 50,000 $50 $ , ,000 $30 $20-150, , , YTD-11 $10 $0 North Central South Gross Leasable Area by Center 41.4% 26.6% 12.9% 11.0% 8.1% Min Avg Asking NNN Max Center Square Feet Community 4,211,159 Neighborhood 2,706,388 Power 1,310,521 Strip 827,323 Other 1,120,287 Total 10,175,678 Community Neighborhood Power Strip Other The information contained herein has been obtained from sources we deem reliable. Although Terranomics has no reason to doubt its accuracy we do not guarantee it.

10 SAN MATEO RETAIL SHOPPING RETAIL SHOPPING CENTERS REPORT San Mateo County PERIOD MY-2009 YE-2009 MY-2010 YE-2010 MY-2011 Total GLA 10,175,678 10,175,678 10,175,678 10,175,678 10,175,678 Total Centers Availability Anchor 184, , ,836 93,436 95,050 Shop 232, , , , ,768 Total 417, , , , ,818 New Construction GLA New Construction (#'s) Net Absorption -166,153-42,400 28,681 71,942-2,824 Vacancy 4.1% 4.5% 4.2% 3.5% 3.6% Market Rent Range $15.00-$54.00 $12.00-$54.00 $12.00-$54.00 $12.00-$45.00 $12.00-$45.00 Average Asking Rate Shop NNN $31.35 $30.98 $31.37 $30.83 $29.94 * Average Asking Rate is Annualized NNN Vacancy & Average Asking Rate Trend 6% $38 4.1% 4.5% 4.2% $36 4% 3.5% 3.6% $34 2% 2.7% 1.4% 1.9% 2.5% $32 $30 0% MY-07 YE-07 MY-08 YE-08 MY-09 YE-09 MY-10 YE-10 MY-11 $28 Vacancy Avg Shop Rate NNN The information contained herein has been obtained from sources we deem reliable. Although Terranomics has no reason to doubt its accuracy we do not guarantee it.

11 SAN MATEO RETAIL SHOPPING RETAIL SHOPPING CENTERS REPORT North County (Daly City, Colma, Brisbane, SSF, San Bruno, Pacifica, Millbrae, Burlingame) PERIOD MY-2009 YE-2009 MY-2010 YE-2010 MY-2011 Total GLA 3,859,322 3,859,322 3,859,322 3,859,322 3,859,322 Total Centers Availability Anchor 151, ,996 70,038 70,038 71,652 Shop 85, , , , ,622 Total 237, , , , ,274 New Construction GLA New Construction (#'s) Net Absorption -120,723 16,271 19,475-1, Vacancy 6.1% 5.7% 5.2% 5.3% 5.2% Market Rent Range $15.00-$54.00 $18.00-$54.00 $24.00-$54.00 $18.00-$45.00 $18.00-$45.00 Average Asking Rate Shop NNN $33.54 $33.49 $34.33 $35.47 $33.15 * Average Asking Rate is Annualized NNN Vacancy & Average Asking Rate Trend 8% $40 6% 6.1% 5.7% 5.2% 5.3% 5.2% $38 $36 4% 3.0% 3.0% $34 2% 1.5% 1.6% $32 0% MY-07 YE-07 MY-08 YE-08 MY-09 YE-09 MY-10 YE-10 MY-11 $30 Vacancy Avg Shop Rate NNN The information contained herein has been obtained from sources we deem reliable. Although Terranomics has no reason to doubt its accuracy we do not guarantee it.

12 RETAIL SHOPPING CENTERS SAN REPORT MATEO Central County (San Mateo, Foster City, Redwood Shores) PERIOD MY-2009 YE-2009 MY-2010 YE-2010 MY-2011 Total GLA 2,482,345 2,482,345 2,482,345 2,482,345 2,482,345 Total Centers Availability Anchor 33,400 33,400 33, Shop 63,263 86,979 79,752 62,950 64,292 Total 96, , ,152 62,950 64,292 New Construction GLA New Construction (#'s) Net Absorption 22,933-26,191 9,702 50,202-1,342 Vacancy 3.9% 4.9% 4.6% 2.5% 2.6% Market Rent Range $12.00-$45.00 $12.00-$51.00 $12.00-$36.00 $12.00-$36.00 $12.00-$36.00 Average Asking Rate Shop NNN $26.62 $26.56 $25.53 $23.54 $22.23 * Average Asking Rate is Annualized NNN Vacancy & Average Asking Rate Trend 6% $30 4.9% 4.6% $28 4% 3.8% 3.9% $26 2.9% 2.5% 2.6% 2% 1.4% 1.8% $24 $22 0% MY-07 YE-07 MY-08 YE-08 MY-09 YE-09 MY-10 YE-10 MY-11 $20 Vacancy Avg Shop Rate NNN The information contained herein has been obtained from sources we deem reliable. Although Terranomics has no reason to doubt its accuracy we do not guarantee it.

13 RETAIL SHOPPING CENTERS SAN REPORT MATEO South County (Belmont, San Carlos, Redwood City, Half Moon Bay, Menlo Park, East Palo Alto) PERIOD MY-2009 YE-2009 MY-2010 YE-2010 MY-2011 Total GLA 3,834,011 3,834,011 3,834,011 3,834,011 3,834,011 Total Centers Availability Anchor 0 23,398 23,398 23,398 23,398 Shop 83,294 86,721 92,872 69,829 71,854 Total 83, , ,270 93,227 95,252 New Construction GLA New Construction (#'s) Net Absorption -18,363-26,825-6,151 23,043-2,025 Vacancy 2.2% 2.9% 3.0% 2.4% 2.5% Market Rent Range $21.00-$54.00 $21.00-$54.00 $21.00-$54.00 $21.00-$42.00 $21.00-$42.00 Average Asking Rate Shop NNN $32.68 $32.30 $32.21 $30.83 $30.99 * Average Asking Rate is Annualized NNN Vacancy & Average Asking Rate Trend 4% $35 3.2% 2.9% 3.0% $33 2.2% 2.4% 2.5% $31 2% 1.7% $29 1.2% 0.7% $27 0% MY-07 YE-07 MY-08 YE-08 MY-09 YE-09 MY-10 YE-10 MY-11 $25 Vacancy Avg Shop Rate NNN The information contained herein has been obtained from sources we deem reliable. Although Terranomics has no reason to doubt its accuracy we do not guarantee it.

14 SAN MATEO COUNTY MID-YEAR San Mateo County Demographics Area: Square Miles Population 706, , ,456 Ethnicity Percent of Population White Population Alone 59.49% 56.87% 53.81% Black Population Alone 3.51% 3.24% 3.33% American Indian/Alaska Native Alone 0.44% 0.31% 0.31% Asian/Hawaiian/Pacific Islander 21.37% 25.53% 28.44% Other Population (Incl 2+ Races) 15.19% 14.04% 14.11% Hispanic Population 21.88% 22.99% 22.99% Non-Hispanic Population 78.12% 77.01% 77.01% Total Households 254, , ,708 Income Median $71,240 $86,148 $86,942 Per Capita $35,544 $48,707 $52,593 Per Household $98,872 $129,764 $136,401 Household Income Range $25,000-$49, % 13.2% 13.3% $50,000-$74, % 17.8% 23.7% $75,000-$99, % 22.2% 21.3% $100,000-$124, % 12.56% 11.95% $125,000-$149, % 10.10% 10.88% $150,000-$199, % 6.38% 7.47% $200, % 8.69% 8.56% The information contained herein has been obtained from sources we deem reliable. Although Terranomics has no reason to doubt its accuracy we do not guarantee it.

15 San Mateo County DALY CITY COLMA Retail Report Pacific Ocean SOUTH SAN FRANCISCO San Francisco Bay PACIFICA SAN BRUNO MILLBRAE San Mateo Bridge BURLINGAME SAN MATEO HILLSBOROUGH FOSTER CITY De nitions SAN MATEO COUNTY HALF MOON BAY El Camino Real Alamedo de las Pulgas BELMONT REDWOOD CITY SAN CARLOS MENLO PARK Shopping Center A planned group of connected retail stores, usually with an attached parking area, specially developed on a parcel of private property and managed by a single organization. Enclosed Mall A shopping center entirely inside a roofed structure, so that entrance to the mall is controlled by a limited number of entrances and most stores are accessible only via interior corridors. Open-Air Mall A shopping center in which most of the stores are directly accessible from the outside, the exterior walkways may be covered, but the center is not enclosed under a single roof. Regional Center A shopping center with 30 to 100 stores, anchored by one or more department stores, and has 350,000 to 800,000 square feet of retail space. Super-Regional Center The largest variety of shopping center, usually an enclosed mall with more than 100 stores; includes several department stores, and greater than 800,000 square feet of retail space. Neighborhood Center A shopping center with fewer than 10 stores, anchored by a supermarket, and with 30,000 to 150,000 square feet of retail space; neighborhood centers are typically open-air designs. Community Center A shopping center with 10 to 30 stores and 150,000 to 350,000 square feet of retail space, typically anchored by a discount department, drug, or home improvement store; they are commonly open, one-story, with stores arranged in a single strip, L- or U-shape. Lifestyle Center A shopping center or mall whose array of retail outlets are designed to appeal to a particular segment of the population; typically, lifestyle centers feature upscale specialty stores, services, and restaurants. Power Center A center dominated by several large anchors, including discount department stores, off-price stores, warehouse clubs, or category killers. The center typically consists of several anchors, some of which may be freestanding and only a minimum amount of small specialty tenants. Strip Center An open-air neighborhood shopping center, smaller than 10,000 square feet and with at least three stores, typically arranged in a connected row facing a parking area; strip centers may also be L- or U-shaped. Theme/Festival Centers The centers typically employ a unifying theme that is carried out by the individual shops in their architectural design and, to an extent, in the merchandise. Entertainment is often a common element of such centers, and is targeted to tourists. Outlet Mall This center type consists of manufacturers and retailers outlet stores selling brand-name goods at a discount. These centers are typically not anchored, although certain brand-name stores may serve as magnet tenants. Anchor Stores The largest retail outlets, usually located at the ends or corners of shopping centers, and chosen in part for their potential to attract customers to the shopping center generally; department stores usually anchor regional and super-regional malls and supermarkets are typical anchors in community centers. Big Box A large stand-alone store that specializes in a single line of products, such as home improvements, toys, or office supplies; no-frills discount stores that sell in volume and category killers are often big box stores. Category Killer A large national chain store specializing in one line of products, such as home improvements, office supplies, or toys, that can overwhelm both smaller and more diverse competitors because of its size, variety of merchandise, and prices. Free-Standing Store A retail outlet not associated with a shopping center, especially those at a distance from congested shopping areas and downtowns. Gross Leaseable Area (GLA) Total floor space available for retail sales, usually in square feet. Anchor GLA Total floor space available for anchor retail sales, usually in square feet. Non-Anchor GLA Total floor space available for non-anchor retail sales, usually in square feet. Average Asking Rate The rate is determined by multiplying the asking net lease rate for each building by its available square footage, summing the products, then dividing by the sum of the available square footage with net leases for all buildings. Triple net (NNN) Generally refers to the requirement for the lessee to pay for its share of the property s taxes, insurance and operating expenses.