Sleepy Close to 2017 PLEASANTON TRI-VALLEY OFFICE Q % Research & Forecast Report Market Indicators

Transcription

1 Research & Forecast Report PLEASANTON TRI-VALLEY OFFICE Q4 Sleepy Close to > Tri-Valley vacancy reported 10.4 percent, up slightly from the previous quarter > Weighted average asking rents remained flat at $2.73 per square foot > Closing the year, net absorption was negative 130,593 square feet The final quarter of the office campaign can be summed up like a Merchant Ivory film void of action and soporific. Now the Dow Jones that was a good flick an entertaining, one-way ride north in closing up percent for the year. At a significantly less severe trajectory, total market weighted average asking rents closed at $2.73 full service gross, up $0.18 from one year ago. Total market vacancy is at 10.4 percent, up from the close of s 9.3 percent. Contrasting s total market positive annual net absorption of 744,072 square feet, realized 462,115 square feet of negative net absorption. Tri-Valley Class A weighted average asking rents are $3.00 full service gross, despite negative total annual net absorption of 423,040 square feet. That number represents the bulk of the negative total market net absorption in. The $3.00 Class A rents at the end of the fourth quarter mark a $0.12 increase year-to-year. Vacancy in the sector is 11.7 percent, up 1.7 percent for the year. Market Indicators Unemployment Rate 10-Year Nominal Consumer Tri-Valley Interest Rate Confidence 2.0% Market Trends Relative to prior period Q4 Q1 2018* Vacancy Net Absorption Construction Rental Rate *Projected Historical Vacancy and Average Asking Rates Tri-Valley All Classes 12% 8% 4% 0% Vacancy Rate Weighted Average Asking $2.80 $2.60 $2.40 $2.20 Vacancy and weighted average asking rates remained relatively flat in the fourth quarter; yet the push by landlords to continue to increase asking rates is still the sentiment in the Tri-Valley. Summary Statistics Q Tri-Valley Office Market Previous Quarter Current Quarter Vacancy Rate 9.9% 10.4% Overall Asking Rate* $2.74 $2.73 Class A Asking Rate* $3.00 $3.00 Class B Asking Rate* $2.31 $2.27 Flex Asking Rate* $2.18 $2.17 Net Absorption 120,099 (130,593) Gross Absorption 459, ,340 *Asking rates are reported on a full service monthly basis U.S. Economic Indicators Unemployment Rate 4.4% 4.1% Labor Force Participation Rate 62.9% 62.7% Consumer Price Index 2.46% 2.47% Interest Rate - 10 Yr Treasury 2.33% 2.40% Business Confidence Consumer Confidence

2 Tri-Valley Class B office weighted average asking rents are at $2.27, up $0.14 from year-end. Vacancy is at 12.0 percent with 41,330 square feet of negative net absorption. Historical Vacancy and Average Asking Rates Tri-Valley Class A 16% $3.20 Tri-Valley office/flex turned in positive net absorption of 2,255 square feet for the year and added $0.07 of positive rent growth over the same period. The weighted average asking rents (adjusted to full service gross) closed the year at $2.17. Vacancy was unchanged for the year at 6.1 percent. 12% 8% $3.05 $2.90 Dublin 4% $2.75 Weighted Class A average asking rents closed the year at $3.11 full service gross, up $0.16 for the year but unchanged from the prior quarter. The total vacancy rate is 31.6 percent, unchanged from the third quarter. No absorption to report for the quarter leaving the total negative net absorption for the year at 430,295 square feet. This is largely due to SAP s relocation from Park Place (vacating the entirety of that two building, 416,356 square foot Class A project) to BR 2600 in the first quarter. 0% Vacancy Rate Weighted Average Asking $2.60 Class B Dublin weighted average asking rents closed the year at $2.11 full service gross, unchanged from the prior quarter, and up $0.06 for the year. The total vacancy rate stands at 15.6 percent with positive absorption of 12,235 square feet. The Dublin office/flex sector weighted average asking rents at end of fourth quarter were $2.00 (adjusted to full service gross), flat from the third quarter. The total vacancy rate stands at 2.3 percent in this 823,517 square foot market sector. Absorption for the year came in at positive 19,607 square feet. Collins Electrical Company Inc. leased 5,127 square feet at Sierra Trinity Business Park in the fourth quarter. Livermore PACIFIC CORPO CENTER - LIVERMORE A 39,170 square foot R&D/Flex building sold to LSTC as an investment. The building, located on Longard Road, is currently 100 percent occupied by Cosco Fire Protection Inc and Vintage Design. Despite several significant transactions that occurred during the fourth quarter of in the Livermore office and flex markets, vacancy ticked up to 11.4 percent versus 9.7 percent the previous quarter. A significant block of space (43,078 square feet) came back from the converted factory outlet mall off Greenville Road (also known as Vineyard Business Park). Haskell Inc. expanded and leased 7,889 square feet at 365 North Canyons Parkway, along with All Systems Broadband who relocated in Livermore in an office expansion to Contractors Street. Kinetic Systems Inc. took down 18,922 square feet at 3083 Independence Drive in a relocation from Fremont. Finally, Longard Road sold as a leased investment to LSTC California LLC. Rents have remained flat, at a weighted average full service asking rate of only $1.90 per square foot. Inexpensive office space in Livermore abounds, with over 150,000 square feet available at the Vineyard Business Park alone. Historical Net Absorption Tri-Valley Class A 1,200,000 1,000, , , , , , , ,000 Net Absorption Gross Absorption 2 Tri-Valley Research & Forecast Report Q4 Office Colliers International

3 Adding to the abundant large blocks of space, 11,500 square feet of over-standard, Class A, quality office for sublease came onto the market near the Lawrence Livermore National Laboratory. As we move into 2018, we expect office users who want to take advantage of Livermore s proximity to the Central Valley s lower cost workforce will begin migrating further east into the Tri-Valley lower cost office space. Pleasanton Pleasanton Class A weighted average asking rents are $2.94 full service gross with 44,481 square feet of negative absorption for the quarter, but positive 65,245 square feet was absorbed for the year. The Class A total vacancy rate is now 5.5 percent, up from the third quarter s 4.8 percent, and down one percentage point from the close of. Workday, Inc. renewed their lease in 6200 Stoneridge Mall Road (Pleasanton Corporate Commons) for 76,571 square feet, extending for three years. Overall, they have 221,120 square feet in the project. Global Syn-Turf, Inc., a new tenant to the Tri-Valley, leased 10,290 square feet at Inglewood Place. Class B weighted average asking rents closed the quarter and year at $2.57 full service gross, up a dime from one year ago. Net absorption for the quarter was positive 7,744 square feet but negative 29,610 square feet for the year. The direct vacancy rate in the sector is 10.4 percent, up from s year-end 9.3 percent. The Roman Catholic Diocese of Oakland leased 10,390 square feet at 4750 Willow Road in planning to relocate from Hacienda Lakes. Office/flex weighted average asking rents closed the quarter at $2.39 (adjusted to full service gross) with 21,008 square feet of positive net absorption helping to erode the annual negative total net absorption to 10,433 square feet. Vacancy in the sector is at 3.4 percent, up slightly from the close of where vacancy was just 3.0 percent. Teichert Construction leased 17,100 square feet at 5200 Franklin Drive (Landlord: Franklin Partners, LLC), backfilling the lions share of the space that will be given back when Dimension Data exits that project in the second quarter of Stoneridge Mall Road - Pleasanton Pleasanton had two investment sales transactions in the fourth quarter. Saratoga Center traded in December with Ridge Capital Investors as buyer and Ellis Partners LLC seller. The project traded for $18.2M or $216 per square foot. The project is comprised of two buildings: 5934 Gibraltar Drive - two story Class B office at 41,656 square feet and 4698 Willow Road - single story R&D project of 42,620 square feet leased to Gristone Oncology earlier in. Also selling in the fourth quarter were two of the four buildings that comprise the project Birch Lakes within the Bernal Corporate Park and 7041 Koll Center Parkway (totaling 95,325 square feet) traded with Acre Investment Company, LLC as buyer and ECI Three Birch Lakes LLC (Embarcadero Capital Partners) as seller. The buyer will hold 7031 Koll Center Parkway as a leased investment but sell office condos in the 7041 building. San Ramon Class A weighted average asking rents are $2.96 full service gross versus $2.87 year-end and unchanged quarter-to-quarter. The total vacancy rate closed the year at 13.1 percent versus year-end when the total vacancy rate was 14.3 percent. Net absorption in was negative 57,990 square feet. ARC Document Solutions (NYSE: ARC) leased 23,328 square feet at Bishop Ranch 15 (12657 Alcosta Boulevard). Class B weighted average asking rents wrapped up the year at $2.39 full service gross, down $0.01 from the third quarter, and down from $0.13 at the close of. The total vacancy rate is 9.8 percent, up from the third quarter s 9.1 percent, and up six percentage points from fourth quarter. The weighted average reflects vacancy of lower priced buildings on the market versus the inventory at the end of. Absorption in the quarter was negative 5,957 square feet and negative 53,545 square feet for the year, pushing up the vacancy numbers. The San Ramon office/flex sector finished with weighted average asking rents (adjusted to full service gross) at $2.09, flat quarter-toquarter, and down just $0.01 from year-end. Absorption for the year was a negative 48,957 square feet in this sector, across a total inventory of 700,724 square feet with year-end vacancy at 14.9 percent. Looking Forward It would be fake news to report anything other than lackluster office market activity and touring during the last two quarters of. It is also too early to label the slowdown in the Tri-Valley office market a trend. There is no evidence to suggest that the market is softening and no spike in sublease space. Keep your eye out for broker touring incentives, bonus commissions, moving allowances, or published offered free rent as leading indicators of a real slow down. The expectations for 2018 are for another steady year, but there will not be further rent growth without activity and new tenants migrating to the Tri-Valley. 3 Tri-Valley Research & Forecast Report Q4 Office Colliers International

4 Significant Lease & Sale Activity ARC Document Solutions Alcosta Boulevard, San Ramon November 23,328 Class A Lease Workday Inc.* 6200 Stoneridge Mall Road, Pleasanton October 76,571 Class A Lease 680 SAN RAMON Teichert Construction 5200 Franklin Drive, Pleasanton December 17,100 Flex Lease DUBLIN Kinetic Systems Inc Independence Drive, Livermore ±25 miles to Port of Oakland PLEASANTON 580 LIVERMORE December 18,922 Flex Lease LSTC California LLC Longard Road, Livermore October 39,170 Flex Sale MidPen Housing Chestnut Street November 33,577 Class B Sale = LEASE = SALE ±25 miles to Silicon Valley Ridge Capital Investors 5934 Gibraltar Drive / 4698 Willow Road, Pleasanton December 84,320 Class B Sale ACRE Investment Company LLC Koll Center Parkway, Pleasanton October 95,325 Class B Sale * Renewal + Sublease Significant Lease Activity Under 15,000 PROPERTY ADDRESS LEASE DATE SIZE TENANT TYPE 5000 Executive Parkway, San Ramon December 13,440 Insight Wealth Strategies + Class A 4255 Hopyard Road, Pleasanton December 11,406 Precision Cabinets Flex 4750 Willow Road, Pleasanton November 10,390 Roman Catholic Diocese of Oakland Class B 5960 Inglewood Drive, Pleasanton November 10,290 Global Syn-Turf Inc. Class A * Renewal + Sublease 4 Tri-Valley Research & Forecast Report Q4 Office Colliers International

5 Market Comparisons Tri-Valley OFFICE MARKET CLASS TOTAL INVENTORY DIRECT VACANT DIRECT SUBLEASE VACANT SUBLEASE TOTAL VACANT CURRENT QUARTER PRIOR QUARTER NET ABSORPTION CURRENT QTR NET ABSORPTION YTD GROSS ABSORPTION YTD COMPLETIONS CURRENT QTR UNDER CONSTRUCTION WEIGHTED AVG ASKING FSG DUBLIN A 1,489, , % - 0.0% 470, % 31.6% - (430,295) 98, $3.11 B 347,587 54, % - 0.0% 54, % 15.6% (77) 12,235 36, $2.11 Flex 823,517 19, % - 0.0% 19, % 2.4% ,607 52, $2.00 Total 2,661, , % - 0.0% 543, % 20.5% 294 (398,453) 187, $2.97 LIVERMORE B 834, , % - 0.0% 152, % 14.1% (35,189) 29,590 86, $1.71 Flex 2,126, , % 35, % 183, % 8.0% (13,733) 42,038 77, $2.09 Total 2,960, , % 35, % 336, % 9.7% (48,922) 71, , $1.90 PLEASANTON A 6,364, , % 46, % 349, % 4.8% (44,481) 65, , ,000 $2.94 B 2,837, , % 19, % 294, % 10.7% 7,744 (29,610) 124, $2.57 Flex 3,055,282 98, % 3, % 102, % 4.0% 21,008 (10,433) 115, $2.39 Total 12,257, , % 69, % 746, % 6.0% (15,729) 25, , ,000 $2.71 SAN RAMON A 7,708,782 1,002, % 4, % 1,006, % 12.3% (60,279) (57,990) 376, $2.96 B 868,498 76, % 8, % 84, % 9.1% (5,957) (53,545) 14, $2.39 Flex 700, , % - 0.0% 104, % 14.9% - (48,957) $2.09 Total 9,278,004 1,183, % 12, % 1,196, % 12.2% (66,236) (160,492) 391, $2.85 MARKET TOTAL A 15,563,175 1,776, % 50, % 1,826, % 11.1% (104,760) (423,040) 693, ,000 $3.00 B 4,887, , % 27, % 586, % 11.3% (33,479) (41,330) 261, $2.27 Flex 6,705, , % 39, % 409, % 6.2% 7,646 2, , $2.17 Total 27,156,826 2,706, % 117, % 2,823, % 9.9% (130,593) (462,115) 1,199, ,000 $2.73 QUARTERLY COMPARISON AND TOTALS Q ,156,826 2,706, % 117, % 2,823, % 9.9% (130,593) (462,115) 1,199, ,000 $2.73 Q ,156,826 2,572, % 120, % 2,692, % 10.4% 120,099 (331,522) 982, ,000 $2.74 Q ,156,826 2,656, % 164, % 2,821, % 10.3% (18,245) (451,621) 522, ,000 $2.67 Q ,156,826 2,670, % 132, % 2,803, % 8.7% (433,376) (433,376) 274, ,000 $2.68 Q ,100,599 2,238, % 131, % 2,369, % 9.3% 140, ,996 1,465, ,000 $2.51 Note: The weighted average asking rate for office/flex is converted to a full service equivalent. 5 Tri-Valley Research & Forecast Report Q4 Office Colliers International

6 396 offices in 68 countries on 6 continents United States: 153 Canada: 29 Latin America: 24 Asia Pacific: 36 EMEA: 111 ANZ: 43 $2.6 billion in annual revenue* COLLIERS INTERNATIONAL PLEASANTON 3825 Hopyard Road, Suite 195 Pleasanton, CA USA MARKET CONTACTS: Marshall Snover Executive Managing Director CA License No marshall.snover@colliers.com Lisa Kohler Senior Research Analyst lisa.kohler@colliers.com CONTRIBUTING AUTHORS: Jason Chandler Senior Vice President Mark Triska, SIOR Executive Vice President 2.0 billion square feet under management 15,000 professionals and staff *All statistics are for and include affiliates About Colliers International Colliers International Group Inc. (NASDAQ and TSX: CIGI) is an industry-leading global real estate services company with 15,000 skilled professionals operating in 68 countries. With an enterprising culture and significant employee ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include strategic advice and execution for property sales, leasing and finance; global corporate solutions; property, facility and project management; workplace solutions; appraisal, valuation and tax consulting; customized research; and thought leadership consulting. Colliers professionals think differently, share great ideas and offer thoughtful and innovative advice that help clients accelerate their success. Colliers has been ranked among the top 100 global outsourcing firms by the International Association of Outsourcing Professionals for 12 consecutive years, more than any other real estate services firm. Colliers also has been ranked the top property manager in the world by Commercial Property Executive for two years in a row. For the latest news from Colliers, visit Colliers.com or follow us on and LinkedIn. colliers.com/pleasanton Copyright 2018 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.