Research & Forecast Report PLEASANTON TRI-VALLEY OFFICE Sublease This! > Overall vacancy increased to 12.3 percent from 10.8 percent previously > Weighted average asking rents increased to $2.80 per square foot > Second quarter closed with 385,484 of negative net absorption The Tri-Valley office market finds itself with 509,083 square feet of sublease space available in Class A, Class B and office/ flex properties; 221,625 square feet of which is vacant, while the remainder is occupied with negotiable dates of availability. Couple this with an overall year-to-date negative net absorption of 523,103 rentable square feet, and the sky must surely be falling. Of course, the sky is not falling, but a year s worth of lackluster activity and mounting quarters of poor statistics must soon indicate a market headed in the wrong direction and one subject to rent erosion. That said, the 509,083 square feet of sublease space represents less than 2.0 percent of the entire market inventory of the Tri-Valley (27,253,944 total market square footage); but to put the sublease footage in perspective, one year ago there was just approximately 100,000 square feet of sublease space on the market. Total market weighted average asking rents across all classes of space are now at $2.80 full service gross, up $0.04 from the first quarter, and up $0.13 from one year ago. One could guess that if sublease asking rents were broadcast and included in the weighted average, or more dramatically, if the bottom-line sublease rents were included, the total market weighted average asking rents would likely be lower. Historical Vacancy and Average Asking Rates Tri-Valley All Classes 16% 12% 8% 4% 0% Vacancy Rate Weighted Average Asking $2.90 $2.70 $2.50 $2.30 $2.10 Though vacancy rates continue to rise over the past four quarters, weighted average asking rates remain strong, increasing nearly five percent from this time last year. Market Indicators Unemployment Rate 10-Year Nominal Consumer Tri-Valley Interest Rate Confidence 4.0% Market Trends Relative to prior period * Vacancy Net Absorption Construction Rental Rate *Projected Summary Statistics Tri-Valley Office Market 2.85 126.4 Previous Quarter Current Quarter Vacancy Rate 10.8% 12.5% Overall Asking Rate* $2.77 $2.79 Class A Asking Rate* $3.05 $3.06 Class B Asking Rate* $2.28 $2.34 Flex Asking Rate* $2.15 $2.16 Net Absorption (137,619) (464,358) Gross Absorption 217,695 219,295 *Asking rates are reported on a full service monthly basis U.S. Economic Indicators Unemployment Rate 4.1% 4.0% Labor Force Participation Rate 63.0% 62.9% Consumer Price Index 2.48% 2.52% Interest Rate - 10 Yr Treasury 2.74% 2.85% Business Confidence 101.5 101.4 Consumer Confidence 127.7 126.4
The total market vacancy rate is 12.3 percent with negative net absorption of 385,484 square feet, while it was 10.4 percent just one year ago. Tri-Valley Class A weighted average asking rents are at $3.06 full service gross, up $0.01 from the first quarter, and up $0.09 from one year ago. Vacancy in the sector is at 14.5 percent, compared to 12.5 percent the prior quarter, with negative net absorption for the quarter at 317,008 square feet. Historical Vacancy and Average Asking Rates Tri-Valley Class A 16% $3.20 12% $3.05 8% $2.90 Class B office closed the quarter with overall weighted average asking rents at $2.34 full service gross. The delta from Class A office is now $0.72, indicating that tenants seeking value can generally save $0.72 per square foot taking Class B office rather than Class A product. This significant savings delta in stepping down to Class B office will drive a flight to value for tenants in the coming quarters which should result in rising Class B rents or the potential erosion of Class A asking rents. Class B overall vacancy is at 13.0 percent with negative net absorption of 11,342 square feet. 4% 0% Vacancy Rate Weighted Average Asking $2.75 $2.60 The office/flex sector finished the quarter with overall average asking rents of $2.12 (adjusted to full service gross), which represents a slight downtick of $0.03 per square foot from the first quarter. Vacancy in the sector is registering 6.4 percent with negative net absorption for the quarter at 57,134 square feet. Dublin Dublin Class A weighted average asking rents are at $3.20 full service gross, unchanged from the prior quarter, and up $0.08 from the second quarter. The total vacancy rate is at 31.9 percent with flat absorption for the year. Market expectations are that Patelco Credit Union will purchase Three Park Place at 3 Sybase Drive from Dividend Capital for approximately $55,000,000 ($263 per square foot) in the third quarter. Patelco s rumored plans are to occupy four of the six floors of the building and put the 60,000 square feet that they lease at 5050 Hopyard on the market for sublease at a to-be-determined time frame. This pending transaction is not reflected in the second quarter statistics. CREEKSIDE BUSINESS PARK DUBLIN This 171,076 square foot office/flex complex was purchased by Goldman Sachs & Company, an investment firm headquartered in New York. The complex was approximately 86 percent occupied at the time of sale. Historical Net Absorption Tri-Valley Class A Class B Dublin weighted average asking rents weighed in at $2.13, up $0.03 from the prior quarter. Vacancy is at 14.9 percent with a total market Class B inventory of 334,467 square feet. There was 4,128 square feet of positive absorption for the quarter. 1,200,000 1,000,000 800,000 600,000 Dublin office/flex weighted average asking rents are $2.08 (adjusted to full service gross), and the total vacancy rate is 1.5 percent, down from the first quarter when vacancy was 3.6 percent. Net absorption for the quarter was positive 17,443 square feet. Creekside Business Park changed hands this quarter as Swift Real Estate Partners sold the 171,076 square foot multi-tenant R&D property to Goldman Sachs and Company. The property was 86.0 percent leased at close of escrow. 400,000 200,000 0-200,000-400,000-600,000 Net Absorption Gross Absorption 2 Tri-Valley Research & Forecast Report Office Colliers International
Livermore Sunset Office Plaza, located at the southeast corner of Concannon Boulevard and Holmes Avenue, consisting of 13.46 acres with ten single story, multi-tenant buildings totaling 80,000 square feet, sold from Sunset Development (Bishop Ranch) to Mana Investments, a mixed-use developer from southern California who plans to redevelop the site into senior housing, medical offices, and retail. This property had sat vacant for over two years, since Sunset tried to rezone it to single family housing, without success given the local NIMBY pressure. Other significant transactions that occurred during the quarter included Unified Grocers renewing their 21,344 square foot lease at 455 North Canyons Parkway and Northstar Emergency Services taking 9,464 square feet at 3025 Independence Drive. With only 1,405 square feet of positive absorption for the second quarter of, the Livermore office vacancy rate remained steady at 10.5 percent, which is the second lowest vacancy rate next to Pleasanton. The BART board decided in May not to extend BART to Livermore at Tri-Valley Tech Park (Highway 84 and I-580), thus further delaying what many residents have patiently waited and invested their tax dollars for. At weighted full service average asking rates at $1.88 per square foot, Livermore continues to be the low cost leader for office users looking for office space in the Tri-Valley area. Pleasanton Class A weighted average asking rents are $3.03 full service gross, up $0.09 from the close of the first quarter, and up a dime year-toyear. The vacancy rate is 10.0 percent, up from the first quarter s 5.5 percent. The large swing in vacancy is due to Workday s give-back of the entirety of 6230 Stoneridge Mall Road. Their vacation of this 148,902 square foot Class A building at Pleasanton Corporate Commons is the main contributor to negative absorption for the quarter of 292,036 square feet. Panasonic Corporation of North America leased 8,623 square feet, and GTT Communications Inc. leased 6,887 square feet of office space this quarter both at Bernal Corporate Plaza, 6700 Koll Center Parkway. This Class A project has asking rents of $2.65 per square foot, per month, full service, well below the market Class A weighted average asking rents of $3.06. Class B weighted average asking rents are $2.60 full service gross with the total vacancy rate at 14.2 percent and negative net absorption of 63,562 square feet. Vacancy the prior quarter was 12.0 percent and 9.4 percent one year ago. Net absorption year-to-date in the sector is negative 66,163 square feet, so it was a rough second quarter for Class B Pleasanton. The former Alameda County Courthouse at 5672 Stoneridge Drive was sold this quarter from ECI Four Stoneridge LLC to Embarcadero Capital Partners and PV ACRE Stoneridge LLC. This two-story vacant 56,146 square foot office building is a new opportunity for users in the market. Pleasanton (continued) Office/flex weighted average asking rents are $2.17 (adjusted to ful l service gross), down $0.19 from the prior quarter. The large drop in the weighted average asking rent is due to more vacant footage being marketed at reduced rents affecting the weighted average. There was negative net absorption for the quarter of 76,116 square feet due, in part, to Clarity s vacation of 39,000 square feet at Diablo Center South and Anixter s departure from 4464 Willow Road. Vacancy in the sector climbed to 4.9 percent, up from the prior quarter s 2.4 percent. San Ramon Class A weighted average asking rents are now $3.02 per square foot full service gross, up $0.13 from one year ago. Vacancy is 14.9 percent, up slightly from the first quarter s 14.5 percent vacancy rate. Also this quarter, Bishop Ranch raised their asking rents to $3.50 full service gross at 2600. Class B weighted average asking rents are $2.37 per square foot full service, unchanged from the prior quarter. The sector enjoyed positive net absorption of 48,226 square feet due solely to the sale of 2481 Deerwood Drive. This vacant 50,835 square foot Class B office building with a challenging parking ratio of 1.8 stalls per 1,000 square feet sold for $144 per square foot or $7,299,000 with Sieva Realty LLC as the buyer and Sungard Shareholder Systems as the seller. Vacancy in the sector is now 3.6 percent with this sold footage removed from vacancy. San Ramon office/flex, a small market of 700,724 square feet, has weighted average asking rents adjusted to full service at $2.14 with zero absorption for the quarter and unchanged vacancy at 15.1 percent. In Summary A deal active third quarter is the dream. With 40 floor plates at approximately 25,000 to 40,000 square feet on the market for lease and sublease in the Tri-Valley Class A/B marketplace, it is not sage wisdom to offer that we need migration of large users to the market to solve mounting vacancy. There also happens to be more than 200 suites available (Class A/B) in the 1,000 square foot to 5,000 square foot range in the Tri-Valley. Small tenant activity and new tenant migration to this market has been abysmal for over a year. In the same obvious vein, we need those folks too. Without internal market expansions and migration of new tenants to this market, expect rent degradation in 2019. A deal active third quarter is the dream. 3 Tri-Valley Research & Forecast Report Office Colliers International
Significant Lease & Sale Activity Sieva Realty LLC 2481 Deerwood Drive, San Ramon June 50,835 Class B Sale 680 ±25 miles to Port of Oakland SAN RAMON DUBLIN = LEASE = SALE PLEASANTON ±25 miles to Silicon Valley LIVERMORE 580 UB SR LLC 3223 Crow Canyon Road, San Ramon April 42,328 Class A Sale ZELTIQ Aesthetics Inc.* 6723 Sierra Court, Dublin June 13,825 Flex Lease Goldman Sachs & Company 5875-5990 Arnold Road/Gleason Drive, Dublin April 171,076 Flex Sale Unified Grocers* 455 North Canyons Parkway, Livermore April 21,344 Flex Lease PV ACRE Stoneridge LLC 5672 Stoneridge Drive, Pleasanton June 56,146 Class B Sale NeoTract Inc. 4155 Hopyard Road, Pleasanton April 76,510 Flex Lease Westmar I LP 7031 Koll Center Parkway, Pleasanton April 48,517 Class B Sale * Renewal 4 Tri-Valley Research & Forecast Report Office Colliers International
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 1,484,616 473,854 31.9% - 0.0% 473,854 31.9% 31.7% - - - - - $3.20 B 334,467 49,711 14.9% - 0.0% 49,711 14.9% 16.1% 4,128 4,112 13,114 - - $2.13 Flex 823,517 12,141 1.5% - 0.0% 12,141 1.5% 3.6% 17,443 7,039 17,443 - - $2.08 Total 2,642,600 535,706 20.3% - 0.0% 535,706 20.3% 21.0% 21,571 11,151 30,557 - - $3.08 LIVERMORE B 834,139 151,130 18.1% - 0.0% 151,130 18.1% 18.1% (134) (4,166) 24,368 - - $1.72 Flex 2,188,275 129,625 5.9% 35,600 1.6% 165,225 7.6% 7.6% 1,539 18,409 22,790 - - $2.06 Total 3,022,414 280,755 9.3% 35,600 1.2% 316,355 10.5% 10.5% 1,405 14,243 47,158 - - $1.88 PLEASANTON A 6,386,067 570,099 8.9% 70,742 1.1% 640,841 10.0% 5.5% (292,036) (291,151) 93,540-410,000 $3.03 B 2,941,476 394,467 13.4% 22,231 0.8% 416,698 14.2% 12.0% (63,562) (66,163) 54,348 - - $2.60 Flex 2,968,347 145,999 4.9% - 0.0% 145,999 4.9% 2.4% (76,116) (102,171) 123,113 - - $2.17 Total 12,295,890 1,110,565 9.0% 92,973 0.8% 1,203,538 9.8% 6.3% (431,714) (459,485) 271,001-410,000 $2.76 SAN RAMON A 7,712,874 1,058,484 13.7% 88,530 1.1% 1,147,014 14.9% 14.5% (24,972) (140,205) 115,833 - - $3.02 B 879,442 27,553 3.1% 4,522 0.5% 32,075 3.6% 9.1% 48,226 52,753 63,582 - - $2.37 Flex 700,724 106,060 15.1% - 0.0% 106,060 15.1% 15.1% - (1,560) - - - $2.14 Total 9,293,040 1,192,097 12.8% 93,052 1.0% 1,285,149 13.8% 14.1% 23,254 (89,012) 179,415 - - $2.93 MARKET TOTAL A 15,583,557 2,102,437 13.5% 159,272 1.0% 2,261,709 14.5% 12.5% (317,008) (431,356) 209,373-410,000 $3.06 B 4,989,524 622,861 12.5% 26,753 0.5% 649,614 13.0% 12.8% (11,342) (13,464) 155,412 - - $2.34 Flex 6,680,863 393,825 5.9% 35,600 0.5% 429,425 6.4% 5.6% (57,134) (78,283) 163,346 - - $2.12 Total 27,253,944 3,119,123 11.4% 221,625 0.8% 3,340,748 12.3% 10.8% (385,484) (523,103) 528,131-410,000 $2.80 QUARTERLY COMPARISON AND TOTALS -18 27,253,944 3,119,123 11.4% 221,625 0.8% 3,340,748 12.3% 10.8% (385,484) (523,103) 528,131-410,000 $2.80-18 27,253,944 2,750,637 10.1% 201,144 0.7% 2,951,781 10.8% 10.4% (137,619) (137,619) 217,695-410,000 $2.77-17 27,156,826 2,696,777 9.9% 117,385 0.4% 2,814,162 10.4% 9.9% (121,352) (452,874) 1,199,625-410,000 $2.73-17 27,156,826 2,572,002 9.5% 120,808 0.4% 2,692,810 9.9% 10.4% 120,099 (331,522) 982,285-410,000 $2.74-17 27,156,826 2,656,534 9.8% 164,914 0.6% 2,821,448 10.4% 10.3% (18,245) (451,621) 522,849-410,000 $2.67 Note: The weighted average asking rate for office/flex is converted to a full service equivalent. 5 Tri-Valley Research & Forecast Report Office Colliers International
69 countries $2.7 billion in annual revenue* 2.0 billion square feet under management 15,400 professionals and staff $116 billion in total transaction volume COLLIERS INTERNATIONAL PLEASANTON 3825 Hopyard Road, Suite 195 Pleasanton, CA 94588 USA +1 925 463 2300 MARKET CONTACTS: Marshall Snover Executive Managing Director CA License No. 00882591 +1 925 227 6205 marshall.snover@colliers.com Lisa Kohler Senior Research Analyst +1 925 227 6236 lisa.kohler@colliers.com CONTRIBUTING AUTHORS: Jason Chandler Senior Vice President Mark Triska, SIOR Executive Vice President *All statistics are for, are in U.S. dollars and include affiliates. About Colliers International Colliers International Group Inc. (NASDAQ: CIGI) (TSX: CIGI) is a top tier global real estate services and investment management company operating in 69 countries with a workforce of more than 12,000 professionals. Colliers is the fastest-growing publicly listed global real estate services and investment management company, with corporate revenues of $2.3 billion ($2.7 billion including affiliates). With an enterprising culture and significant employee ownership and control, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide, and through its investment management services platform, has more than $20 billion of assets under management from the world s most respected institutional real estate investors. Colliers professionals think differently, share great ideas and offer thoughtful and innovative advice to accelerate the success of its clients. Colliers has been ranked among the top 100 global outsourcing firms by the International Association of Outsourcing Professionals for 13 consecutive years, more than any other real estate services firm. Colliers is ranked the number one property manager in the world by Commercial Property Executive for two years in a row. Colliers is led by an experienced leadership team with a proven record of delivering more than 20% annualized returns for shareholders, over more than 20 years. For the latest news from Colliers, visit Colliers.com or follow us on Twitter: @Colliers and LinkedIn. colliers.com/pleasanton Copyright 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.