Research & Forecast Report PLEASANTON TRI-VALLEY OFFICE Q3 Q3 in the Books > Total market net absorption in the third quarter was a healthy 223,385 square feet. > Tri-Valley total market weighted average asking rents in all classes of space ended the quarter at $2.47 full service gross. Market Indicators - Tri-Valley Average White Collar Unemployment Household Income Jobs Rate > The total market vacancy rate at the close of the quarter is 12.0 percent. The Tri-Valley office market saw activity wane in the summer of. The annual anticipation of a spike of activity in September with vacations over and kids back in school was also unimpressive. 145,711 77.08% 2.9% Tri-Valley total market weighted average asking rents in all classes of space ended the quarter at $2.47 full service gross, up $0.06 from the second quarter, and up $0.18 on the year. Class A rents are at $2.74, Class B at $1.95, and Office/Flex (adjusted to full service gross) closed the quarter at $1.90. All of the Tri-Valley market sector s rents were up from the prior quarter. Total market net absorption in the third quarter was a healthy 223,385 square feet, making up the bulk of the 319,574 square feet of net absorption year-to-date. The total market vacancy rate at the close of the quarter is 12.0 percent, down from the prior quarters 12.8 percent, and down year-to-year 2.9 percent. The third quarter pause in activity may be summed up to long summer vacations in this continued strong economy. Workers and executives fled to the South of France, South of the Border and South Kohala. Speculation is that some folks headed north as well, providing golf days and vacations for brokers too. Historical Vacancy and Average Asking Rates Tri-Valley All Classes 16% 14% 12% 10% 8% 6% 4% 2% 0% $2.00 $1.80 $1.60 $1.40 $1.20 $1.00 Vacancy Rate Weighted Average Asking As the weighted average asking rates continue to inch upward, climbing $0.06 from the previous quarter, vacancy rates continue their downward pattern closing the quarter at 12.0 percent for the overall market. Market Trends Relative to prior period Q3 Q4 * Vacancy Net Absorption Construction Rental Rate *Projected Summary Statistics Q3 Tri-Valley Office Market Previous Quarter Current Quarter Vacancy Rate 12.8% 11.9% Overall Asking Rate* $2.41 $2.48 Class A Asking Rate* $2.72 $2.74 Class B Asking Rate* $1.90 $1.95 Flex Asking Rate* $1.73 $1.90 Net Absorption -48,174 250,917 Gross Absorption 251,036 573,164 *Asking rates are reported on a full service monthly basis U.S. Economic Indicators Unemployment Rate 5.3% 5.1% Labor Force Participation Rate 62.6% 62.4% Consumer Price Index 2.4% 2.4% Interest Rate - 10 Yr Treasury 2.4% 2.0% Business Confidence 99.9% 99.4% Consumer Confidence 100.9% 100.2% Data Source: EDD Labor Market Information Division
Pleasanton Class A weighted average asking rents are at $2.76 full service gross, up $0.01 from the second quarter, and $0.24 from the close of the third quarter. The Class A vacancy rate is at 10.9 percent with 693,835 square feet available for lease. Absorption for the quarter was a paltry 15,492 square feet. Removal of the large block of vacancy (410,180 square feet) at Rosewood Commons lowers the Class A vacancy rate to a very healthy 4.5 percent. That said, Rosewood Commons provided the excitement in the third quarter in the disposition of 4440 Rosewood Drive to The Gap, who had previously leased the entire building with an option to purchase. The Gap paid approximately $40 million for the 181,495 square foot Class A office building ($225/square foot). ServiceMax, Inc. is headed to Rosewood Commons, inking a deal for 62,559 square feet in 4450 Rosewood Drive and relocating from Hacienda West (3875 Hopyard Road). Workday, Inc. remains in continued expansion mode at Pleasanton Corporate Commons, taking 82,177 square feet at 6200 and 6210 Stoneridge Mall Road. They will scale into that space as other tenant leases burn off. Class B Pleasanton weighted average asking rents closed the quarter at $2.47 full service gross, up a robust $0.19 from the prior quarter, and substantially closing the delta in rent differential from its Class A big sister. That delta is now just $0.29 per square foot on the average asking rent, down from a spread of $0.47 in the second quarter of. Absorption for the quarter was positive 41,663 square feet, and vacancy is at 8.4 percent, down from 9.9 percent in the prior quarter. Sedgewick Claims Management Services, Inc. leased 11,019 square feet at Hacienda Lakes (4234 Hacienda Drive). Office/flex weighted average asking rents soared to $2.10 (adjusted to full service gross) despite negative net absorption on the quarter of 34,792 square feet. The weighted rent was $1.94 the prior quarter. Vacancy is 6.3 percent in this 3,179,186 square foot sector. Robert Half International, Inc. leased 28,634 square feet at Britannia Business Center II (5720 Stoneridge Drive). Acosta, Inc. signed a seven year term for 27,532 square feet at Britannia Business Center III (5735 West Las Positas Boulevard), moving from their well-known location on Koll Center Parkway at Bernal Corporate Park. Electroboard Solutions, Inc. closed escrow on three more condominiums (6,070 square feet) at Vision West Commerce Centre (415 Boulder Court). They now own five of the six condominiums that comprise that office/ flex building. Dublin San Ramon Services District is rumored to be in escrow at 7035 Commerce Circle (27,345 square foot light industrial building). Nearon Enterprises as seller in spinning off this former Clorox Campus freestanding building. Historical Vacancy and Average Asking Rates Tri-Valley Class A 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Vacancy Rate Weighted Average Asking Historical Vacancy and Average Asking Rates Pleasanton Class A 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Vacancy Rate Weighted Average Asking $3.00 $2.90 $2.80 $2.70 $2.50 $2.30 $2.10 $2.00 $3.00 $2.90 $2.80 $2.70 $2.50 $2.30 $2.10 $2.00 PLEASANTON CORPO COMMONS Workday, Inc. remains in continued expansion mode at Pleasanton Corporate Commons, taking 82,177 square feet at 6200 and 6210 Stoneridge Mall Road. They will scale into that space as other tenant leases burn off. 2 Tri-Valley Research & Forecast Report Q3 Office Colliers International
Dublin Dublin Class A weighted average asking rents are at $2.42 full service gross, and vacancy is at 7.3 percent, up slightly from the prior quarter at 6.5 percent. Net absorption was negative 10,947 square feet in a total inventory of 1,488,260 square feet. Vagaro leased 5,053 square feet at Dublin Corporate Center (4120 Dublin Blvd.). East Bay Center I & II, currently home of SAP, is actively marketing 405,000 square feet in this two building Class A project. The space will not be vacant until first quarter 2017 when SAP s lease on the entire project expires. SAP has signed a lease for 150,000 square feet at 2600 in Bishop Ranch, downsizing from East Bay Center, Dublin. Class B Dublin weighted average asking rents weighed in at $1.91, up a nickel from the prior quarter. This tiny market segment at 304,664 square feet had negative net absorption on the quarter at 859 square feet with total net absorption on the year at 9,537 square feet. The direct vacancy rate holds steady at 19.0 percent. Dublin office/flex enjoyed a big quarter with 53,412 square feet of positive absorption and $0.08 of rent growth from the prior quarter. The weighted average asking rents are $2.01 (adjusted to full service gross), and the direct vacancy rate is 8.7 percent. Kensington Laboratories purchased the freestanding office/flex building (43,948 square feet) at 6200 Village Parkway. They will relocate from Hayward to this long-time vacant fixer-upper. Initially offered at $185 per square, the building traded for $98.86 per square foot. Equity Resource Investments, LLC was the seller. Office/Flex weighted average asking rents are $1.93 (adjusted to full service gross) flat quarter to quarter but up $0.28 from one year ago. Absorption for the quarter was positive 39,931 square feet due in large part to Pacific Gas and Electric s lease of 25,142 square feet at Creekside Business Park (5875 Arnold Road). Office/Flex vacancy in the sector is 14.9 percent, down 4.5 percentage points from the first quarter s 19.4 percent vacancy. San Ramon Class A weighted average asking rents closed the quarter at $2.75 full service gross, up $0.03 from the second quarter. The direct vacancy rate dropped to 17.5 percent due to SAP America, Inc. signing a lease for 150,000 square feet at 2600 in Bishop Ranch. Plaza San Ramon (SteelWave, LLC, Landlord) inked a few deals in the quarter by signing Campos EPC Services (7,715 square feet), Prudential Real Estate San Ramon (5,644 square feet) and Galenda Biopharma, Inc. (8,114 square feet). Historical Net Absorption and Gross Absorption Tri-Valley All Classes 1,000,000 800,000 600,000 400,000 200,000 0-200,000-400,000-600,000-800,000 Net Absorption Gross Absorption Bishop Ranch and the city of San Ramon have commenced their plans in erecting a city center for San Ramon with the grand opening date for the retail center estimated late 2017. Comparable Class A Leasing Rates $2.80 $2.76 $2.75 $2.70 Weighted average asking rents in the Class B office sector are at $1.88 full service gross with vacancy at 4.6 percent. Absorption for the quarter was negative 10,940 square feet, leaving net absorption for the year at negative 40 square feet. Bishop Ranch 2, (four building project, totaling 194,752 square feet) is being demolished with expectations that footage will be removed from the Class B inventory in the fourth quarter. Bishop Ranch and the city of San Ramon have commenced their plans in erecting a city center for San Ramon with the grand opening date for the retail center estimated late 2017. $2.50 $2.30 $2.42 Dublin Pleasanton San Ramon 3 Tri-Valley Research & Forecast Report Q3 Office Colliers International
The office/flex sector, specifically Canyon Corporate Park, enjoyed a nice quarter as Adept Technology, Inc. signed a lease for 48,931 square feet, relocating and consolidating from their three separate suites in two properties in Pleasanton (Inglewood Place and Diablo North). Their scheduled occupancy of Canyon Corporate is late in the first quarter of 2016. Additionally, the marathon process of the California Tissue Donor Network lab requirement came to a close in their lease of 23,633 square feet, also at Canyon Corporate Park (4550 Norris Canyon Road). Weighted average asking rents closed the quarter at $1.79 (adjusted to full service gross), and vacancy is now down to 9.1 percent from 19.2 percent at the close of the second quarter. Livermore The Livermore office and R&D/Flex markets continue to show progress, as vacancy dropped to 14.8 percent from 16.0 percent the prior quarter. This was primarily due to a sizable (39,860 square foot) sublease from Valmark Industries at the corner of National Drive and Greenville Road to Sensor Concepts, a local firm expanding and taking advantage of heavily built-out flex space. The owner of the property, Balch Investment Group, had originally built a 73,332 square foot build-to-suit building for Valmark. Sensor Concepts signed a ten year sublease. There is still no speculative office or flex development in Livermore, and we do not expect any to occur unless Dublin and Pleasanton see their vacancy numbers get into the single digits. Sunset Office Park has been reduced to a handful of tenants at the northeast corner of Concannon Avenue and Holmes Avenue; Sunset Development (Bishop Ranch) has not announced any plans to release or sell the property. Sunset has entitled and sold the other 2.2 acre parcel for forty-two townhomes, formerly known as Livermore Financial Center. The Livermore office market needs a larger user, such as one of the resident national labs or the back office portion of a large Silicon Valley or San Francisco user, to populate the largely vacant Vineyard Office Center off Greenville Road and Southfront Road to put a real dent in its overall vacancy. But given the relatively small size of the Livermore office market compared to the rest of the Tri-Valley (11.0 percent), it would not take too many large deals to absorb what product it does have. Until that happens, most office users coming to the Tri-Valley region will opt to be closer to BART and I-580/I-680 in Dublin, Pleasanton or San Ramon. Employment By Category White Collar Population Service Data Source: The Nielsen Company 13% 10% 77% The recent pause in activity is hopefully a blip on the radar, and we can continue our four plus year momentum into and beyond 2016. 293,461 Blue Collar 7.65% What Lies Ahead The thoughts and predications of $3.00 Class A asking rents by year-end may come up short but not by much. The recent pause in activity is hopefully a blip on the radar, and we can continue our four plus year momentum into and beyond 2016. The CRE pundits and forecasters promise another two to three years of a healthy commercial real estate market... that sounds good. Data Source: The Nielsen Company 2020 Projected 315,914 Growth -2020 4 Tri-Valley Research & Forecast Report Q3 Office Colliers International
Significant Sale Activity 6200 Village Parkway LLC 6200 Village Parkway, Dublin September 43,948 Office/Flex 680 SAN RAMON DUBLIN 580 ECI Four 7901 LLC 7901 Stoneridge Drive, Pleasanton September 171,009 Class A PLEASANTON LIVERMORE The Gap, Inc. 4440 Rosewood Drive, Pleasanton September 181,495 Class A Chart Title One Line Significant Lease Activity PROPERTY ADDRESS LEASE DATE SIZE TENANT TYPE 2600 Camino Ramon, San Ramon July 150,000 SAP America, Inc. Class A 6200-6210 Stoneridge Mall Road, Pleasanton September 82,177 Workday, Inc. Class A 4450 Rosewood Drive, Pleasanton August 62,559 ServiceMax, Inc. Class A 4550 Norris Canyon Road, San Ramon July 48,931 Adept Technology, Inc. Office/Flex 7900-7950 National Drive, Livermore July 39,860 Sensor Concepts, Inc. R&D/Flex 5720 Stoneridge Drive, Pleasanton July 28,634 Robert Half International, Inc.* Office/Flex 5735 West Las Positas Boulevard, Pleasanton September 27,532 Acosta, Inc. Office/Flex 4550 Norris Canyon Road, San Ramon September 23,633 California Tissue Donor Network Office/Flex 2010 Crow Canyon Place, San Ramon September 22,666 Mason McDuffie Mortgage Corporation* Class A 3825 Hopyard Road, Pleasanton August 12,575 Chicago Title Company Class A 4234 Hacienda Drive, Pleasanton August 11,019 Sedgwick Claims Management Services, Inc. Class B 6723 Sierra Court, Dublin September 10,000 Advantec MFS, Inc.* Office/Flex * Renewal 5 Tri-Valley Research & Forecast Report Q3 Office Colliers International
Market Comparisons Tri-Valley OFFICE MARKET CLASS BLDGS 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 10 1,488,260 58,406 3.9% 49,680 3.3% 108,086 7.3% 6.5% (10,947) 35,526 65,817 - - $2.42 B 11 304,664 57,973 19.0% 3,518 1.2% 61,491 20.2% 19.9% (859) 9,537 10,658 - - $1.91 Flex 24 869,016 75,656 8.7% - 0.0% 75,656 8.7% 14.9% 53,412 90,036 96,961 - - $2.01 Total 45 2,661,940 192,035 7.2% 53,198 2.0% 245,233 9.2% 10.8% 41,606 135,099 173,436 - - $2.10 LIVERMORE B 23 833,964 186,837 22.4% - 0.0% 186,837 22.4% 21.7% (6,129) (9,732) 5,046 - - $1.33 Flex 74 2,169,548 146,979 6.8% 112,000 5.2% 258,979 11.9% 13.8% 39,860 49,827 46,549 - - $1.64 Total 97 3,003,512 333,816 11.1% 112,000 3.7% 445,816 14.8% 16.0% 33,731 40,095 51,595 - - $1.47 PLEASANTON A 49 6,372,973 626,487 9.8% 67,348 1.1% 693,835 10.9% 11.1% 15,492 192,933 388,337 - - $2.76 B 69 2,848,802 236,361 8.3% 3,330 0.1% 239,691 8.4% 9.9% 41,663 (12,877) 129,651 - - $2.47 Flex 93 3,179,186 167,820 5.3% 4,428 0.1% 172,248 5.4% 5.2% (7,260) (3,966) 113,088 - - $2.12 Total 211 12,400,961 1,058,200 8.5% 75,106 0.6% 1,133,306 9.1% 9.3% 22,363 148,558 603,544 - - $2.57 SAN RAMON A 31 7,664,037 1,325,725 17.3% 18,190 0.2% 1,343,915 17.5% 18.4% 65,327 (76,600) 370,639 - - $2.75 B 26 1,011,228 46,707 4.6% 4,552 0.4% 51,229 5.1% 4.0% (10,940) (40) 22,331 - - $1.88 Flex 9 705,668 64,240 9.1% - 0.0% 64,240 9.1% 19.2% 71,298 72,462 75,484 - - $1.79 Total 66 9,380,933 1,436,672 15.3% 22,712 0.2% 1,459,384 15.6% 16.9% 125,685 (4,178) 468,454 - - $2.68 MARKET TOTAL A 90 15,525,270 2,010,618 13.0% 135,218 0.9% 2,145,836 13.8% 14.3% 69,872 151,859 824,793 - - $2.74 B 129 4,998,658 527,878 10.6% 11,370 0.2% 539,248 10.8% 11.3% 23,735 (13,112) 167,686 - - $1.95 Flex 200 6,923,418 454,695 6.6% 116,428 1.7% 571,123 8.2% 10.5% 157,310 208,359 332,082 - - $1.90 Total 419 27,447,346 2,993,191 10.9% 263,016 1.0% 3,256,207 11.9% 12.8% 250,917 347,106 1,324,561 - - $2.48 QUARTERLY COMPARISON AND TOTALS Q3-15 419 27,447,346 2,993,191 10.9% 263,016 1.0% 3,256,207 11.9% 12.8% 250,917 347,106 1,324,561 - - $2.48 Q2-15 418 27,447,346 3,273,630 11.9% 233,494 0.9% 3,507,124 12.8% 12.6% (48,174) 96,189 751,397 - - $2.41 Q1-15 418 27,447,346 3,223,740 11.7% 235,210 0.9% 3,458,950 12.6% 14.2% 144,363 144,363 500,361 - - $2.39 Q4-14 418 27,644,063 3,702,004 13.4% 223,021 0.8% 3,925,025 14.2% 14.9% 200,425 (669,609) 1,783,655 - - $2.31 Q3-14 418 27,644,063 3,819,921 13.8% 305,529 1.1% 4,125,450 14.9% 12.5% (661,197) (870,034) 1,320,213 - - $2.29 Note: The weighted average asking rate for office/flex is converted to a full service equivalent. ROSEWOOD COMMONS 4440 ROSEWOOD DRIVE Rosewood Commons provided the excitement in the third quarter in the disposition of 4440 Rosewood Drive to The Gap, who had previously leased the entire building with an option to purchase. The Gap paid approximately $40 million for the 181,495 square foot Class A office building ($225/square foot). 6 Tri-Valley Research & Forecast Report Q3 Office Colliers International
502 offices in 67 countries on 6 continents United States: 140 Canada: 31 Latin America: 24 Asia Pacific: 199 EMEA: 108 $2.3 billion in annual revenue COLLIERS INTERNATIONAL PLEASANTON 3825 Hopyard Road, Suite 195 Pleasanton, CA 94588 USA +1 925 463 2300 MARKET CONTACTS: Marshall Snover Managing Partner/Senior Vice President CA License No. 00882591 +1 925 227 6205 marshall.snover@colliers.com Lisa Kohler Research Analyst II +1 925 227 6236 lisa.kohler@colliers.com CONTRIBUTING AUTHORS: Jason Chandler Vice President Mark Triska, SIOR Executive Vice President 1.7 billion square feet under management 16,300 professionals and staff About Colliers International Colliers International Group Inc. (NASDAQ: CIGI; TSX: CIG) is a global leader in commercial real estate services with more than 16,300 professionals operating from 502 offices in 67 countries. With an enterprising culture and significant insider ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include brokerage, global corporate solutions, investment sales and capital markets, project management and workplace solutions, property and asset management, consulting, valuation and appraisal services, and customized research and thought leadership. Colliers International has been ranked among the top 100 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 10 consecutive years, more than any other real estate services firm. For the latest news from Colliers International, visit Colliers.com or follow us on Twitter (@ColliersIntl) and LinkedIn. colliers.com 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.