Market Facts 5.0% County Unemployment Rate As Of August 2016 371,695 SF Positive Net Absorption Current Quarter Positive 884,637 SF Year-To-Date 10.3% Total Vacancy Rate Up From 10.7% In Q2 2016 $2.64 PSF Asking Rental Rate Weighted Average Market Overview Office Vacancy Tightens, As Rents Surge Ahead The office market continued to make steady gains as of the third quarter of 2016. Vacancy is gradually getting tighter, while rent increases have not slowed down. The market is supported by diverse industries and desirable geography while benefitting from strong demand for space by healthcare innovators, independent research institutes and sectors that work closely with the local military. The San Diego County unemployment rate, as of the third quarter of 2016 dropped to 5.0% from 5.1% one year earlier. Vacancy was 10.3% at the end of the third quarter of 2016, down from 11.5% at the same point in 2015. While vacancy is tighter year-overyear post-recession, vacancy in the third quarter is also down from the previous quarter. Rental increases are not expected to slow, even as new construction is introduced. Office space is spending less time on the market, and fewer months vacant. The rental rate average for all classes reached $2.64 psf FSG at, up from Q3 2015, when rents were at $2.53 psf FSG. The highest rents were in the Central Coast submarket at $3.26 psf FSG with the next highest in the Downtown submarket at $2.55 psf FSG, followed by the North County Coastal area at $2.52 psf FSG. In the past 12-month period, County recorded a net absorption of positive 1,186,023 sf.
Sales Sales volume for the past twelve months has reached $2.6 billion, down moderately from the previous twelve months which reached $3.1 billion. This total includes local portions of larger portfolio sales. Class A inventory has increased in trading volume during the past twelve months, while Class B experienced a retraction after being heavily favored in 2015. The average sale price per square foot is up over the past twelve months, to $240 psf, from the previous twelve months of $212 psf. Transaction Volume by Property Sector County Investment Sale 401 Mile of Cars Way National City The largest investment sale during the third quarter was Sorrento Gateway, a two-building life science campus in Sorrento Mesa, purchased by Kilroy Realty Corporation for $355 psf. In total, the buildings were approximately 56% occupied by a single tenant at the time of sale. The next largest deal was South Bay Corporate Center, at 401 Mile of Cars Way in National City, purchased by Bosa Development Corporation, for $225 psf. The building was 77% leased to multiple tenants. Another significant sale consisted of three properties at multiple locations; Bernardo Regency Centre and Foremost Professional Plaza, both in Rancho Bernardo, and Three Governor Park, in Governor Park. The multi-tenant portfolio was 90% leased, and sold to Omninet Capital for $209 psf. Construction The office market had ten investment-grade office projects under construction at the third quarter of 2016, including life science projects. These projects amount to more than 1,382,213 sf of new inventory that will be delivered throughout 2016 and 2017, approximately 83% of which is already pre-committed, with the remainder currently on the market. All new office construction is currently located in the Central Coast and North County areas. The three largest projects reflect the growing needs of the life science sector in the Central Coast area of. Construction 3420 Carmel Mountain Road Del Mar Heights In total there is nearly one million square feet of space under construction with designated lab buildout to accommodate life science companies. The Rancho Santa Fe market saw the completion of Palma De La Reina, a 20,461 square foot multi-tenant office building, constructed without tenant pre-commitments. There is currently nearly 15 million square feet of proposed office development on record in the county, which is an increase of more than 60% from the same time in the previous year.
Asking Rent Vacancy Rates Net Absorption $2.80 16.0% 1,200,000 $2.60 14.0% 900,000 $2.40 600,000 $2.20 12.0% 300,000 $2.00 10.0% 0 $1.80 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 8.0% 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 300,000 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 Top Leases Tenant Type Address Submarket SF WeWork New 600 B Street Downtown 88,273 Sorrento Therapeutics - Lab Space New 4955 Directors Place Sorrento Mesa 76,687 AutoGenomics - Lab Space New 1600 Faraday Avenue Carlsbad 59,860 Department of Child Support Services New 3666 Kearny Villa Road Kearny Mesa 58,222 Novatel Wireless, Inc. Sublease 9605 Scranton Road Sorrento Mesa 41,383 Top Sales Address Buyer Seller Price SF 4939-4955 Directors Place, Sorrento Mesa - Life Science HCP, Inc. Kilroy Realty Corporation $49,000,000 138,090 401 Mile Of Cars Way, National City Bosa Development Corporation Walton Street Capital, LLC $42,750,000 189,588 Rancho Bernardo/Governor Park, Portfolio Omninet Capital The Blackstone Group LP $30,500,000 146,234 10421-10431 Wateridge Circle, Sorrento Mesa Angelo, Gordon & Co. SteelWave, Inc. $28,000,000 123,675 2530 Campbell Place, Carlsbad Testa Family, LP II Oddo Family Trust $13,000,000 41,000 Under Construction Address Developer SF Completion 4775-4785 Executive Dr, UTC - Lab Space Biomed Realty 316,262 10290 Campus Point Dr, UTC - Lab Space Alexandria Real Estate Equities, Inc. 304,326 Q4 2016 5200 Illumina Way, UTC - Lab Space Alexandria Real Estate Equities, Inc. 295,609 Q4 2016 16909 W Bernardo Dr, Rancho Bernardo Sharp Rees-Stealy 100,000 Q3 2017 9779 Towne Centre Dr, UTC The Irvine Company 96,435 Q1 2017
By The Numbers Inventory (SF) North County Coastal Vacancy (SF) Vacancy (%) Q2 2016 Vacancy (%) Current Quarter Absorption Year-To-Date Absorption Rental Rates Q2 2016 Rental Rates Qtr/Qtr Change (%) Current Quarter Deliveries YTD Deliveries Remaining 2016 Completions Scheduled 2017 Completions Class A 2,437,952 424,147 17.4% 16.3% 13,716 42,675 $2.69 $2.70-0.37% 0 0 20,461 0 Class B Vacancy Net Absorption Avg. Advertised Rates (FS) Construction Pipeline 6,716,478 844,909 12.6% 12.2% 1,133 6,479 $2.47 $2.46 0.41% 90,000 90,000 0 30,632 Class C 411,677 74,152 18.0% 19.0% 9,810 9,974 $1.73 $1.69 2.37% 0 0 0 0 Total 9,566,107 1,343,208 14.0% 13.5% 24,659 59,128 $2.52 $2.52 0.00% 90,000 90,000 20,461 30,632 North County Inland Class A 5,462,434 263,993 4.8% 5.4% 39,261 103,955 $2.79 $2.75 1.45% 0 0 0 0 Class B 6,103,295 491,361 8.1% 9.1% 65,226 162,696 $2.23 $2.13 4.69% 0 0 0 100,000 Class C 564,502 42,432 7.5% 8.3% 5,589 7,809 $1.56 $1.58-1.27% 0 0 0 0 Total 12,130,231 797,786 6.6% 7.4% 110,076 274,460 $2.31 $2.24 3.12% 0 0 0 100,000 Central Coast Class A 14,462,834 1,511,334 10.4% 11.0% 28,526-178,350 $3.71 $3.78-1.85% 0 0 295,609 190,168 Class B 11,982,630 1,634,859 13.6% 13.3% -14,864 44,273 $2.79 $2.63 6.08% 0 127,476 683,588 61,755 Class C 631,077 29,610 4.7% 4.2% -4,801 10,152 $2.09 $2.18-4.13% 0 0 0 0 Total 27,076,541 3,175,803 11.7% 11.9% 8,861-123,925 $3.26 $3.19 2.19% 0 127,476 979,197 251,923 Central City Class A 5,365,357 471,436 8.8% 9.5% 42,858 110,179 $2.96 $2.96 0.00% 0 0 0 0 Class B 11,220,977 815,203 7.3% 8.6% 102,358 145,702 $2.20 $2.18 0.92% 0 0 0 0 Class C 3,923,311 320,976 8.2% 8.4% -747 38,013 $1.64 $1.62 1.23% 0 0 0 0 Total 20,509,645 1,607,615 7.8% 8.8% 144,469 293,894 $2.28 $2.27 0.44% 0 0 0 0 Downtown Business District Class A 6,683,379 471,974 7.1% 6.3% 72,445 91,798 $2.93 $2.82 3.90% 0 0 0 0 Class B 4,176,576 1,057,250 25.3% 28.2% 11,194 116,747 $2.26 $2.21 2.26% 0 0 0 0 Class C 1,522,580 129,388 8.5% 8.5% -341 3,108 $2.27 $2.14 6.07% 0 0 0 0 Total 12,382,535 1,658,612 13.4% 13.9% 83,298 211,653 $2.56 $2.45 4.49% 0 0 0 0 East County Class A 233,830 10,969 4.7% 4.7% 0 8,157 $2.37 $2.37 0.00% 0 0 0 0 Class B 2,224,417 76,172 3.4% 4.7% 2,538 39,061 $2.47 $2.45 0.82% 0 0 0 Class C 957,558 66,804 7.0% 6.8% -1,220-1,195 $1.33 $1.33 0.00% 0 0 0 0 Total 3,415,805 153,945 4.5% 4.5% 1,318 46,023 $2.11 $2.11 0.00% 0 0 0 0 South Bay Class A 447,583 127,462 28.5% 28.1% 107 11,704 $2.28 $2.28 0.00% 0 0 0 0 Class B 2,016,743 165,108 8.2% 28.1% 130 104,776 $1.83 $1.83 0.00% 0 0 0 0 Class C 332,559 22,610 6.8% 7.8% -1,223 6,924 $2.00 $2.00 0.00% 0 0 0 0 Total 2,796,885 315,180 11.3% 10.7% -986 123,404 $2.02 $1.99 1.51% 0 0 0 0 County Class A 35,093,369 3,281,315 9.4% 9.5% 196,913 190,118 $3.20 $3.16 1.27% 0 0 316,070 190,168 Class B 44,441,116 5,084,862 11.4% 12.0% 167,715 619,734 $2.40 $2.31 3.90% 90,000 217,476 683,588 192,387 Class C 8,343,264 685,972 8.2% 8.4% 7,067 74,785 $1.78 $1.77 0.56% 0 0 0 0 Total 87,877,749 9,052,149 10.3% 10.7% 371,695 884,637 $2.64 $2.56 3.13% 90,000 217,476 999,658 382,555 VacancybyRegion Rental Rate by Region 25.0% $3.50 20.0% $3.00 15.0% $2.50 10.0% $2.00 5.0% $1.50 0.0% 2006 Q3 2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 North Coastal North Inland Central Coast Central City Downtown East County South Bay $1.00 2006 Q3 2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 North Coastal North Inland Central Coast Central City Downtown East County South Bay
Office Markets Total Market including owner occupied space Leased Market Carlsbad 5,248,195 17.8% 30,632 5,036,738 17.2% 17.9% 8,358 $2.52 Encinitas/Solana Beach/Del Mar/RSF 1,632,880 5.1% 20,461 1,603,221 4.9% 4.9% 1,333 $3.46 Oceanside 796,285 12.0% 0 733,514 13.1% 13.1% 4,076 $2.03 San Marcos 1,097,532 11.0% 0 783,472 15.0% 15.0% 13,276 $2.41 Vista 791,215 14.3% 0 765,905 14.7% 14.7% -4,349 $1.92 North County Coastal 9,566,107 14.0% 51,093 8,922,850 14.3% 14.7% 22,694 $2.52 Escondido 848,138 10.6% 0 781,888 11.4% 11.4% 2,121 $1.93 Miramar/Mira Mesa 1,470,935 8.9% 0 1,448,950 9.1% 9.1% 9,496 $2.04 Poway 1,149,420 5.9% 0 739,635 5.0% 6.5% 1,898 $2.50 Carmel Mountain Ranch/Rancho Bernardo 6,287,339 4.8% 100,000 4,717,067 3.1% 6.4% 54,773 $2.56 Scripps Ranch 2,374,399 8.8% 0 1,714,689 11.7% 12.1% 41,788 $2.28 North County Inland 12,130,231 6.6% 100,000 9,402,229 6.4% 8.3% 110,076 $2.32 Del Mar Heights/Carmel Valley 4,504,770 12.1% 93,733 4,454,770 11.1% 12.2% 13,668 $4.10 Governor Park 794,390 6.2% 0 794,390 6.2% 6.2% 79,466 $2.62 La Jolla 1,297,597 10.5% 0 1,297,597 9.8% 10.5% -36,258 $3.22 Sorrento Mesa 9,153,617 11.4% 0 6,066,823 16.4% 17.2% -10,415 $2.58 Sorrento Valley 512,863 4.0% 0 448,746 4.5% 4.5% -807 $2.12 Torrey Pines 2,280,368 4.4% 63,000 1,120,431 8.3% 9.0% 1,633 $3.64 UTC 8,532,936 15.1% 1,074,387 8,172,795 13.6% 15.7% -38,426 $3.36 Central Coast 27,076,541 11.7% 1,231,120 22,355,552 12.9% 14.2% 8,861 $3.26 Bankers Hill/Hillcrest/Mission Hills/North Park 2,018,492 8.2% 0 1,581,133 8.1% 8.4% 18,346 $2.35 Kearny Mesa 9,708,013 7.9% 0 7,060,984 10.6% 10.7% 56,867 $2.12 Mission Valley 6,292,855 8.2% 0 5,782,845 8.5% 8.9% 50,526 $2.42 Old Town/Sports Arena/Point Loma 1,711,243 6.9% 0 1,313,464 7.8% 7.8% -4,279 $2.15 Pacific Beach/Rose Canyon/Morena 779,042 4.9% 0 619,647 5.6% 6.1% 916 $2.02 Central City 20,509,645 7.8% 0 16,358,073 9.2% 9.5% 122,376 $2.25 Downtown 12,382,535 13.4% 0 12,129,535 13.4% 13.7% 83,298 $2.55 Downtown Business District 12,382,535 13.4% 0 12,129,535 13.4% 13.7% 83,298 $2.55 College Area 938,693 4.8% 0 819,693 5.3% 5.5% -423 $2.46 El Cajon/La Mesa/Lemon Grove/Santee 2,078,759 3.9% 0 1,902,909 4.3% 4.3% 1,288 $2.17 Mission Gorge 398,353 6.9% 0 339,040 8.1% 8.1% 0 $1.11 East County 3,415,805 4.5% 0 3,061,642 5.0% 5.0% 865 $2.11 Chula Vista 1,863,769 11.8% 0 1,471,441 14.5% 14.9% 18,526 $2.24 Coronado/Imperial Beach National 83,001 13.9% 0 57,001 20.3% 20.3% -11,561 - City/Southeast Otay 676,008 11.3% 0 595,046 12.9% 12.9% -10,997 $1.49 Mesa 174,107 4.2% 0 174,107 4.2% 4.2% 663 $1.86 South Bay 2,796,885 11.3% 0 2,297,595 13.4% 13.7% -3,369 $2.02 County Total 87,877,749 10.3% 1,382,213 74,527,476 11.2% 12.0% 344,801 $2.64
A Growing, Multinational Presence Avison Young at a Glance Founded: 1978 Total Real Estate Professionals: 2,400 Offices: 79 Brokerage Professionals: 900+ Property Under Management: 100 million sf Avison Young is the world s fastest-growing commercial real estate services firm. Headquartered in Toronto, Canada, Avison Young is a collaborative, global firm owned and operated by its principals. Founded in 1978, the company comprises 2,400 real estate professionals in 79 offices, providing value-added, client-centric investment sales, leasing, advisory, management, financing and mortgage placement services to owners and occupiers of office, retail, industrial and multi-family properties. EDMONTON CALGARY SAN FRANCISCO OAKLAND SAN MATEO VANCOUVER SACRAMENTO RENO LETHBRIDGE DENVER MINNEAPOLIS CHICAGO (2) CLEVELAND DETROIT COLUMBUS PITTSBURGH LAS VEGAS INDIANAPOLIS PHOENIX NASHVILLE DALLAS MEMPHIS HOUSTON AUSTIN KNOXVILLE SAN ANTONIO TAMPA LOS ANGELES (4) ORANGE COUNTY SAN DIEGO REGINA ST. LOUIS WINNIPEG ORLANDO MEXICO CITY TORONTO (2) TORONTO NORTH TORONTO WEST WATERLOO REGION JACKSONVILLE OTTAWA MONTREAL WEST PALM BEACH BOCA RATON FORT LAUDERDALE MIAMI QUEBEC CITY MONCTON HALIFAX BOSTON HARTFORD FAIRFIELD/WESTCHESTER LONG ISLAND NEW YORK CITY PHILADELPHIA NEW JERSEY SUBURBAN MARYLAND WASHINGTON, DC TYSONS CORNER RALEIGH-DURHAM (2) CHARLOTTE GREENVILLE CHARLESTON ATLANTA COVENTRY LONDON (2) THAMES VALLEY HAMBURG BERLIN DUESSELDORF FRANKFURT MUNICH Contact Information - Southern California, United States Los Angeles - Downtown 555 S Flower St, Ste 3200 Los Angeles, CA 90071 Primary Contact: Ted Simpson ted.simpson@ Los Angeles - West 10940 Wilshire Blvd, Ste 2100 Los Angeles, CA 90024 Primary Contact: Jonathan Larsen jonathan.larsen@ Los Angeles - North 6711 Forest Lawn Dr Los Angeles, CA 90068 Primary Contact: Mark Evanoff mark.evanoff@ Los Angeles - Santa Monica 301 Arizona Ave, Ste 303 Santa Monica, CA 90401 Primary Contact: Randy Starr randy.starr@ 213.935.7430 213.471.1069 323.851.6666 310.899.1800 Orange County - Irvine 2030 Main Street, Ste 150 Irvine, CA 92614 Primary Contact: Stan Yoshihara stan.yoshihara@ - La Jolla 4225 Executive Sq, Ste 600 La Jolla, CA 92037 Primary Contact: Jerry Keeney jerry.keeney@ Regional Managing Director: Chris Cooper - Corporate 555 S Flower St, Ste 3200 Los Angeles, CA 90071 chris.cooper@ Report Prepared By: Amber Jagers - Research Manager 4225 Executive Sq, Ste 600 La Jolla, CA 92037 amber.jagers@ 949.757.1190 858.201.7077 213.935.7435 858.201.7072 2016 Avison Young - Southern California, Ltd. All rights reserved. E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young.