ORANGE COUNTY OFFICE THIRD QUARTER 217 QUICK STATS Direct Vacancy 12.1% Overall Vacancy 12.9% Lease Rate FSG $2.61 Gross Absorption Under Construction MARKET TRENDS Current Quarter 2,479,293 SF 379, SF Change from Last Quarter Year Overall Vacancy Rental Rates Gross Absorption Under Construction OFFICE SUMMARY & OUTLOOK The Orange office market witnessed overall vacancy rates increase from 12.5% to 12.9%, during the quarter. Average asking rents increased 4.8%, year over year, moving from $2.49 FSG to $2.61 FSG. Gross absorption totaled 2.5 million square feet of activity during the quarter, while net absorption gained 25, square feet of occupied space. New construction activity decreased during the quarter, with 379, square feet currently underway, as the market has delivered 884, square feet of new space for the year. Unemployment rates have declined from 4.% to 3.6%, year over year, and is below California (4.7%) and the U.S. at 4.1%. The market has remained fairly balanced over the past two years, with vacancy rates remaining relatively flat, rental rates beginning to grow at more normalized rates, and new supply and absorption near equilibrium. Job creation will remain the key to increased office demand. In September, non-farm employment grew by.4%, year over year, adding 5,7 new jobs. The investment and sale market for office buildings in Orange continues to see strong activity levels as the total dollar sales volume finished at its second highest total since 27 at $2.5 billion last year, and is on pace to potentially match that number by year s end. The capital markets remain active with plenty of liquidity, but we do expect to see further interest rate hikes in the coming year. We expect vacancy levels to continue to trend lower in the coming quarters, with rents expected to increase 3% to 5% for most submarkets in the coming year. VACANCY & NET ABSORPTION ECONOMIC STATS 1,5, 18.% Current Month Previous Year 1,, 16.% Sep. 17 Sep. 16 5, 14.% Unemployment 3.6% 4.% Rate (MSA) 12.% Change in # +13,9 +5,7 Of Jobs (MSA) % Change for +.9% +.4% Jobs (MSA) (5,) (1,,) 1.% 8.% Net Absorption SF Overall Vacancy
ORANGE COUNTY OFFICE THIRD QUARTER 217 VACANCY RENTAL RATES & TIME 18.% $2.7 16. 17.% 16.% 15.% $2.5 $2.3 14. 12. 1. 14.% $2.1 8. 13.% 12.% 11.% $1.9 $1.7 6. 4. 2. 1.% $1.5. Direct Vacancy Overall vacancy rates (including sublease space) increased from the previous quarter, moving from 12.5% to 12.9%. Among the five submarkets within the Orange office market, the submarket ended the quarter with the lowest total vacancy of 1.8%, followed by at 1.9%, the Area at 13.1%, at 14.1%, and the submarket finishing the quarter at 15.3%. Since the third quarter of 216, overall vacancy rates have increased from 12.3% to 12.9%, but still remains below its 5-year average of 14.%. ABSORPTION Overall Vacancy Avg. Rent (FSG) Time to Lease (Months) Average asking rates increased 4.8%, year over year, moving from $2.49 FSG to $2.61 FSG. Of the five submarkets within the Orange market, the submarket ended the quarter with the highest average asking rate of $3.3 FSG, followed by the ($2.83 FSG), ($2.23 FSG), ($2.13 FSG), and at $2.5 FSG. Average asking rents increased.8% during the quarter, moving from $2.59 FSG to $2.61 FSG. The median time to lease decreased from 8.2 months to 8. months during the quarter. CONSTRUCTION ACTIVITY 3,, 1,4, 2,5, 1,2, 2,, 1,, 1,5, 8, 1,, 6, 5, 4, 2, (5,) (1,,) Net Absorption SF Gross Absorption SF Gross absorption totaled 2.5 million square feet during the quarter, up 1% compared to the previous quarter, but lower by 3% compared to a year ago. Net absorption finished the quarter in positive territory, gaining 25, square feet of occupied space, and has gained 362, square feet for the year. During 216, the market gained 935, square feet, after gaining 1.1 million square feet during 215, +1.4 million square feet in 214, and +1.5 million square feet in 213. The market has recorded positive net absorption in seventeen of the past twenty quarters, totaling 5.8 million square feet of occupied space gains. We expect to see similar growth and overall demand levels as we move into the final quarter of 217. SF Newly Completed SF Under Construction Under construction activity decreased during the quarter, with 379, square feet currently underway, as the market has delivered 884, square feet of new space for the year. In 216, the market added 767, square feet of new space after delivering 4, square feet in 215 and 55, square feet during 214. The market did not see any new construction delivered in 212 or 213. During the past five years, new construction deliveries have averaged 44, square feet, annually. Construction levels should remain near current levels in the coming quarters, as the market is still seeing stong demand, coupled with escalating rents and vacancy levels now back to the pre-recession levels of 27.
ORANGE COUNTY OFFICE THIRD QUARTER 217 MARKET SNAPSHOT Total Direct Direct Total Vacant Vacancy Inventory Vacant Vacancy Including Sublet with Sublet SUBMARKETS Square Footage Square Footage Rate Square Footage Rate 36,544,61 4,34,775 11.9% 4,79,517 13.1% 17,327,675 2,392,461 13.8% 2,45,25 14.1% 8,489,78 1,271,433 15.% 1,295,791 15.3% 18,357,259 1,859,497 1.1% 1,978,23 1.8% 5,95,15 622,831 1.5% 646,47 1.9% Orange Totals 86,668,772 1,486,997 12.1% 11,161,123 12.9% Office Market Inventory Office Vacancy Rates 18.% 21% 7% 42% 16.% 14.% 12.% 1.% 1% 2% 8.% 6.% 4.% 2.%.% Direct Vacancy Vacancy with Sublet Average Low-High Square Feet Square Feet Gross Absorption Asking Rent Asking Rent Built in Under Square Feet SUBMARKETS FSG Range FSG 217 Construction Current Quarter $3.3 $1.45-$4.9 1,36,26 $2.5 $1.2-$2.95 34,995 $2.13 $1.15-$4.25 298,531 $2.83 $1.4-$5.5 883,796 379, 714,12 $2.23 $1.3-$3.25 125,639 Orange Totals $2.61 $.75-$5.5 883,796 379, 2,479,293 Office Rental Rates New Construction Activity $3.5 1,, $3. $2.5 9, 8, 7, $2. $1.5 6, 5, 4, $1. 3, $.5 $. Orange Totals 2, 1, Orange Totals Average Asking Rent FSG Square Feet Built in 217 Square Feet Under Construction
ORANGE COUNTY OFFICE THIRD QUARTER 217 SOUTHERN CALIFORNIA OFFICE BUILDING SALE TREND ANALYSIS TOTAL SALES TRANSACTIONS Market 28 29 21 211 212 213 214 215 216 217-3Q LA 517 348 356 552 747 769 887 1,54 993 879 Orange 247 13 151 25 294 347 334 426 391 39 Inland Empire 284 168 156 25 264 327 373 432 397 368 Ventura 51 24 29 54 59 58 18 86 11 87 Totals 1,99 643 692 1,61 1,364 1,51 1,72 1,998 1,891 1,643 TOTAL TRANSACTION DOLLAR VALUE (MILLIONS) Bldg. SF 28 29 21 211 212 213 214 215 216 217-3Q LA $2,663.7 $753.9 $1,162.5 $2,72. $3,238.3 $5,95. $7,352.4 $4,867. $9,624.7 $6,7.5 Orange $725.3 $364.9 $521.9 $625.9 $783.3 $1,385.1 $1,596.8 $2,86. $2,51.5 $1,612.2 Inland Empire $356.9 $85.7 $96. $131.3 $166.7 $237.3 $336.9 $643.3 $457.2 $386.1 Ventura $93.9 $29.6 $81.3 $56.4 $43.2 $57.1 $247.8 $164.5 $169.4 $17.7 Totals $3,839.8 $1,234.1 $1,861.8 $2,885.6 $4,231.4 $7,629.5 $9,534. $8,48.9 $12,752.8 $8,113.6 TOTAL SQUARE FEET SOLD Bldg. SF 28 29 21 211 212 213 214 215 216 217-3Q LA 11,846,815 5,577,741 6,24,699 9,72,267 15,65,333 23,586,15 23,497,172 17,578,857 25,17,86 19,356,334 Orange 3,283,77 2,31,918 3,58,113 3,865,353 6,76,68 7,299,964 8,172,286 12,259,97 11,85,393 6,881,526 Inland Empire 2,124,94 957,23 1,94,559 1,742,48 2,322,85 2,461,316 2,919,294 5,376,785 3,419,994 3,748,149 Ventura 476,21 141,646 37,79 397,973 517,872 679,369 1,551,626 1,66,791 1,186,277 823,322 Totals 17,73,853 8,78,328 11,15,45 15,725,641 23,982,663 34,26,799 36,14,378 36,282,34 41,518,75 3,89,331 AVERAGE PRICE / SF Bldg. SF 28 29 21 211 212 213 214 215 216 217-3Q LA $273.96 $226.31 $235.42 $256.11 $265.8 $281.44 $345.89 $36.4 $43.47 $378.55 Orange $293.52 $194.5 $182.39 $192.7 $211.65 $28.43 $27.81 $259.92 $264.58 $26.17 Inland Empire $212.69 $181.29 $13.39 $121.93 $135.86 $13.38 $143.52 $141.42 $17.65 $154.6 Ventura $27.86 $248.34 $328.13 $182.62 $13.87 $14.6 $29.36 $189.67 $181.55 $177.54 Averages $268.46 $214.3 $21.98 $223.8 $236.13 $251.32 $292.45 $262.81 $354.79 $319.49 MEDIAN PRICE / SQUARE FOOT Bldg. SF 28 29 21 211 212 213 214 215 216 217-3Q LA $288.58 $259.74 $211.75 $24.94 $244.34 $233.33 $266.2 $285.71 $3.16 $291.41 Orange $314.94 $224.41 $192.32 $216.15 $19. $24.49 $223.61 $246.57 $277.57 $259.58 Inland Empire $245.65 $187.29 $165.49 $134.45 $123.9 $125.42 $134.22 $132.88 $16.64 $171.44 Ventura $253.62 $297.9 $22.17 $215.19 $183.47 $175.15 $18.41 $213.19 $19.56 $194.4 Median Average $287.38 $244.14 $2.83 $2.15 $217.51 $218.18 $242.11 $247.7 $279.11 $267.11 MEDIAN $ PSF INCREASE Bldg. SF 29 21 211 212 213 214 215 216 217-3Q LA -1.% -18.5% -3.2% 19.2% -4.5% 14.% 7.4% 5.1% -2.9% Orange -28.7% -14.3% 12.4% -12.1% 7.6% 9.4% 1.3% 12.6% -6.5% Inland Empire -23.8% -11.6% -18.8% -8.4% 1.9% 7.% -1.% 2.9% 6.7% Ventura 17.1% -31.9% 6.4% -14.7% -4.5% 3.% 18.2% -1.6% 2.% Totals -15.% -17.7% -.3% 8.7%.3% 11.% 2.3% 12.7% -4.3%
Median Price PSF Annual Increase Square Footage Sold Average Price PSF Number of Transactions Transaction $ Volume (Millions) ORANGE COUNTY OFFICE THIRD QUARTER 217 SOUTHERN CALIFORNIA OFFICE BUILDING SALE TREND ANALYSIS Number of Transactions Transaction Volume $ 1,2 $12,. 1, $1,. 8 $8,. 6 $6,. 4 $4,. 2 $2,. 217-28 29 21 211 212 213 214 215 216 3Q LA 517 348 356 552 747 769 887 1,54 993 879 Orange 247 13 151 25 294 347 334 426 391 39 Inland Empire 284 168 156 25 264 327 373 432 397 368 Ventura 51 24 29 54 59 58 18 86 11 87 3,, Square Footage Sold $. 28 29 21 211 212 213 214 215 216 217-3Q LA $2,663.7 $753.9 $1,162.5 $2,72. $3,238.3 $5,95. $7,352.4 $4,867. $9,624.7 $6,7.5 Orange $725.3 $364.9 $521.9 $625.9 $783.3 $1,385.1 $1,596.8 $2,86. $2,51.5 $1,612.2 Inland Empire $356.9 $85.7 $96. $131.3 $166.7 $237.3 $336.9 $643.3 $457.2 $386.1 Ventura $93.9 $29.6 $81.3 $56.4 $43.2 $57.1 $247.8 $164.5 $169.4 $17.7 $5. Average Price PSF $45. 25,, $4. 2,, $35. $3. 15,, $25. 1,, $2. $15. 5,, $1. $5. 28 29 21 211 212 213 214 215 216 217-3Q 11,846,815 5,577,741 6,24,699 9,72,267 15,65,333 23,586,15 23,497,172 17,578,857 25,17,86 19,356,334 LA Orange 3,283,77 2,31,918 3,58,113 3,865,353 6,76,68 7,299,964 8,172,286 12,259,97 11,85,393 6,881,526 Inland Empire 2,124,94 957,23 1,94,559 1,742,48 2,322,85 2,461,316 2,919,294 5,376,785 3,419,994 3,748,149 Ventura 476,21 141,646 37,79 397,973 517,872 679,369 1,551,626 1,66,791 1,186,277 823,322 Median Price PSF $. 28 29 21 211 212 213 214 215 216 217-3Q LA $273.96 $226.31 $235.42 $256.11 $265.8 $281.44 $345.89 $36.4 $43.47 $378.55 Orange $293.52 $194.5 $182.39 $192.7 $211.65 $28.43 $27.81 $259.92 $264.58 $26.17 Inland Empire $212.69 $181.29 $13.39 $121.93 $135.86 $13.38 $143.52 $141.42 $17.65 $154.6 Ventura $27.86 $248.34 $328.13 $182.62 $13.87 $14.6 $29.36 $189.67 $181.55 $177.54 % Change Median Price PSF $35. $325. $3. $275. $25. $225. 3.% 2.% 1.% $2. $175. $15. $125. $1. $75. $5. $25. $. 28 29 21 211 212 213 214 215 216 217-3Q LA $288.58 $259.74 $211.75 $24.94 $244.34 $233.33 $266.2 $285.71 $3.16 $291.41 Orange $314.94 $224.41 $192.32 $216.15 $19. $24.49 $223.61 $246.57 $277.57 $259.58 Inland Empire $245.65 $187.29 $165.49 $134.45 $123.9 $125.42 $134.22 $132.88 $16.64 $171.44 Ventura $253.62 $297.9 $22.17 $215.19 $183.47 $175.15 $18.41 $213.19 $19.56 $194.4.% -1.% -2.% -3.% -4.% 29 21 211 212 213 214 215 216 217-3Q LA -1.% -18.5% -3.2% 19.2% -4.5% 14.% 7.4% 5.1% -2.9% Orange -28.7% -14.3% 12.4% -12.1% 7.6% 9.4% 1.3% 12.6% -6.5% Inland Empire -23.8% -11.6% -18.8% -8.4% 1.9% 7.% -1.% 2.9% 6.7% Ventura 17.1% -31.9% 6.4% -14.7% -4.5% 3.% 18.2% -1.6% 2.%
ORANGE COUNTY OFFICE THIRD QUARTER 217 MARKET REPORT OVERVIEW SOUTHERN CALIFORNIA MARKET MAP METHODOLOGY & TERMINOLOGY Methodology Non-owner occupied, multi-tenant, office buildings that are 3, square feet and greater. Direct Vacant SF Space that is vacant and ready for occupancy by a user. The space is being offered for lease or sale directly from the landlord. Total Vacant W/ Sublet SF Space that is vacant and ready for occupancy by a user. The space is being offered for lease or sale by the landlord or for sublease by the current tenant. DAUM OFFICES LOS ANGELES, CALIFORNIA 81 S. Figueroa Street, Suite 6 Los Angeles, CA 917 213-626-911 LOS ANGELES NORTH, CALIFORNIA 2182 Burbank Boulevard, Suite 21 Woodland Hills, CA 91367 818-887-36 SANTA CLARITA VALLEY, CALIFORNIA 28494 inghouse Place, Suite 312 Valencia, CA 91355 661-75-2299 MID-COUNTIES, CALIFORNIA 1381 Cerritos Corporate Drive, Suite C Cerritos, CA 973 562-27-33 ORANGE COUNTY, CALIFORNIA 44 MacArthur Boulevard, Suite 95 Newport Beach, CA 9266 949-724-19 VENTURA & SANTA BARBARA, CALIFORNIA 751 Daily Drive, Suite 15 Camarillo, CA 931 85-987-8866 Direct Vacancy Rate Total vacant direct space (vacant space for lease or sale from the landlord or owner) divided by the total rentable square footage for existing buildings only. Vacancy W/ Sublet Rate Total vacant direct space and sublease space divided by the total rentable square footage for existing buildings only. Gross Absorption The total change in occupied space over a given period of time, counting space that is occupied but not space that is vacated by tenants. Gross absorption differs from leasing activity, which is the sum of all space leased over a certain period of time. SAN GABRIEL VALLEY, CALIFORNIA 13181 Crossroads Pkwy. N, Suite 1 City of Industry, CA 91746 562-695-7244 SOUTH BAY, CALIFORNIA 125 W. 19th Street, Suite 42 Gardena, CA 9248 31-538-67 INLAND EMPIRE, CALIFORNIA 3595 E. Inland Empire Boulevard, Bldg. 5 Ontario, CA 91764 99-98-1234 PHOENIX ARIZONA 172 E. Highland Avenue, Suite 12 Phoenix, AZ 8516 62-957-73 The information contained in this report has been obtained from sources deemed reliable and has incorporated third-party data which has not been independently verified by DAUM. While we do not doubt its accuracy, DAUM makes no guarantee or warranty as to its completeness or accuracy. Due to the dynamic (constantly changing) database which DAUM uses to compile and analyze markets contained in this report, previously published statistics may vary from the data published in this report. Statistics and data have been revised to reflect changes in the following categories: existing buildings being verified and added to the database, new or revised occupancy information gathered, new construction being added to the inventory, building demolitions and renovations, as well as other factors that would necessitate revisions to the data and the properties surveyed. This methodology allows us to present the most current and up-to-date information, trend analysis and comparative statistics for this report. Net Absorption The net change in occupied space over a given period of time, calculated by summing all the positive changes in occupancy (move ins) and subtracting all the negative changes in occupancy (move outs). Under Construction Planned buildings for which construction has started but have not yet been granted a Certificate of Occupancy. Planned buildings are not included. Completed in 217 New buildings with original construction completed in the year 217 and granted a Certificate of Occupancy. Renovated buildings are not included.