Research & Forecast Report Central Los Angeles OFFICE Q2 216 Accelerating success. >> Hollywood Market Activity Flattens Key Takeaways > There is currently 533,6 square feet () of office product under construction and 85,2 of expected proposed construction in the Hollywood submarket. > The average asking rent for Class A buildings in Central Los Angeles is $3.44 per square foot (P) Full Service Gross (FSG), a 46.9% increase year over year. > decrease 2 basis points from one quarter ago recording 22.%. > After NetFlix dominated with a 123,5 expansion in the Hollywood submarket last quarter, leasing activity fell by 1, to 165, during second quarter. > Investment activity slowed in second quarter with just one building trading hands in the Hollywood submarket. Market Indicators Relative to prior period Q2 216 Forecast Net Absorption Construction Rental Rate Summary Statistics Central Los Angeles, Q2 216 Rate Class A Class B All Classes 19.7% 24.2% 22.% 1-1 -2-57.7 67.3 11.3 Change from Q1 16 (Basis Points) Net Absorption* Construction Completions* Under Construction* 533.6 533.6 *, Thousands Central Los Angeles Office Market The Central Los Angeles market saw activity flatten during second quarter yet still remained positive with vacancy decreasing by 2 basis points from last quarter and absorption closing at 2,9. There is currently 533,6 of office product under construction along with 85, of additional proposed product. This additional new inventory will bode well for the Hollywood market, opening options for tenants seeking new product in a preferred high-image location. Media and tech companies continued to see the Hollywood submarket as an attractive offering of high-image new Class A inventory and abundant production facilities, as evidenced by NetFlix's expansion to the rest of Hudson Pacific's ICON project. Asking Rents Central Los Angeles, Q2 216 Class A Class B All Classes $3.44 $2.18 $2.61 -$.1 $.3 $.3 47.4% 17.2% 34.5% Average Asking Rent Change from Q1 16 ($) Y.O.Y. Change (%) Labor Force Los Angeles County, Q2 216 Nonfarm Prof. & Business Services Financial Activities 12-mo Employment Growth (%) 2.4% 2.1% 2.5% 12-mo Actual Employment Change 11,3 12,5 5,3
Central Los Angeles OFFICe Q2 216 > in Central Los Angeles decrease by 2 basis point to 22.% from one quarter ago. A longer historical perspective shows the vacancy rate at 18.9% two years ago. > Mid-Wilshire Class A properties saw the largest change in vacancy, moving from 11.6% to 13.%. > Hollywood saw little movement, as smaller transactions and renewals dictated activity for the quarter. > Forecast: in Central Los Angeles should level out through 216 as demand catches up to fewer new product deliveries compared to a year ago. Absorption and Leasing Activity > The largest deals during second quarter ranged between 25,-3,. > Absorption for the quarter totaled 2,9, with both Hollywood recording the highest at 59,2 and Mid- Wilshire the lowest at -38,3. > Two larger deals signed this quarter in Central Los Angeles. an undisclosed tenant agreed to occupy 33,5 at 325 Wilshire Blvd. in Mid-Wilshire, while 3D visual effects company Legend 3D signed for 27,9 at Kilroy's Columbia Square property. > Forecast: With continued demand in Central Los Angeles and several of Hollywood's larger projects having been delivered or about to deliver, absorption should be on par with 215. Hollywood remains attractive to media and entertainment companies looking for headquarters space with production capabilities either on-site or nearby. Rental Rates > The average asking rental rate for the market jumped $.3, or 1.2%, from first quarter of 216. > Year-over-year, overall rents have jumped 27.9%, driven by deliveries of partially vacant new product in Hollywood carrying asking rents typical of new Class A product. > The differences in rates between Mid-Wilshire and Hollywood continue to be stark as the Hollywood pipeline continues to push rates higher, while Mid-Wilshire remains a steady alternative for price-averse tenants. > Forecast: Rents currently stand 19.2% higher than their pre-recession peak, which questions how much more rents will increase in the near future. However, robust demand and historic construction levels might push the rent ceiling higher. Historical v. Rents Central Los Angeles Market Q2 12-16 $ P FSG PER ANNUM (WEIGHTED) Net Absorption by Submarket Central Los Angeles Market Q2 16 $3. $2.5 $2. $1.5 $1. 8, 6, 4, 2, 2Q12 2Q13 2Q14 2Q15 2Q16 (2,) (4,) (6,) (38,3) RENTS MID WILSHIRE VACANCY 59,2 HOLLYWOOD Historical Leasing Activity Central Los Angeles Market Q2 12-16 6, 5, 4, 3, 2, 1, 24% 22% 2% 18% 16% 14% 12% 1% % VACANT (TOTAL) 2Q12 2Q13 2Q14 2Q15 2Q16 2
Central Los Angeles OFFICe Q2 216 Construction > No new office projects delivered to the market during second quarter. > Due to the flurry of deliveries the past two quarters, the construction pipeline has lessened in Hollywood. Projects such as Hudson Pacific's ICON and J.H. Snyder's 161 N. Vine projects are set to deliver in late 216/early 217. > Forecast: Construction will slow in the second half of 216 as the previous construction highs left nowhere to go but down. However, several proposed projects remain in the Hollywood submarket and look to break ground by the end of 216. Investment Trends > Investment activity for properties over 25, slowed in the second quarter, with just one project trading hands at 1545 Wilcox Ave. in Hollywood. The creative office building sold for $245 P to Five Chairs. Koar, LLC last purchased the building in 214 for $297 P. > Investors remain bullish on the Central Los Angeles market, targeting not only Class A trophy buildings, but also value-add and redevelopment opportunities. > Forecast: The Federal Reserve's interest rate increase at the end of 215 did little to dampen investment activity in 216. Investors are expected to remain bullish in the Hollywood/Mid-Wilshire market for the second half of 216. Outlook The Hollywood submarket will continue to see strong demand for space from entertainment, media and technology firms as pre-leased properties are delivered to the market. With the surrounding submarkets mostly built-out and creative tenants passing on the burgeoning, but not fully-realized Downtown Los Angeles creative market, Hollywood has the opportunity to attract tenants desiring quality space at a lower price-point than the Silicon Beach cluster. That window, however, is closing as Hollywood prices start to rise due to new construction. The abundance of large blocks of space is also attractive for companies looking to consolidate their operations or relocate headquarter offices. Historical Net Absorption & Construction Completions Central Los Angeles Office Market Q2 12-16 5, 4, 3, 2, 1, (1,) (2,) (3,) NET ABSORPTION 2Q12 2Q13 2Q14 2Q15 2Q16 Investment Trends Chart Central Los Angeles Office Market Q2 12-16 $/P $4. $35. $3. $25. $2. $15. $1. $5. CONSTRUCTION COMPLETIONS Unemployment Rate U.S., CA & Los Angeles County May 216 5.3% 5.2% 5.1% 5.% 4.9% $- Average Price P 5.2% Cap Rate 21 211 212 213 214 215 216 4.9% 7 6 5 4 3 2 1 Cap Rate 4.8% 4.7% 4.7% 4.6% 4.5% 4.4% United States California Los Angeles County 3
Central Los Angeles OFFICe Q2 216 Market Description Central Los Angeles is an office market comprised of 14.1 million, representing 6% of the total office space 25, and greater in the Los Angeles Basin. Mid-Wilshire is attractive to small, entrepreneurial, and often Pacific Rimowned businesses while Hollywood has a mix of firms from the professional services, high-tech and entertainment/ media sectors. Submarket Map RECENT TRANSACTIONS & MAJOR DEVELOPMENTS Central Los Angeles Office Market Q2 216 SALES ACTIVITY PROPERTY ADDRESS SIZE SALE PRICE PRICE P BUYER SELLER 1545 Wilcox Ave., Hollywood 48,925 $12 M $245 P Five Chairs Koar, LLC LEASING ACTIVITY PROPERTY ADDRESS LEASED LEASE TYPE BLDG CLASS LESSEE LESSOR 325 Wilshire Blvd., Los Angeles 33,5 Direct-New A Undisclosed Tenant Realtech Leasing & Management 155 El Centro Ave., Hollywood 27,9 Direct-New A Legend 3D Kilroy Realty Corporation MAJOR DEVELOPMENTS PROJECT DEVELOPER SIZE SUBMARKET STATUS ESTIMATED COMPLETION Icon at Sunset Bronson Studios (2 bldgs) Hudson Pacific 45, Hollywood Under Construction Q1 217 161 N. Vine St. J.H. Snyder Company128,6 Hollywood Under Construction Q1 217 The Academy - DeLongpre Ave. Kilroy Realty 3, Hollywood Proposed TBD 4
Central Los Angeles OFFICe Q2 216 office OVERVIEW Central Los Angeles Office Market Q2 216 EXISTING PROPERTIES VACANCY ACTIVITY ABSORPTION CONSTRUCTION RENTS Submarket /Class Bldgs Inventory Direct Sublease Prior Qtr Leasing Activity Current Qtr Leasing Activity YTD Net Absorption Current Qtr Net Absorption YTD Completions Current Qtr Under Construction Weighted Avg Asking Lease Rate MARKET TOTAL A 33 6,12,5 19.5%.1% 19.7% 18.7% 123,682 25,582 (57,7) (38,1) 533,6 $3.44 B 59 6,99,2 23.9%.3% 24.2% 25.2% 33,47 112,47 67,3 179,1 $2.18 C 22 1,218, 2.5%.8% 21.2% 22.2% 7,734 12,634 11,3 (9,4) $1.56 114 14,139,7 21.8%.3% 22.% 22.2% 164,886 375,686 2,9 131,6 533,6 $2.61 MID-WILSHIRE A 16 3,691,9 12.9%.1% 13.% 11.6% 76, 53,9 (5,2) (46,) $2.19 B 39 5,811,8 26.2%.1% 26.3% 26.5% 25,6 55,2 1,4 59,6 $2.6 C 9 693,4 31.7%.% 31.7% 32.% 6,534 7,734 1,5 (1,5) $1.42 Subtotal 64 1,197,1 21.8%.1% 21.8% 21.5% 18,134 116,834 (38,3) 12,1 $2.2 HOLLYWOOD A 17 2,32,6 3.1%.2% 3.3% 3.% 47,682 196,682 (7,5) 7,9 533,6 $4.3 B 2 1,97,4 11.8% 1.6% 13.4% 18.6% 7,87 57,27 56,9 119,5 $3.57 C 13 524,6 5.5% 1.8% 7.3% 9.2% 1,2 4,9 9,8 (7,9) $2.6 Subtotal 5 3,942,6 21.7%.8% 22.5% 24.1% 56,752 258,852 59,2 119,5 533,6 $4.13 Note: revisions to the inventory base were made effective Q2 216, historical data reported here reflect these revisions and may not match data reported in previous quarters. 5
Central Los Angeles OFFICe Q2 216 Definitions of key terms in this report Rentable Square Feet: Office space in buildings with 25, square feet or more of speculative office space. Includes competitive space in Class A, B and C single-tenant and multi-tenant buildings. Excludes non-competitive owner-occupied buildings, buildings that include 3 percent or greater of medical or retail space, and space that is under-construction, underrenovation or off-market. Class A Space: Space that an image-conscious company would lease for its headquarters. Typically, this space has a very high level of finish and an excellent location, and commands the highest rents in the market. Class B Space: Highly functional, attractive space, but less prestigious than Class A Space, and commanding lower rental rates. Class C Space: Functional, competitive space, but with a lower level of finish and/or a less desirable location than with Class B Space, and commanding lower rental rates. Low-Rise: Buildings with a total of 4 floors or less. Mid-Rise: Buildings with a total of 5 to 13 floors. High-Rise: Buildings with 14 or more floors. Direct : Space in existing buildings that is vacant and immediately available during the quarter for direct lease, plus space that is vacant but not available for direct lease or sublease (for example, that is being held for a future commitment). : Space in existing buildings that is vacant and immediately available during the quarter for direct lease or for sublease, plus space that is vacant but not available for direct lease or sublease. Net Absorption: Net change in occupied square feet from one period to the next (includes the impact of change in vacant space available for sublease). Leasing Activity: Square feet leased from all known transactions completed during the quarter. Excludes lease renewals. Weighted Average Asking Rental Rates: Weighted by the total square feet available for direct lease. Data is based on Full Service Gross rents, and includes all costs associated with occupying the space, including taxes, insurance, maintenance, janitorial service and utilities. Reported on a monthly, per basis. Space Added (Net): square feet added during the quarter via construction completions, including renovated space returned to market, less total square feet taken off-market due to demolitions or conversions. Under Construction: Includes buildings that are in some phase of construction, beginning with foundation work and ending with the issuance of a Certificate of Occupancy Technical Note: Colliers International is continuously refining its database. The data shown in the historical tables and graphics in this report have been adjusted to take into account these changes in the database. This report has been prepared by Colliers International for general information only. Information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof. Colliers International does not guarantee, warrant or represent that the information contained in this document is correct. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This report and other research materials may be found on our website at www.colliers.com/greaterlosangeles. 554 offices in 66 countries on 6 continents United States: 153 Canada: 34 Latin America: 24 Asia Pacific: 231 EMEA: 112 UNITED STATES: Downtown LA Office License No. 198231 865 S. Figueroa St., Ste. 35 Los Angeles, CA 917 HANS MUMPER Executive Managing Director CHRIS WONG Regional Research Analyst Research Services > $2.5 billion in annual revenue > 2. billion square feet under management > Over 16,1 professionals TEL: +1 213 627 1214 FAX: +1 213 327 32 CAITLIN MATTESON Research Director Research Services 6