San Diego Market Facts 3.6% San Diego County Unemployment Rate As Of May 2017 4,394 SF Positive Net Absorption Current Quarter Positive 19,491 SF Year-To-Date 10.8% Total Vacancy Rate Flat From 10.8% In Q1 2017 $2.73 PSF Asking Rental Rate Weighted Average Market Overview The San Diego office market is robust and strengthening as of the first half of 2017. Retracting vacancy persists across the county, while rents continue to increase quarter-over-quarter. Along with a desirable geography, the market benefits 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 second quarter of the year dropped to 3.6%, down from 4.2% one year earlier. Vacancy in the county contracted to 10.8% by the end of the second quarter of 2017, as compared to 12.0% recorded at the same time in the previous year. San Diego s office market has been able to sustain competitive vacancy levels, even after the up-tick in new deliveries added over the past few years. Office space continues to spend less time on the market, and fewer months vacant. Rental rates have reached $2.73 psf FSG as of the second quarter of 2017, increasing from $2.56 psf FSG at the same time in the previous year. The highest rents were found in the Central Coast submarket at $3.32 psf FSG, with the next highest in the Downtown submarket at $2.55 psf FSG, followed by the North County Coastal area at $2.50 psf FSG. Increases in Central Coast rents are driven largely by the profound demand from the life science sector, which is among the most prominent in the country. San Diego County recorded a net absorption of positive 4,394 sf of office space in the second quarter of 2017, and positive 1,224,446 sf for the most recent 12 month period. The San Diego office market had six investment-grade office projects under construction at the second quarter, including life science projects, amounting to 764,622 sf of new inventory that is expected to be delivered in 2017 and 2018.
Asking Rent Vacancy Rates Net Absorption $2.80 16.00% 800,000 $2.60 14.00% 600,000 $2.40 400,000 $2.20 12.00% 200,000 $2.00 10.00% 0 $1.80 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 8.00% 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 200,000 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 Top Leases Tenant Type Address Submarket SF LabCorp - Life Science Renewal 13112 Evening Creek Drive Rancho Bernardo 109,780 Azusa Pacific University Renewal 5353 Mission Center Road Mission Valley 30,846 Kratos Defense & Security Solutions New 10680 Treena Street Scripps Ranch 26,192 Verimatrix New 5897 Oberlin Drive Sorrento Mesa 21,200 Lockheed Martin New 10089 Willow Creek Road Scripps Ranch 20,777 Top Sales Address Submarket Buyer Seller Price SF Scripps Ranch Business Park Scripps Ranch Hill Properties LA County Employees Retirement Assoc. $31,400,000 186,157 North Coast Medical Plaza Carlsbad Montecito Medical Real Estate Foley Properties $30,050,000 49,580 Torrey Hills Medical Plaza Del Mar Heights Coast Income Properties, Inc. San Diego Comprehensive Pain Mgmt $28,500,000 44,156 Scripps Wateridge Corp Ctr Sorrento Mesa HCP, Inc. Colony Northstar, Inc. $26,100,000 124,571 9860 Mesa Rim Road Sorrento Mesa CMS Capital Holdings, LLC Washington Capital Mgmt $12,500,000 40,755 Under Construction Address Submarket Developer SF Completion 4775-4795 Executive Drive - Life Science UTC The Blackstone Group LP 316,262 Q3 2017 3215 Merryfield Row - Life Science Torrey Pines Alexandria Real Estate Equities 170,523 Q3 2018 9779 Towne Centre Drive UTC The Irvine Company 96,435 Q3 2017 3420-3430 Carmel Mountain Road Del Mar Heights American Assets Trust 90,770 Q3 2017 111 Campus Way San Marcos Urban Villages San Marcos 60,000 Q3 2017
San Diego By The Numbers Vacancy Net Absorption Avg. Advertised Rates (FSG) Construction Pipeline Inventory (SF) Vacancy (SF) Vacancy (%) Q1 2017 Vacancy (%) Current Quarter Absorption Year-To-Date Absorption Q22017 Rental Rates Q1 2017 Rental Rates Qtr/Qtr Change (%) Current Quarter Deliveries YTD Deliveries Under Construction Quarter-End North County Coastal Class A 2,458,033 445,133 18.10% 18.00% -3,465 15,504 $2.67 $2.68-0.37% 0 0 0 Class B 6,851,369 792,923 12.00% 13.10% 73,553 64,013 $2.45 $2.48-1.21% 0 0 90,632 Class C 411,677 70,335 17.10% 16.70% -1,748 817 $1.86 $1.85 0.54% 0 0 0 Total 9,721,079 1,308,391 13.80% 14.60% 68,340 80,334 $2.50 $2.52-0.79% 0 0 90,632 North County Inland Class A 5,471,034 633,651 11.60% 7.20% -202,995-333,830 $2.83 $2.80 1.07% 0 0 0 Class B 6,389,135 598,652 9.40% 9.10% -50,248-119,042 $2.24 $2.21 1.36% 0 0 0 Class C 564,540 54,342 9.60% 8.60% -5,693-9,602 $1.51 $1.53-1.31% 0 0 0 Total 12,424,709 1,286,645 10.40% 8.20% -258,936-462,474 $2.37 $2.29 3.49% 0 0 0 Central Coast Class A 14,460,726 1,676,756 11.60% 11.80% 30,485 55,457 $3.61 $3.53 2.27% 0 0 357,728 Class B 12,799,782 1,544,550 12.10% 14.30% 95,883 109,711 $2.97 $2.86 3.85% 63,000 367,326 316,262 Class C 630,981 29,094 4.60% 4.80% 1,305 37 $1.93 $2.18-11.47% 0 0 0 Total 27,891,489 3,250,400 11.65% 12.70% 127,673 165,205 $3.32 $3.24 2.47% 63,000 367,326 673,990 Central City Class A 5,493,204 648,407 11.80% 10.60% -26,431 28,832 $2.98 $2.97 0.34% 0 0 0 Class B 11,455,618 905,277 7.90% 8.30% 18,884 116,369 $2.25 $2.19 2.74% 0 0 0 Class C 3,721,645 161,356 4.30% 5.20% 24,283 80,269 $1.70 $1.80-5.56% 0 0 0 Total 20,670,467 1,715,040 8.30% 8.40% 16,736 225,470 $2.37 $2.33 1.72% 0 0 0 Downtown Business District Class A 6,688,586 539,677 8.10% 8.80% 46,727 1,141 $2.92 $2.98-2.01% 0 0 0 Class B 4,127,597 739,907 17.90% 18.30% -27,376-32,949 $2.23 $2.30-3.04% 0 0 0 Class C 1,500,446 130,202 8.70% 9.00% 5,197 3,567 $2.46 $2.37 3.80% 0 0 0 Total 12,316,629 1,409,786 11.40% 12.00% 24,548-28,241 $2.55 $2.60-1.92% 0 0 0 East County Class A 233,830 11,040 4.70% 4.70% 0 0 $2.27 $2.39-5.02% 0 0 0 Class B 2,252,461 50,559 2.20% 3.10% 18,099 19,839 $2.35 $2.35 0.00% 0 0 0 Class C 907,558 49,938 5.50% 4.40% -9,081 2,504 $1.32 $1.28 3.13% 0 0 0 Total 3,393,849 111,537 3.30% 3.60% 9,018 22,343 $1.86 $1.96-5.10% 0 0 0 South Bay Class A 447,583 107,277 24.00% 29.10% 23,084 19,868 $2.55 $2.56-0.39% 0 0 0 Class B 2,064,035 209,451 10.10% 10.00% -7,159-3,014 $2.40 $2.46-2.44% 0 0 0 Class C 332,559 23,696 7.10% 7.50% 1,090 0 $1.99 $2.00-0.50% 0 0 0 Total 2,844,177 340,424 12.00% 12.80% 17,015 16,854 $2.43 $2.45-0.82% 0 0 0 San Diego County Office Class A 35,252,996 4,061,941 11.60% 10.90% -132,595-213,028 $3.21 $3.18 0.94% 0 0 357,728 Class B 45,939,997 4,841,319 11.00% 11.40% 121,636 154,927 $2.46 $2.43 1.23% 63,000 367,326 406,894 Class C 8,069,406 518,963 6.70% 6.60% 15,353 77,592 $1.85 $1.93-4.15% 0 0 0 TOTAL 89,262,399 9,422,223 10.80% 10.80% 4,394 19,491 $2.73 $2.69 1.49% 63,000 367,326 764,622 VacancybyRegion Rental Rate by Region 25.00% $3.50 20.00% $3.00 15.00% $2.50 10.00% $2.00 5.00% $1.50 0.00% 2007 Q2 2008 Q2 2009 Q2 2010 Q2 2011 Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 North Coastal North Inland Central Coast Central City Downtown East County South Bay $1.00 2007 Q2 2008 Q2 2009 Q2 2010 Q2 2011 Q2 2012 Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 North Coastal North Inland Central Coast Central City Downtown East County South Bay
Office Markets Total Market including owner occupied space Leased Market Existing Inventory (SF) Total Vacancy % Under Construction Existing Inventory Direct Vacancy % Total Vacancy % Total Net Absorption Average Asking Rents Carlsbad 5,434,080 16.90% 30,632 5,222,623 16.10% 17.10% 69,495 $2.52 Encinitas/Solana Beach/Del Mar/RSF 1,637,691 6.70% 0 1,608,032 6.60% 6.90% -1,312 $3.45 Oceanside 796,285 10.10% 0 733,514 11.00% 11.00% 4,257 $1.96 San Marcos 1,079,815 8.40% 60,000 783,472 11.30% 11.30% 186 $2.39 Vista 773,208 19.10% 0 747,898 17.50% 19.70% -2,413 $1.81 North County Coastal 9,721,079 13.80% 90,632 9,095,539 13.60% 14.40% 70,213 $2.50 Escondido 848,138 9.20% 0 822,738 9.40% 9.40% -3,497 $2.06 Miramar/Mira Mesa 1,470,935 10.20% 0 1,448,950 10.00% 10.30% -604 $1.89 Poway 1,169,832 6.00% 0 760,047 6.50% 6.50% 2,631 $2.23 Carmel Mountain Ranch/Rancho Bernardo 6,550,716 9.00% 4,980,444 8.60% 11.90% -71,653 $2.70 Scripps Ranch 2,385,088 16.70% 0 1,876,778 19.00% 21.20% -185,813 $2.35 North County Inland 12,424,709 10.40% 0 9,888,957 10.70% 12.80% -258,936 $2.37 Del Mar Heights/Carmel Valley 4,505,330 17.00% 90,770 4,399,110 14.80% 17.40% 74,612 $4.08 Governor Park 795,607 7.50% 0 795,607 7.00% 7.50% -1,168 $2.60 La Jolla 1,089,934 9.80% 0 1,089,934 9.30% 9.80% 10,564 $3.25 Sorrento Mesa 9,034,250 12.40% 0 6,063,996 17.30% 18.40% 31,586 $2.82 Sorrento Valley 507,930 3.50% 0 443,813 4.00% 4.00% 11,991 $1.87 Torrey Pines 2,843,552 11.40% 170,523 1,683,615 15.90% 17.80% 299,677 $3.63 UTC 9,114,886 15.10% 412,697 8,754,745 13.10% 15.70% 291,629 $3.41 Central Coast 27,891,489 11.65% 673,990 23,230,820 13.30% 15.10% 718,891 $3.32 Bankers Hill/Hillcrest/North Park 1,906,777 6.40% 0 1,580,658 7.40% 7.80% -9,131 $2.54 Kearny Mesa 9,702,035 7.30% 0 6,991,951 9.30% 9.90% -24,707 $2.17 Mission Valley 6,615,904 11.40% 0 5,832,759 9.40% 10.10% -4,429 $2.47 Old Town/Sports Arena/Point Loma 1,688,580 6.10% 0 1,291,161 6.80% 6.80% -1,480 $2.46 Pacific Beach/Rose Canyon/Morena 757,171 3.40% 0 597,776 4.30% 4.30% 9,408 $1.60 Central City 20,670,467 8.30% 0 16,294,305 8.80% 9.30% -30,339 $2.37 Downtown San Diego 12,316,629 11.40% 0 12,088,629 11.20% 11.70% 25,626 $2.55 Downtown Business District 12,316,629 11.40% 0 12,088,629 11.20% 11.70% 25,626 $2.55 College Area 938,693 3.50% 0 819,693 4.00% 4.00% 0 $2.24 El Cajon/La Mesa/Lemon Grove/Santee 2,076,803 3.00% 0 1,900,953 3.30% 3.30% 473 $1.97 Mission Gorge 378,353 4.00% 0 319,040 4.70% 4.70% 1,197 $1.11 East County 3,393,849 3.30% 0 3,039,686 3.70% 3.70% 1,670 $1.86 Chula Vista 1,911,061 11.00% 0 1,518,733 13.80% 13.90% 19,263 $2.46 Coronado/Imperial Beach National 83,001 20.90% 0 57,001 26.70% 26.70% 0 - City/Southeast San Diego Otay 676,008 15.50% 0 595,046 17.60% 17.60% -1,200 $2.21 Mesa 174,107 4.20% 0 174,107 4.20% 4.20% 0 $1.98 South Bay 2,844,177 12.00% 0 2,344,887 14.40% 14.40% 18,063 $2.43 San Diego County Total 89,262,399 10.80% 764,622 75,982,823 11.30% 12.40% 545,188 $2.73
A Growing, Multinational Presence Avison Young at a Glance Founded: 1978 Total Real Estate Professionals: 2,400 Offices: 80 Brokerage Professionals: 1,000+ 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 80 offices, providing value-added, client-centric investment sales, leasing, advisory, management, financing and mortgage placement services to owners and occupiers of office, retail, industrial, multi-family and hospitality properties. EDMONTON CALGARY SACRAMENTO RENO SAN FRANCISCO OAKLAND SAN MATEO VANCOUVER LETHBRIDGE DENVER MINNEAPOLIS CHICAGO (2) CLEVELAND DETROIT COLUMBUS LAS VEGAS INDIANAPOLIS PHOENIX NASHVILLE DALLAS MEMPHIS HOUSTON AUSTIN KNOXVILLE SAN ANTONIO LOS ANGELES (4) ORANGE COUNTY SAN DIEGO REGINA ST. LOUIS WINNIPEG MEXICO CITY PITTSBURGH TAMPA ORLANDO TORONTO (2) TORONTO NORTH TORONTO WEST WATERLOO REGION JACKSONVILLE OTTAWA MONTREAL WEST PALM BEACH BOCA RATON FORT LAUDERDALE MIAMI MONCTON HALIFAX BOSTON HARTFORD FAIRFIELD/WESTCHESTER LONG ISLAND NEW YORK CITY PHILADELPHIA NEW JERSEY(2) SUBURBAN MARYLAND WASHINGTON, DC TYSONS RALEIGH-DURHAM (2) CHARLOTTE GREENVILLE CHARLESTON ATLANTA COVENTRY LONDON (2) THAMES VALLEY HAMBURG BERLIN DUESSELDORF FRANKFURT MUNICH BUCHAREST 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: Keith Kropfl keith.kropfl@ San Diego - La Jolla 4655 Executive Dr, Ste 325 San Diego CA 92121 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 4655 Executive Dr, Ste 325 San Diego CA 92121 amber.jagers@ 949.757.1190 858.201.7077 213.935.7435 858.201.7072 2017 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.