Q2 2013 SILICON VALLEY SILICON VALLEY RESEARCH & FORECAST REPORT Finding Its Balance SILICON VALLEY SEES GROWING STABILITY The economy as a whole continues to cautiously move forward. There are some sectors, though, where talk of recovery is becoming unnecessary. Home prices are at pre-recession levels in many parts of the country, and have even surpassed those levels in some areas locally. The stock markets have surpassed their pre-recession records. The most recent blip in the stock markets climb was talk of the Federal Reserve Board ending its third round of quantitative easing due to the strength of economic indicators. The number of people employed in the San Jose area continues to grow and is the highest it has been since 2001, welcome news for the area s commercial real estate market. MARKET INDICATORS Q1 2013 Q2 2013 12.98% 12.56% Gross Absorption 4,949,496 SF 6,104,063 SF Net Absorption 1,310,059 SF 2,670,060 SF SILICON VALLEY AVAILABILITY 18.00% 15.00% 12.00% 9.00% 6.00% 3.00% SILICON VALLEY GROSS ABSORPTION Square Feet in Millions 5 4 3 2 1 0 New leasing and user sale activity during the second quarter of 2013 increased 23.3% over the previous quarter to register 6.10 million square feet. This amount of gross absorption is the highest since the third quarter of 2011, and is also the first time activity has crossed the 6.0 million-square-foot threshold since then. While gross absorption dipped in the industrial sector during the quarter, the office, R&D and warehouse sectors each reported increased activity of at least 24% over the previous quarter. The Silicon Valley s office and R&D sectors accounted for 80.9% of all new activity. The second quarter benefited from another decrease in pre-improved, rollover space being vacated. In total, 3.43 million square feet of space was vacated during the quarter. This is a decrease from the first quarter s already-low number, and it is the third straight quarter in which rollover space coming to market has dropped. The rate at which space is being vacated is now less than one-half the rate it was during the recession dump. The amount of space occupied in Silicon Valley s commercial real estate market increased in the second quarter and did so by the largest margin in seven and a half years. Each of the four product types, like the first quarter, contributed to the quarter s net absorption tally of 2.67 million square feet. Total vacant space fell 69 basis points to 10.2%, or 32.11 million square feet. Vacant space has now decreased nine straight quarters, down from 47.18 million square feet during the first quarter of 2011. The Valley s availability rate fell to 12.6%, or 39.54 million square feet. This is the first time that total available space has been less than 40 million square feet since the first quarter of 2001. Occupied, available space did increase over Q1. It is not uncommon, especially in the northern submarkets, to begin marketing spaces multiple quarters in advance, as landlords seek to capture increasing demand. Unlike several recent quarters, the second quarter of 2013 did not have a handful of transactions (or bankruptcies) that tipped the scales in either direction. There was still noteworthy activity during the quarter. More of the pre-leasing activity from 2012 was realized. The office sector posted its largest gain in occupancy since the fourth quarter of 2001. Morgan Hill was home to the largest new transaction. Nonetheless, Q2 would have been strong without any of these headlines. Silicon Valley s commercial real estate market is finding its balance. Companies are becoming healthier and therefore shedding operations and space less. The increased activity during the second quarter comes without footnotes. As the market continues to right itself, it will take more to knock it off balance, and, even in this cautious economic climate, that does not seem likely anytime soon. R&D Office Industrial Warehouse www.colliers.com/sanjose This report and other research materials may be found on our website at www.colliers.com/sanjose. This quarterly report is a research document of Colliers International San Jose, CA. Questions related to information herein should be directed to the Research Department at 408 282 3800. Information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof. 2013 Colliers International
OFFICE The Silicon Valley s office sector continued to gain ground in the second quarter of the year. Activity continues to be erratic, but instead of the 23% drop-off in gross absorption witnessed in the first quarter of 2013, activity increased 48.7% during Q2 2013. The 2.04 million square feet of gross absorption recorded is in-line with Colliers quarterly forecast for the year. Pre-improved, rollover space coming to the market continues to show restraint. The 1.21 million square feet of office space vacated during the second quarter, partnered with the large increase in activity, led to an occupancy gain of 824,512 square feet. The second quarter s occupancy gain surpasses all of the quarterly occupancy gains witnessed in the outstanding 2011 and post Dot-com run-up in 2005 and 2006. In fact, the last time the office sector generated net absorption at this level was the fourth quarter of 2001. 25.00% 2 15.00% 1 5.00% The office sector s vacancy rate held steady at 13.8%. While this may seem counter-intuitive given the large occupancy gain experienced during the quarter, newly completed construction is the reason. Over one-third of the second quarter s office net absorption was due to pre-leased, new construction that was completed and occupied. Since the space was pre-leased, it was never considered vacant. Additionally, the first phase of Menlo Equities project on Scott Boulevard in Santa Clara was completed, adding slightly less than 460,000 square feet of inventory to the market. This does not affect net absorption as there was no tenant movement. After leading the Silicon Valley s office sector for two straight quarters, Sunnyvale passed the reins to Santa Clara, which posted its highest level of activity since the second quarter of 2002. The 335,273 square feet of office net absorption led to the largest occupancy gain for OFFICE AVAILABILITY & RENT TRENDS Avg. Starting Rent The second quarter s occupancy gain surpasses all of the quarterly occupancy gains witnessed in the outstanding 2011 and post Dot-com run-up in 2005 and 2006. In fact, the last time the office sector generated net absorption at this level was the fourth quarter of 2001. Santa Clara since the fourth quarter of 2005. Much like Sunnyvale had newly-completed and leased developments to thank for its leading position the previous two quarters, a large part of the new activity in Santa Clara came from two completed buildings at The Irvine Company s Santa Clara Gateway project. Along with the two, 149,000-square-foot buildings which Dell and Arista occupied in that project, Great America Parkway had 118,320 square feet leased by Abbott Laboratories. While not contributing to overall occupancy gain, NVIDIA took over Renesas Electronics 200,000-squarefoot space on Scott Boulevard. San Jose s office sector nipped at the heels of Santa Clara in terms of occupancy gain. The city posted 303,060 square feet of net adsorption during the second quarter, which is the most in three years. The city s office $4.00 vacancy rate fell to 16.4%, its lowest since the beginning of 2009. San $3.00 Jose s airport submarket was the main driver, accounting for over $2.00 40% of the new activity during the quarter. The primary contributors $1.00 were Invensense, which leased 129,795 square feet on Technology $0.00 Drive, and Old Republic Title Company, which leased 20,771 square feet on Airport Parkway. Downtown San Jose also continues to gain steam. The downtown submarket has now posted two straight quarters of occupancy gain, the first time it has done so since the beginning of 2007. Highlighting activity downtown was the 17,108-square-foot lease RetailNext signed on South Market Street. Although weighted average asking rents in Palo Alto are over $1.50 per square foot higher than its closest competitor, Mountain View, the city s location still makes Palo Alto one of the top contributors in the Silicon Valley s office sector. OFFICE LEASING & SALES ACTIVITY SELECTED COLLIERS INTERNATIONAL TRANSACTIONS - Q2 2013 PROPERTY ADDRESS SQUARE FEET LANDLORD/SELLER TENANT/BUYER TYPE 2665 North 1st Street, San Jose 130,524 2665 N 1st, LLC Westcliff Group, LLC Investment Sale 2545 North 1st Street, San Jose 62,560 Lincoln Property Company Amdocs Lease 1521 and 1533 California Circle, Milpitas 51,868 CW Capital Cannae Partners Investment Sale 2952 Bunker Hill Lane/ 5150 Great America Parkway, Santa Clara 50,946 Menlo Equities, LLC Zenith Electronics Lease 224 Airport Parkway, San Jose 20,771 Equity Office Old Republic Title Company Lease 333 West San Carlos, San Jose 20,127 Legacy Partners Baynote, Inc. Lease P. 2 COLLIERS INTERNATIONAL
Cloudera leased 53,558 square feet on Page Mill Road. Additionally, Emerson Collective moved into 19,406 square feet in downtown Palo Alto on University Avenue. The office vacancy rate in Palo Alto stands at a relatively high 11.1%, although more than one-third of that is attributed to the 265,294-square-foot vacancy on Page Mill Road. Weighted average starting rents for office deals were $2.96 per square foot full service during the second quarter. This represents a 5.1% decrease over the previous quarter s starting rate. This is not alarming, and it highlights the spreading recovery. With fewer options in the northern submarkets, companies with space needs are looking for value and turning to the less expensive, southern submarkets. 25.00% 2 15.00% 1 5.00% R&D Leasing and user sale activity continued to increase during the second quarter in the Silicon Valley s R&D sector. Gross absorption increased 36.4% from the first quarter of 2013, and has increased over 57% from the slowdown witnessed in the second half of 2012. The 2.90 million square feet of gross absorption is the highest in four quarters and is a welcome sight, indicating a recovery from the second-half stall in 2012. Another telling sign of recovery is the slowing of existing space being vacated. The 1.33 million square feet of R&D space vacated during Q2 is the lowest Colliers has on record since beginning to track statistics in Silicon Valley 25 years ago. The smaller pipeline of rollover space comes as companies become healthier and have less need to shed operations. The combination of increased tenant activity and less space being vacated allowed the R&D sector to post 1.57 million square feet of occupancy gain. This gain is higher than any quarterly gain seen in 2012 and the second highest in the last seven years. R&D AVAILABILITY & RENT TRENDS Avg. Starting Rent The combination of increased tenant movement and less space being vacated allowed the R&D sector to post 1.57 million square feet of occupancy gain. This gain is higher than any quarterly gain seen in 2012 and the second highest in the last seven years. As Colliers noted in its most recent annual and quarterly reports, the tightening market is causing companies with space needs to look at spaces that had been passed over, even during the pre-recession build-up. Two significant examples are Quantumscape s lease on Technology Drive and Barracuda Network s lease on Fontanoso Way. These two San Jose buildings had each stood vacant for at least nine years. The Fremont submarket had record-setting activity and led the Silicon Valley s R&D surge. The 709,065 square feet of new deals completed marks the first time activity has crossed 700,000 square feet in the city s R&D sector. The R&D vacancy rate in Fremont fell below 20% for the first time since the second quarter of 2008. The 352,696-square-foot occupancy gain during the second quarter was $2.00 a 156.6% increase over the first quarter s gain. Electronics for $1.50 Imaging, currently based in Foster City, bought a 118,535-square-foot $1.00 building and leased an additional 58,000 square feet in an adjacent $0.50 building on Dumbarton Circle. Another user-sale, Photo Mug s $0.00 purchase of a 78,048-square-foot building on Landing Parkway, also helped Fremont to its record level of activity. San Jose led the Silicon Valley s R&D sector in new activity. During the second quarter, 773,673 square feet of new deals were transacted. Activity has been on the rise, having increased each of the past three quarters. Since the amount of vacant space reached its recession-level peak of 10.67 million square feet during the second quarter of 2010, vacant R&D space has declined to 6.32 million square feet. This amount of vacant space is the lowest in the market since the third quarter of 2002. R&D LEASING & SALES ACTIVITY SELECTED COLLIERS INTERNATIONAL TRANSACTIONS - Q2 2013 PROPERTY ADDRESS SQUARE FEET LANDLORD/SELLER TENANT/BUYER TYPE 45630 Northport Loop East/ 45225 Northport Court, Fremont 237,312 Bentall Kennedy (U.S.) LP Quanta Computer, Inc. Renewal 3111 Coronado Drive, Santa Clara 126,594 Bixby Land Company AEW Capital Management, L.P. Investment Sale 2801-2821 Scott Boulevard, Santa Clara 102,867 Rockpoint Group/Presidio Investments Renesas Electronics America, Inc. 3001 Orchard Parkway, San Jose 97,840 JER/Lane Partners Ridge Capital Investors Investment Sale 5550 Hellyer Avenue, San Jose 78,794 MWest CTS Electronics Renewal 5710 Fontanoso Way, San Jose 50,500 MWest Barracuda Networks Lease Lease P. 3 COLLIERS INTERNATIONAL
The northern submarkets in San Jose continue to see the majority of the action, with almost 92% of gross absorption occurring in the North San Jose, Airport and International Business Park submarkets. Nimble Storage leased 164,608 square feet on River Oaks Parkway in North San Jose, and Quantumscape leased 87,125 square feet in the Airport submarket on Technology Drive. The single, largest transaction during Q2 of any product type happened in one of the smallest and southern-most cities in Silicon Valley: Morgan Hill. Shoe Palace s purchase of a 240,200-square-foot building on Jarvis Drive is also the largest transaction this year in the Silicon Valley s R&D sector. Also posting a significant R&D 4.00% occupancy gain, Milpitas now boasts its lowest vacancy rate since the beginning of 2002. The 13.2% rate represents 1.71 million square feet of 2.00% vacant space. The largest deal in the city was Silicon Graphics lease of 97,762 square feet on North McCarthy Boulevard. Since the beginning of 2012, Milpitas has lost over 920,000 square feet of building base due to new residential development. The market only stands to become tighter given a shrinking inventory and rising residential population looking to save on commute time. Companies are still turning to Palo Alto, Mountain View and Sunnyvale despite the steep rents landlords are demanding. Large transactions in those cities during Q2 specifically Stanford Research Park and Sunnyvale Business Park pulled average R&D starting rents up 20.6% to $1.58 per square foot NNN. INDUSTRIAL In the second quarter, the Silicon Valley s industrial sector took a bit of a back seat to the three other product types, after leading the way INDUSTRIAL AVAILABILITY & RENT TRENDS 12.00% 1 8.00% 6.00% Avg. Starting Rent The continued decline of space being vacated allowed for the sector to realize a modest occupancy gain of 66,992 square feet. The industrial sector s run of five-straight quarters of positive net absorption is the second longest in the Silicon Valley behind the R&D sector. during Q1. Arguably, the sector performed better than Q1 if Seagate Technologies purchase of the former Solyndra site in Fremont is removed. New activity, excluding the Seagate purchase, was less in the first quarter than the second quarter. Statsitically, industrial activity has slowed 44.8% since the end of 2012. The 588,656 square feet of gross absorption in Q2 is the third lowest in the previous 20 years, and no new activity above the 35,000-square-foot threshold was registered. Outside of San Jose, no new deals above 15,000 square feet were signed. Along with a decrease in gross absorption, the rate at which industrial space was vacated continued to fall. The 521,664 square feet of space vacated in the second quarter was the lowest in almost seven years. The continued decline of space being vacated allowed for $1.00 the sector to realize a modest occupancy gain of 66,992 square $0.80 feet. The industrial sector s run of five-straight quarters of positive net $0.60 absorption is the second longest in the Silicon Valley behind the R&D $0.40 sector. The availability rate remains below 7%, currently sitting at 6.7%, $0.20 or 3.74 million square feet. $0.00 The availability rate in San Jose s industrial market continues to drop, reaching 5.4% at end of Q2. Vacant space fell to 816,752 square feet, resulting from the 146,597 square feet of occupancy gain during the quarter. Vacant space has fallen 58.9% since its recession high in the second quarter of 2011. Elks Roofing Company took 33,200 square feet on West San Carlos Avenue in two separate, 16,600-squarefoot deals during the quarter. San Jose secured two other deals above 20,000 square feet: Northwest Door s 29,160-square-foot lease on Ringwood Avenue and Vitriflex s 23,663-squarefoot lease on Zanker Road. INDUSTRIAL LEASING & SALES ACTIVITY SELECTED COLLIERS INTERNATIONAL TRANSACTIONS - Q2 2013 PROPERTY ADDRESS SQUARE FEET LANDLORD/SELLER TENANT/BUYER TYPE 6600 Stevenson Boulevard, Fremont 127,452 Prologis OnCore Manufacturing Services, Inc. 2277 Ringwood Avenue, San Jose 29,160 Executive Center San Jose Northwest Door, Inc. Lease Renewal 2371-2373 Paragon Drive, San Jose 29,015 TA Associates Mass Precision Sheetmetal, Inc. Renewal 662 Giguere Court, San Jose 17,027 Pacific Land Properties 662 Giguere Ct, LLC Investment Sale 16860 Joleen Way, Morgan Hill 12,240 Stephen B. Parker Trust BMB MGMT, LLC Investment Sale 2149 Oakland Road, San Jose 10,860 The Southbay House of God District Council 16 Northern CA User Sale P. 4 COLLIERS INTERNATIONAL
While San Jose provided the majority of the occupancy gain in the Silicon Valley s industrial sector, Gilroy, Campbell, Mountain View, and Milpitas also contributed. The largest, new activity in these four cities was Energy Source s 12,800-square-foot lease on Forest Street in Gilroy. The three other cities contributed with sub-10,000-square-foot deals. Fremont experienced an occupancy loss of 45,634 square feet. The industrial availability rate in that city increased slightly to 13.4%. Fremont s industrial sector has not followed the path of recession and recovery that most other cities and sectors have. As Solyndra expanded, vacant space fell below 400,000 square feet in the fourth quarter of 2009 and remained there through 2010. As most of Silicon Valley s commercial real estate market started showing life in 2011 and 2012, vacant space in the city started to jump. Although the city s market has gained ground since Solyndra closed its doors, vacant space in Fremont sits at 1.06 million square feet, quite a bit more than the 360,756 square feet of vacant space at the end of 2010. Lucien Ramondetta s purchase on Osgood Court of a 12,144-square-foot building highlights Fremont s activity during the quarter. Given that minimal activity occurred in higherrent industrial cities like Sunnyvale and Campbell, and that the concentration of Q2 s activity was in San Jose, average starting rents fell accordingly, to $0.56 per square foot NNN during the second quarter. WAREHOUSE New activity increased 24.7% in the Silicon Valley s warehouse sector during the second quarter. The 579,096 square feet of gross absorption marks the second straight quarterly increase in activity. This level is consistent with the average quarterly gross absorption seen during the past five years. The drivers behind the recent pick-up in activity are WAREHOUSE AVAILABILITY & RENT TRENDS 12.00% 9.00% 6.00% 3.00% Avg. Starting Rent the 20,001- to 40,000-square-foot users. Of the eighteen new deals signed during Q2 (in line with the prior quarter s seventeen), 55% fell in that size range. At the year s mid-point, the warehouse sector has already surpassed 2012 in terms of the total number of new deals signed overall in that size range. No new deals above the 100,000-square-foot threshold have been completed this year. The market is primed, however, as options have increased for those users. There are currently nine spaces above 100,000 square feet on the market. At this time last year, there were three. The healthy occupancy gain posted in Q1 was followed by another gain in the most recent quarter. Although three times more space was vacated during Q2 than Q1, the warehouse sector managed 212,146 square feet of net absorption. Similar to the first quarter, all cities in Silicon Valley with warehouse activity registered positive net absorption. The overall availability rate fell 20 basis points to 11.3%, or 4.34 million square feet. This amount of available warhouse space is still nearly double the 2.28 million square feet available during Q3 2007. $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 Although three times more space was vacated during Q2 than Q1, the warehouse sector managed 212,146 square feet of net absorption. Similar to the first quarter, all cities in Silicon Valley with warehouse activity registered positive net absorption. Fremont led the warehouse sector s occupancy gain. After a flat first quarter, the market appears to have found its footing, posting 85,388 square feet of net absorption during Q2. The availability rate fell below 12%, to 11.97%, after rising above that threshold at the end of 2012. Total warehouse space available now measures 914,303 square feet in that city. Leading Fremont s activity were two leases done in a three-building complex on Milmont Drive: a 40,320-square-foot relocation and expansion by AlterG and a new 26,888-square-foot lease signed by Goodyear Tire & Rubber Company. WAREHOUSE LEASING & SALES ACTIVITY SELECTED COLLIERS INTERNATIONAL TRANSACTIONS - Q2 2013 PROPERTY ADDRESS SQUARE FEET LANDLORD/SELLER TENANT/BUYER TYPE 1951A-1955 Lundy Avenue, San Jose 77,035 Prologis Leotek Electronics USA Corporation 2124 Bering Drive, San Jose 62,054 Pomfret Estates, Inc. Mount Eden Floral Company User Sale 1202 South 6th Street, San Jose 37,500 Sears Roofing Supply Group Sublease 1141 Montague Expressway, Milpitas 29,900 Fleming Business Parks, LLC Henry Avocado Corporation Lease 1711 Rogers Avenue, San Jose 26,840 Helen Fredkin Excellence Flooring Lease 520-530 Trimble Road, San Jose 21,494 Stockbridge Real Estate Funds Flowers Baking Company Lease Lease P. 5 COLLIERS INTERNATIONAL
San Jose accounted for 52.7% of all new activity in the Silicon Valley s warehouse sector. The 305,408 square feet of new lease and user sale activity is a four-fold increase over the previous quarter. Despite Fry s Electronics vacating their 175,600-square-foot location on Junction Avenue and other spaces being vacated, the city managed a 13,162-square-foot occupancy gain during Q2. Total available warehouse space stands at 1.94 million square feet in San Jose. The availability rate of 12.2% is still relatively high due to the maleficent year the city s warehouse sector had in 2012. San Jose had the two largest deals in the warehouse sector during the second quarter. National Auto Parts took 77,608 square feet on King Road, and Leotek Electronics USA moved into a 77,035-square-foot space on Lundy Avenue. Palo Alto was a surprising contributor to warehouse occupancy gain during the quarter. Fremont was the only city with more warehouse net absorption. Carmel Stone s 58,374-squarefoot lease on Bayshore Road is the first new deal in Palo Alto s limited warehouse sector since 2011. The 55,222 square feet of warehouse net absorption in Milpitas during the quarter brings vacant space in that city to 246,833 square feet, its lowest level since the second quarter of 2008. Calicomp Corporation expanded into an additional 34,400 square feet on Pecten Court, and now occupies the entire building. Additionally, Henry Avocado leased 29,900 square feet on Montague Expressway. Average warehouse starting rents, which have hovered around $0.45 per square foot triple net since the beginning of 2012, increased by $0.02 to $0.48 per square foot NNN. Rents are still off the levels seen during 2008, but are up from their recession-low. UNDERSTANDING ABSORPTION Colliers uses several measurements to track market conditions and deal flow. While related, the formulas to arrive at these measurements differ. Using the results of the most recent quarter, here is how Colliers measures change in availability, net absorption and effective net absorption. Change in Availability: This measurement is simply the difference between the amounts of space available at the end of one period to the next. The table below shows that total available space decreased by 1,251,044 square feet in the year s Second Quarter. Note that change in availability includes adjustments for space that is taken off the market. Space taken off the market is not a factor in net absorption measurements. Total Available end of 1Q13 40,791,721 Plus: Vacant & Occupied Space that came available in 2Q13 3,684,302 Plus: New Shell added in 2Q13 1,055,719 1Q13 Available + Newly Available in 2Q13 45,531,742 Less: 2Q13 Gross Absorption -6,104,063 Less: 2Q13 Adjustments/Taken off Market 112,998 Total Available end of 2Q13 39,540,677 Net Absorption: Net absorption measures the change in occupied space from one period to the next. In this measurement, it is important to distinguish that a building may be available, but not vacant (often the case in a sublease situation, for example). Therefore, occupancy is not reduced (negative net absorption) until the space is vacated, and sometimes that does not happen until the space is leased, creating a net absorption wash for the deal and for that particular period. New Vacant Space that came available 2Q13-1,120,403 Previously Available Space that was vacated in 2Q13-2,313,600 2Q13 Total Vacant added (Occupancy Loss) -3,434,003 1Q13 Gross Absorption (occupancy gain) 6,104,063 2Q13 Net Absorption (change in Occupancy) 2,670,060 Effective Net Absorption: In 2003, Colliers created a measurement of effective net absorption. Effective net absorption uses the same formula as the net absorption formula, except that it treats any space that comes available as if it is vacant, whether it is or it isn t. The purpose of the measurement is to get a better real time gauge of occupancy flow in and out of the market, acknowledging that space that is available for lease is likely to be vacated shortly and underutilized presently. New Vacant Space that came available 2Q13-1,120,403 Occupied Space that came available 2Q13-2,563,899 2Q13 Total Available added -3,684,302 482 offices in 62 countries on 6 continents United States: 140 Canada: 42 Latin America: 20 Asia Pacific: 195 EMEA: 85 $2.0 billion in annual revenue 1.12 billion square feet under management Over 13,500 professionals COLLIERS INTERNATIONAL SAN JOSE 450 West Santa Clara Street San Jose, CA 95113 United States TEL +1 408 282 3800 FAX +1 408 292 8100 CA License No. 00490878 MANAGING PARTNER Jeff Fredericks, sior Managing Partner jeff.fredericks@colliers.com TEL +1 408 282 3801 CA License No. 00802610 SAN JOSE RESEARCH DEPARTMENT TEL +1 408 282 3800 This report and other research materials may be found on our website at www.colliers.com/sanjose. This quarterly report is a research document of Colliers International San Jose, CA. Questions related to information herein should be directed to the Research Department at +1 408 282 3800. Information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof. Colliers International is the third-largest commercial real estate services company in the world with over 13,500 professionals operating out of more than 480 offices in 62 countries. 2013 Colliers International 2Q13 Gross Absorption 6,104,063 2Q13 Effective Net Absorption 2,419,761 Accelerating success. www.colliers.com/sanjose
MARKET COMPARISONS OFFICE MARKET CLASS BLDGS TOTAL INVENTORY SQ FT DIRECT VACANT SUBLEASE VACANT DIRECT OCCUPIED SUBLEASE OCCUPIED TOTAL AVAILABLE SQ FT AVAILABILITY RATE Q2-2013 AVAILABILITY RATE Q1-2013 NET ABSORPTION Q2-2013 YTD COMPLETED Q2-2013 UNDER CONSTR FS WTD AVG ASKING CAMPBELL / LOS GATOS A 20 1,139,119 125,324 1,443 92,076 30,856 249,699 21.9% 24.6% 58,408 77,642 15,510 - $2.99 B 88 1,705,230 105,307 5,040 38,131 900 149,378 8.8% 9.9% 4,170 20,259 - - $2.69 C 13 172,155 21,838-31,590 3,000 56,428 32.8% 35.9% 693 (482) - - $2.48 Total 121 3,016,504 252,469 6,483 161,797 34,756 455,505 15.1% 16.9% 63,271 97,419 15,510 - $2.89 CUPERTINO / SARATOGA A 8 734,525 19,339 3,347 5,314 9,663 37,663 5.1% 2.4% (14,565) (17,788) - - $3.81 B 83 2,530,294 37,642-11,175 6,935 55,752 2.2% 2.6% 13,989 4,455 - - $2.98 C 22 290,394 3,302 - - - 3,302 1.1% 1.1% - - - - $1.95 Total 113 3,555,213 60,283 3,347 16,489 16,598 96,717 2.7% 2.4% (576) (13,333) - - $3.29 FREMONT / MILPITAS A 15 805,847 185,957-30,766-216,723 26.9% 27.1% 267 6,822 - - $1.83 B 38 1,188,439 218,894 3,351 3,000 70,550 295,795 24.9% 19.4% (283) 10,930 - - $1.78 C 35 636,178 34,914 - - - 34,914 5.5% 7.2% 10,022 11,022 - - $1.51 Total 88 2,630,464 439,765 3,351 33,766 70,550 547,432 20.8% 18.8% 10,006 28,774 - - $1.79 GILROY / MORGAN HILL A 17 471,036 162,494 900 - - 163,394 34.7% 34.7% - 2,496 - - $1.65 B 7 120,088 26,108 - - - 26,108 21.7% 20.1% (1,918) (1,918) - - $0.98 C 29 285,730 37,096-3,300-40,396 14.1% 15.5% 3,872 4,757 - - - Total 53 876,854 225,698 900 3,300-229,898 26.2% 26.4% 1,954 5,335 - - $1.64 LOS ALTOS A 10 250,807 25,400-10,166-35,566 14.2% 14.8% 11,688 10,366 - - $4.64 B 17 326,781 70,699 2,034 - - 72,733 22.3% 23.3% (665) 7,030 - - $4.11 C 38 472,356 9,944 1,344 - - 11,288 2.4% 2.1% (1,400) 4,471 - - $3.28 Total 65 1,049,944 106,043 3,378 10,166-119,587 11.4% 11.7% 9,623 21,867 - - $4.21 MOUNTAIN VIEW A 22 2,196,395 30,793-14,190 29,074 74,057 3.4% 3.1% (8,280) 18,367 - - $5.17 B 45 1,085,736 64,867 2,123 30,147 9,132 106,269 9.8% 10.0% (3,516) 14,220 - - $3.35 C 44 476,518 19,808 8,194 - - 28,002 5.9% 8.0% 9,517 (5,798) - - $2.59 Total 111 3,758,649 115,468 10,317 44,337 38,206 208,328 5.5% 5.7% (2,279) 26,789 - - $3.88 PALO ALTO A 67 2,881,142 222,190 315,513 120,936 66,030 724,669 25.2% 23.3% 90,423 72,799 25,799 11,985 $5.44 B 106 2,406,015 99,096 11,279 90,921 54,744 256,040 10.6% 8.5% 2,668 (5,466) - - $5.42 C 81 919,895 29,832 11,447 2,255 15,786 59,320 6.4% 7.4% 4,134 (555) - - $5.06 Total 254 6,207,052 351,118 338,239 214,112 136,560 1,040,029 16.8% 15.2% 97,225 66,778 25,799 11,985 $5.42 SAN JOSE A 84 11,342,644 2,144,092 140,916 351,760 195,190 2,831,958 25.0% 26.9% 214,605 27,421 - - $2.65 B 239 8,646,698 1,092,839 20,792 113,877 134,471 1,361,979 15.8% 16.9% 68,846 74,749 - - $1.94 C 187 4,106,137 546,568 14,567 1,362-562,497 13.7% 15.5% 19,609 6,809 - - $1.56 Total 510 24,095,479 3,783,499 176,275 466,999 329,661 4,756,434 19.7% 21.4% 303,060 108,979 - - $2.35 SANTA CLARA A 39 5,645,359 1,399,945 95,568 4,956 57,039 1,557,508 27.6% 19.5% 295,966 302,592 907,255 300,594 $3.54 B 129 3,969,247 477,091 86,223 109,622 3,908 676,844 17.1% 21.6% 39,307 94,413 - - $2.46 C 40 660,949 131,720 2,136 1,100-134,956 20.4% 21.0% - (1,371) - - $1.56 Total 208 10,275,555 2,008,756 183,927 115,678 60,947 2,369,308 23.1% 20.5% 335,273 395,634 907,255 300,594 $3.18 SUNNYVALE A 40 6,352,475 430,345 41,952 92,802 93,174 658,273 10.4% 7.3% 3,539 318,530 107,155 - $3.85 B 55 1,177,562 64,184-12,201 3,098 79,483 6.7% 5.9% 3,416 29,332 - - $2.94 C 24 471,440 126,854-16,453-143,307 30.4% 30.4% - (7,361) - - $2.33 Total 119 8,001,477 621,383 41,952 121,456 96,272 881,063 11.0% 8.5% 6,955 340,501 107,155 - $3.64 SILICON VALLEY TOTALS A 322 31,819,349 4,745,879 599,639 722,966 481,026 6,549,510 20.6% 19.1% 652,051 819,247 1,055,719 312,579 $3.29 B 807 23,156,090 2,256,727 130,842 409,074 283,738 3,080,381 13.3% 14.0% 126,014 248,004 - - $2.51 C 513 8,491,752 961,876 37,688 56,060 18,786 1,074,410 12.7% 14.0% 46,447 11,492 - - $2.08 Total 1,642 63,467,191 7,964,482 768,169 1,188,100 783,550 10,704,301 16.9% 16.5% 824,512 1,078,743 1,055,719 312,579 $2.99 QUARTERLY COMPARISON AND TOTALS 2Q-13 1642 63,467,191 7,964,482 768,169 1,188,100 783,550 10,704,301 16.9% 16.5% 824,512 1,078,743 1,055,719 312,579 $2.99 1Q-13 1636 62,649,478 7,881,931 774,557 992,759 708,851 10,358,098 16.5% 15.5% 254,231 254,231 318,000 2,531,264 $2.84 4Q-12 1635 62,347,478 7,923,368 755,730 579,218 399,096 9,657,412 15.5% 16.7% 309,276 1,181,077 318,000 1,454,213 $2.83 3Q-12 1634 62,029,478 8,420,952 381,774 804,702 778,699 10,386,127 16.7% 17.8% 713,952 871,801 52,500 1,018,473 $2.79 2Q-12 1631 61,991,189 9,119,995 490,279 1,014,725 400,113 11,065,112 17.8% 17.0% (117,772) 157,849 306,900 950,571 $2.80 P. 7 COLLIERS INTERNATIONAL
MARKET COMPARISONS R&D, INDUSTRIAL & WAREHOUSE MARKETS TYPE BLDGS TOTAL INVENTORY SQ FT DIRECT VACANT SUBLEASE VACANT DIRECT OCCUPIED SUBLEASE OCCUPIED TOTAL AVAILABLE SQ FT AVAILABILITY RATE Q2-2013 AVAILABILITY RATE Q1-2013 NET ABSORPTION Q2-2013 YTD COMPLETED Q2-2013 UNDER CONSTR NNN WTD AVG ASKING CAMPBELL R&D 61 1,288,603 111,588-48,800 7,921 168,309 13.1% 11.9% 1,823 1,823 - - $1.72 IND 49 660,621 37,212-33,168-70,380 10.7% 12.1% 6,936 11,027 - - $1.10 TOTAL 110 1,949,224 148,800-81,968 7,921 238,689 12.2% 12.0% 8,759 12,850 - - $1.68 CUPERTINO R&D 50 3,439,813 - - - - - 0.0% 0.0% - - - - - TOTAL 50 3,439,813 - - - - - 0.0% 0.0% - - - - - FREMONT R&D 346 18,767,569 3,499,793 175,342 302,769 202,296 4,180,200 22.3% 24.6% 352,696 490,123 - - $0.82 IND 355 9,113,518 1,025,621 36,060 163,111-1,224,792 13.4% 13.0% (45,634) 274,796 - - $0.68 WSE 50 7,638,159 520,218-363,097 30,988 914,303 12.0% 12.4% 85,388 85,388 - - $0.52 TOTAL 751 35,519,246 5,045,632 211,402 828,977 233,284 6,319,295 17.8% 19.0% 392,450 850,307 - - $0.74 GILROY R&D 9 373,694 76,000 - - - 76,000 20.3% 31.1% 40,083 40,083 - - - IND 73 1,357,937 138,829 - - - 138,829 10.2% 11.3% 14,500 26,830 - - $0.41 WSE 18 3,224,101 301,992 33,310 162,020-497,322 15.4% 15.4% - 13,984 - - $0.40 TOTAL 100 4,955,732 516,821 33,310 162,020-712,151 14.4% 15.5% 54,583 80,897 - - $0.40 LOS GATOS R&D 19 448,159 967-15,112 27,833 43,912 9.8% 9.8% - - - - $1.67 TOTAL 19 448,159 967-15,112 27,833 43,912 9.8% 9.8% - - - - $1.67 MILPITAS R&D 212 12,982,409 1,408,194 304,503 135,305 46,821 1,894,823 14.6% 15.9% 172,942 217,318 - - $0.87 IND 118 2,943,569 141,433-17,405 38,382 197,220 6.7% 7.2% 6,574 3,149 - - $0.80 WSE 36 4,655,113 246,833-359,358 36,595 642,786 13.8% 15.5% 55,222 215,321 - - $0.60 TOTAL 366 20,581,091 1,796,460 304,503 512,068 121,798 2,734,829 13.3% 14.6% 234,738 435,788 - - $0.80 MORGAN HILL R&D 62 2,688,925 170,141 - - - 170,141 6.3% 17.9% 309,996 267,746 - - $0.83 IND 76 1,882,576 112,332-14,270-126,602 6.7% 7.4% - 14,906 - - $0.68 WSE 5 384,880 - - - - - 0.0% 0.0% - - - - - TOTAL 143 4,956,381 282,473-14,270-296,743 6.0% 12.5% 309,996 282,652 - - $0.77 MOUNTAIN VIEW R&D 274 14,038,481 998,931 106,196 101,757 40,400 1,247,284 8.9% 8.3% (50,939) (142,271) - 70,000 $2.81 IND 146 2,610,350 81,480-9,860-91,340 3.5% 3.4% 6,820 9,947 - - $1.26 TOTAL 420 16,648,831 1,080,411 106,196 111,617 40,400 1,338,624 8.0% 7.5% (44,119) (132,324) - 70,000 $2.73 PALO ALTO R&D 59 10,292,315 63,091 34,401 14,056 113,300 224,848 2.2% 2.2% 41,050 40,564-111,100 $2.72 TOTAL 59 10,292,315 63,091 34,401 14,056 113,300 224,848 2.2% 2.2% 41,050 40,564-111,100 $2.72 SAN JOSE R&D 640 46,872,681 5,970,571 352,326 993,288 295,852 7,612,037 16.2% 16.1% 321,795 587,620 - - $1.22 IND 1,083 22,531,253 787,781 28,971 285,086 111,756 1,213,594 5.4% 5.6% 146,597 126,718 - - $0.65 WSE 175 15,979,279 1,433,575-509,754-1,943,329 12.2% 12.3% 13,162 62,820 - - $0.53 TOTAL 1,898 85,383,213 8,191,927 381,297 1,788,128 407,608 10,768,960 12.6% 12.7% 481,554 777,158 - - $1.06 SANTA CLARA R&D 373 21,972,346 2,633,536 93,968 75,072 264,218 3,066,794 14.0% 15.1% 146,927 124,187 - - $1.58 IND 607 10,582,776 323,897 4,252 32,479 6,417 367,045 3.5% 3.3% (40,011) 29,939 - - $0.97 WSE 31 3,431,532 94,041-112,096-206,137 6.0% 2.7% - 82,800 - - $0.55 TOTAL 1,011 35,986,654 3,051,474 98,220 219,647 270,635 3,639,976 10.1% 10.4% 106,916 236,926 - - $1.51 SUNNYVALE R&D 505 23,548,057 1,577,465 142,261 275,743 76,503 2,071,972 8.8% 10.3% 230,037 246,492-107,000 $1.85 IND 183 3,200,714 176,421-10,000 1,700 188,121 5.9% 6.0% (6,090) (12,007) - - $1.16 WSE 35 2,606,972 13,500-21,107 90,544 125,151 4.8% 4.8% - - - - $0.73 TOTAL 723 29,355,743 1,767,386 142,261 306,850 168,747 2,385,244 8.1% 9.3% 223,947 234,485-107,000 $1.74 SILICON VALLEY TOTALS R&D 2,610 156,713,052 16,510,277 1,208,997 1,961,902 1,075,144 20,756,320 13.2% 14.2% 1,566,410 1,873,685-288,100 $1.35 IND 2,690 56,184,331 2,946,999 72,183 565,379 158,255 3,742,816 6.7% 6.7% 66,992 457,555 - - $0.75 WSE 350 38,406,211 2,610,159 33,310 1,535,644 158,127 4,337,240 11.3% 11.5% 212,146 570,136 - - $0.54 TOTAL 5,650 251,303,594 22,067,435 1,314,490 4,062,925 1,391,526 28,836,376 11.5% 12.1% 1,845,548 2,901,376-288,100 $1.17 QUARTERLY COMPARISON AND TOTALS 2Q-13 5,650 251,303,594 22,067,435 1,314,490 4,062,925 1,391,526 28,836,376 11.5% 12.1% 1,845,548 2,901,376-288,100 $1.17 1Q-13 5,658 251,655,806 24,076,069 1,486,381 3,566,754 1,304,419 30,433,623 12.1% 12.1% 1,055,828 1,055,828-181,100 $1.15 4Q-12 5,662 251,868,566 25,443,973 1,586,731 2,478,943 853,826 30,363,473 12.1% 12.2% (77,141) 1,218,288 99,800 111,100 $1.15 3Q-12 5,685 252,752,739 25,325,266 1,691,288 2,722,843 971,149 30,710,546 12.2% 12.4% 289,165 1,295,429-111,100 $1.10 2Q-12 5,695 253,478,172 26,251,296 1,538,039 2,473,403 1,088,040 31,350,778 12.4% 12.8% 1,575,177 1,006,264 118,535 111,100 $1.08 P. 8 COLLIERS INTERNATIONAL