OFFICE TRI-CITIES MARKET REPORT Negative Absorption And Sharp Rise In Total to Begin 214 MARKET OVERVIEW MARKET INDICATORS - VACANCY 19.4% NET ABSORPTION -154,9 CONSTRUCTION 155, RENTAL RATE $2.63 P UNEMPLOYMENT 8.7% The Tri-Cities office market began 214 with negative absorption and a 12 basis point increase in the total vacancy rate. The total vacancy rate increased to 19.4 percent in Q1 from 18.2 percent in Q4 213. The Pasadena submarket experienced the addition of three vacant buildings to its inventory: 15 N Orange Grove, 29 Bradley and 1 W Green. This attributed to large increase in the Tri Cities vacancy rate. The recent saleleaseback of 177 E Colorado to an investor led to AT&T giving back 141,3 square feet onto the market. This event attributed to the Tri Cities office market recording -154,9 square feet in net absorption in Q1. New leasing activity was 33,1 square feet in Q1, an increase of 12 percent relative to Q4 213. In regards to sales activity, the Tri Cities office market continues to experience interest from investors. Worthe Real Estate Group acquired a fully vacant building at 39 W Alameda Ave in Burbank for $221 P from BlackRock, Saunders Property Co acquired 177 E Colorado Blvd in Pasadena for $281 P from AT&T, Kennedy Wilson acquired 245 S Los Robles in Pasadena for $226 P from Wells Fargo Bank, Blue Investments acquired 271 Winona Ave in Burbank for $186 P from LBA Realty and Greenbridge Management Company acquired 525 E Colorado Blvd in Pasadena for $26 P from Star News Building. MARKET TRENDS - HISTORICAL VACANCY VS RENTS Tri-Cities County Office Market HISTORICAL NET ABSORPTION & CONSTRUCTION COMPLETIONS >> Total vacancy rate increases 12 nnnbasis points nnn Q1 21 - Tri-Cities Office Market - Q1 21 - RENTS VACANCY NET ABSORPTION CONSTRUCTION COMPLETIONS >> Weighted average asking rental rate was unchanged >> New leasing activity at 33,1 >> Net absorption was negative >> New construction activity $ P PER MONTH (WEIGHTED) $2.76 $2.74 $2.72 $2.7 $2.68 $2.66 $2.64 $2.62 $2.6 $2.58 $2.56 1Q1 1Q11 1Q12 1Q13 1Q14 25% 2% 15% 1% 5% % % VACANT (TOTAL) 5, 4, 3, 2, 1, (1,) (2,) (3,) (4,) (5,) 1Q1 1Q11 1Q12 1Q13 1Q14 1 Colliers International continuously refines its database. As a result, data reflected in this report may not be consistent with data reported in previous quarters. www.colliers.com/losangeles
MARKET REPORT OFFICE TRI CITIES LOS ANGELES DEMOGRAPHICS >> POPULATION: 1,63,995 (214 Estimate) 1,423,669 (219 Projection) 3.57% (Growth 214-219) >> HOUSEHOLD INCOME: $75,972 (Average) $53,125 (Median) >> JOB GROWTH: 2.1% (past 12 months) >> UNEMPLOYMENT RATE: 8.7% (as of February 214) VACANCY The total vacancy rate, including sublet space increased to 19.4 percent, up 12 basis points from 18.2 percent reported last quarter. A longer historical perspective of the total vacancy rate shows that the vacancy rate a year ago stood at 17.5 percent. Total vacancy rates continued to be highest in the Glendale submarket (21.1 percent); a downwards movement by 4 basis points relative to last quarter. The submarket with the lowest vacancy in Q1 was Arcadia at 9.2 percent. A comparison by class illustrates that vacancy rates were highest for Class C space (21.4 percent) and lowest for Class B space (17.9 percent) with Class A space in-between at 19.8 percent. NET ABSORPTION Net Absorption was -154,9 square feet in the first quarter 214. Large space givebacks continue to affect the fundamentals of the Tri Cities office market. The two submarkets that significantly contributed to the negative absorption were Pasadena (-133,9 square feet) and Burbank (-63, square feet). Market-wide demand for space was negative in the first quarter. The Glendale submarket recorded absorption of positive 26,7 square feet in the midst of large space givebacks in that submarket. The tenants that contributed to the positive absorption in Glendale were as follows: Avery Dennison moved into 54, square feet at 27 Goode Ave, Union Bank moved into 51,8 square feet at 8 N Brand, and Front Porch moved into 25,9 square feet at 8 N Brand. UNEMPLOYMENT February 214 figures for nonfarm employment in Los Angeles County showed a recovering job market. Over the past 12 months, Los Angeles County has gained 86,1 jobs for an increase of 2.1 percent. This gain in employment lowered unemployment to 8.7 percent compared to 1.2 percent a year ago. Year-over-year job gains were most significant in Professional and Business Services (27, jobs), Educational and Health Services (25,9 jobs) and Trade, Transportation, and Utilities (15,9 jobs). The largest decline in jobs was seen in Manufacturing (8,8). VACANCY BY SUBMARKET Tri-Cities Office Market NET ABSORPTION BY SUBMARKET Tri-Cities County Office Market 25% DIRECT VACANCY SUBLEASE VACANCY 4, 2, 16,3 26,7 2%.2% 2.7%.3% (2,) (1,) % VACANT 15% 1% 18.5% 18.4% 2.8% (4,) (6,) (8,) (63,) (1,) 5% 9.2% 8.6% (12,) % Arcadia Monrovia Pasadena Burbank Glendale (14,) (16,) (133,9) Pasadena Burbank Arcadia Monrovia Glendale P. 2 COLLIERS INTERNATIONAL
MARKET REPORT OFFICE TRI CITIES OFFICE OVERVIEW EXISTING PROPERTIES VACANCY ACTIVITY ABSORPTION CONSTRUCTION RENTS Submarket/ Class Bldgs Total Inventory Direct Sublease Total Total 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 BURBANK A 34 6,19, 17.7% 3.% 2.7% 19.8% 18,3 18,3 (56,7) (56,7) $3.1 B 15 677,3 23.4%.% 23.4% 22.9% 3,9 3,9 (3,5) (3,5) $2.51 C 3 131,9 22.4%.% 22.4% 2.3% (2,8) (2,8) $2.29 SUBTOTAL 52 6,828,2 18.4% 2.7% 21.% 2.1% 22,2 22,2 (63,) (63,) $2.95 GLENDALE A 25 5,38,7 21.1%.2% 21.3% 21.9% 9, 9, 32,3 32,3 $2.5 B 16 843,2 14.7%.6% 15.3% 14.6% 11,8 11,8 (5,6) (5,6) $2.13 C 1 48, 98.8%.% 98.8% 98.8% $2.25 SUBTOTAL 42 6,199,9 2.8%.3% 21.1% 21.5% 11,8 11,8 26,7 26,7 $2.45 PASADENA A 26 4,627,3 16.6%.3% 16.9% 14.6% 57,1 57,1 22,6 22,6 152,3 155, $2.76 B 4 3,294,5 22.%.1% 22.2% 17.3% 129,8 129,8 (159,9) (159,9) $2.63 C 9 373,3 11.1%.% 11.1% 12.% 3,4 3,4 $2.2 SUBTOTAL 75 8,295,1 18.5%.2% 18.7% 15.5% 186,9 186,9 (133,9) (133,9) 152,3 155, $2.65 ARCADIA A 2 12,3 13.7%.% 13.7% 15.8% 2,6 2,6 2,6 2,6 $2.25 B 5 441,8 7.3%.% 7.3% 6.7% (2,4) (2,4) $1.98 C 1 25, 22.4%.% 22.4% 17.6% (1,2) (1,2) $1.85 SUBTOTAL 8 587,1 9.2%.% 9.2% 9.1% 2,6 2,6 (1,) (1,) $2.1 MONROVIA A 4 46,5 21.7%.% 21.7% 21.7% 5,8 5,8 (1) (1) $2.59 B 1 783,8 1.5% 2.5% 4.% 5.9% 9,2 9,2 14,8 14,8 $2.25 C 1 25, 19.6%.% 19.6% 26.% 1,6 1,6 1,6 1,6 $2.22 SUBTOTAL 15 1,215,3 8.6% 1.6% 1.3% 11.6% 16,6 16,6 16,3 16,3 $2.41 MARKET TOTAL A 91 16,481,8 18.6% 1.3% 19.8% 19.4% 173,8 173,8 7 7 152,3 155, $2.76 B 86 6,4,6 17.4%.5% 17.9% 14.4% 154,7 154,7 (156,6) (156,6) $2.48 C 15 63,2 21.4%.% 21.4% 21.5% 1,6 1,6 1, 1, $2.23 TOTAL 192 23,125,6 18.3% 1.% 19.4% 18.2% 33,1 33,1 (154,9) (154,9) 152,3 155, $2.63 COLLIERS INTERNATIONAL P. 3
MARKET REPORT OFFICE TRI CITIES >>Large space givebacks continue to affect the fundamentals of the Tri-Cities office market >>In terms of projects under construction, there is an office development at 68 E Colorado Blvd in Pasadena >>The strong leasing activity in Pasadena is favorable relative to the large amount of available space that hit the market CONSTRUCTION Two projects were delivered to the market in Q1: the former Avery Dennison headquarters at 15 N Orange Grove Blvd in Pasadena and 27,7 square feet of Class A office space at 1 W Green in Pasadena. In terms of projects under construction, there is an office development at 68 E Colorado Blvd in Pasadena which is expected to deliver 155, square feet of Class A office space in the first half of 215. ACTIVITY New leasing activity during Q1 totaled 33,1 square feet compared to 294,2 square feet in Q4 213, an increase of 12 percent. New leasing activity in Q1 involved: Community Bank leasing 83,1 square feet at 465 N Halstead St in Pasadena, DreamWorks leasing 44,6 square feet at 655 N Central Ave in Glendale and MWH Americas leasing 3,5 square feet at 3 N Lake Ave in Pasadena. The significant renewals that occurred in Q1 were Insomniac Games renewing for 41,5 square feet at 2255 N Ontario St in Burbank and PNC Bank renewing for 17,4 square feet at 465 N Halstead St in Pasadena. Pasadena led the Tri-Cities office market in terms of new leasing activity. The most recent quarter this occurred was in Q3 212. The strong leasing activity in Pasadena is a favorable event relative to the large amount of available space that hit the market in Pasadena. The majority of new leasing activity was in Class A office space. The breakdown on a percentage basis shows that Class A space accounted for 53 percent of the leasing activity, while Class B accounted for 47 percent of the leasing activity. RENTAL RATES The weighted average asking rent for direct space remained at $2.63 P. Market-wide rental rates are not expected to increase in the near future, given the high level of available space on the market. Average asking rents remained highest in Burbank ($2.95 P) and lowest in Arcadia ($2.1 P). Class A asking rents were $2.76 P compared to Class B at $2.48 P and Class C at $2.23 P. Market-wide rental rates in 213 ranged from $2.63 P to $2.64 P, the rental rate range in 214 is expected to remain in that range. WEIGHTED AVERAGE ASKING LEASE RATES BY SUBMARKET LEASING ACTIVITY BY SUBMARKET Tri Cities Valley Office Market $ P PER MONTH (FSG) $3.5 $3. $2.5 $2. $1.5 $1. $2.1 $2.41 $2.45 $2.65 $2.95 2, 18, 16, 14, 12, 1, 8, 6, 11,8 186,9 $.5 4, 2, 2,6 16,6 22,2 $. Arcadia Monrovia Glendale Pasadena Burbank Arcadia Monrovia Burbank Glendale Pasadena P. 4 COLLIERS INTERNATIONAL
MARKET REPORT OFFICE TRI CITIES OUTLOOK The Pasadena office market experienced an increase in the available space of 347,7 square feet at the beginning of 214. This is a challenge that is likely to leave the vacancy rate in Pasadena elevated. Large tenant moveins from outside the market are going to have to materialize in order to record a material reduction in the total vacancy rate in Pasadena. In regards to Burbank and Glendale, the vacancy levels are expected to remain above 2 percent for the remainder of the first half of 214. MARKET DESCRIPTION The Tri-Cities office market is a relatively small market, comprised of 23.1 million and represents just 8.5 percent of the total office space in buildings 25, square feet and greater within the Los Angeles Basin. It is one of the premier locations for firms in the entertainment (primarily in Burbank), insurance (primarily in Glendale), high tech/engineering (primarily in Pasadena), finance, and professional services sectors. Much of the space is relatively new with 46 percent built in 1985 or later. In contrast to most office markets in the region, a relatively large percentage of the space is in mid-rise (5%) and high-rise (2%) buildings. HISTORICAL LEASING ACTIVITY Q1 21 - UNEMPLOYMENT RATE United States, California & Tri Cities February 214 9, 9, 8, 8, 7, 7, 6, 6, 1% 9% 8% 7% 6% 7.% 8.5% 8.7% 5, 5% 4, 4% 3, 3% 2, 2, 2% 1, 1, 1% 3Q9 3Q1 3Q11 3Q12 3Q13 1Q1 1Q11 1Q12 1Q13 1Q14 % UNITED STATES CALIFORNIA LOS ANGELES COUNTY RECENT TRANSACTIONS & MAJOR DEVELOPMENTS SALES ACTIVITY PROPERTY ADDRESS SIZE SALE PRICE PRICE P BUYER SELLER 39 W Alameda Ave, Burbank 494, $19,, $221 P Worthe Real Estate Group BlackRock 177 E Colorado Blvd, Pasadena 292, $82,, $281 P Saunders Property Co AT&T 245 S Los Robles Ave, Pasadena 172,7 $39,, $226 P Kennedy Wilson Wells Fargo Bank 271 Winona Ave, Burbank 83,2 $15,5, $186 P Blue Investments LLC LBA Realty 525 E Colorado Blvd, Pasadena 63,7 $16,55, $26 P Greenbridge Management Company Star News Building LEASING ACTIVITY PROPERTY ADDRESS LEASED LEASE TYPE BLDG TYPE LESSEE LESSOR 465 N Halstead St, Pasadena 83,1 New A Community Bank Divco 655 N Central Ave, Glendale 44,6 New A DreamWorks Prudential 2255 N Ontario St, Burbank 41,5 Renewal A Insomniac Games Worthe Real Estate Group 3 N Lake Ave, Pasadena 3,5 New A MWH Americas LACERA 465 N Halstead St, Pasadena 17,4 Renewal B PNC Bank Divco MAJOR DEVELOPMENTS PROJECT DEVELOPER SIZE SUBMARKET STATUS ESTIMATED COMPLETION 68 E Colorado Blvd, Pasadena IDS Real Estate Group 155, Pasadena Under Construction Q1 215 COLLIERS INTERNATIONAL P. 5
MARKET REPORT OFFICE TRI CITIES DEFINITIONS OF KEY TERMS USED IN THIS REPORT Total Rentable Square Feet: Office space in buildings with 25, or more of speculative office space. Includes competitive space in Class A, B and C singletenant and multi-tenant buildings. Excludes non-competitive owner-occupied buildings, buildings that include 3% or greater of medical or retail space, and space that is underconstruction, under-renovation or off-market. 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. 482 offices in 62 countries on 6 continents United States: 14 Canada: 42 Latin America: 2 Asia Pacific: 195 EMEA: 85 >> $2. billion in annual revenue >> 1.12 billion square feet under management >> Over 13,5 professionals 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). Total : 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. 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): Total 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/losangeles. UNITED STATES: Downtown Los Angeles Office License No. 198231 865 S. Figueroa Street, Suite 35 Los Angeles, CA 917 TEL +1 213 627 1214 FAX +1 213 327 32 FENENBOCK, KEVIN HENNESSEY, BRIAN KIRK, TERENCE Vice President MIDZI, TINASHE. Regional Analyst Research Services MUMPER, HANS Executive Managing Director SCHNELL, RICHARD C. PUTNAM, RICK Managing Director Western Region Capital Markets VILGIATE, NICO Executive Vice President WALKER, SHADD G. Accelerating success. P. 6 COLLIERS INTERNATIONAL www.colliers.com/marketname