High-Demand Market with Low Supply

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1 Research & Forecast Report SAN FRANCISCO PENINSULA High-Demand Market with Low Supply > > Vacancy rate for San Mateo County dropped 55 basis points from 8.23 percent down to 7.68 percent since last quarter > > Gross absorption for San Mateo County dropped 16 percent from last quarter > > San Mateo County s average asking rate increased 4 percent this quarter from $4.23 FS to $4.40 FS SAN FRANCISCO REDWOOD CITY SAN JOSE At the midpoint of, the seemingly bottomless tech boom has placed the local commercial real estate market in its strongest position in a generation. Lease rates continue to defy gravity and users find fewer options for expansion as vacancies dwindle. The office vacancy rate on the Greater San Francisco Peninsula (includes San Mateo County, Palo Alto, Mountain View, and Los Altos) continues to spiral lower, closing the first half of at an exceptionally low 6.23 percent. For San Mateo County alone, vacancies have dipped to 7.68 percent. Both vacancy rates have shown a steady decline over the past ten quarters. Market Trends Relative to prior period Q3 * Vacancy Net Absorption Construction Rental Rate *Projected Vacancy vs. Asking Full Service Rental Rates San Mateo County Office Market 14% 12% 8% 6% 4% 2% $4.50 $4.30 $4.10 $3.90 $3.70 $3.50 $3.30 Summary Statistics Office Market Previous Quarter Current Quarter Overall Vacancy Rate 8.23% 7.68% Net Absorption 213, ,738 Construction Completed 14,400 0 Under Construction 1,107,746 1,107,746 Overall Asking Rents (FS)* $4.23 $4.40 Class A Asking Rents (FS)* $4.37 $4.51 Class B/C Asking Rents (FS)* $3.86 $4.09 *Asking Rents Reported Monthly Q3 Q4 Q1 Vacancy Rate Q3 Q4 Q1 Average Asking Rent Overall vacancy dropped 55 percent by the close of this quarter; rental rates rose from $4.23 FS to $4.40 FS. Continued demand expected in the coming months will result in a further decrease in vacancy rates and an increase in overall asking rates. $3.10 Economic Indicators San Mateo County Office Gross Absorption San Mateo County Unemployment Rate* Silicon Valley Venture Capital Investment** *Sourced at calmis.ca.gov **Sourced at pwcmoneytree.com

2 Gross absorption, a measure of all leasing activity in a market area, for the Greater San Francisco Peninsula totaled 1,345,167 square feet, only slightly above the long-term average for the market. This is surprising given the lack of available space and large individual transactions. The year-to-date total gross absorption of 3,474,511 square feet marks one of the strongest six-month totals on record. San Mateo County s 864,136 square feet of gross absorption for the quarter (1,893,701 square feet year-to-date) is especially noteworthy given the shortage of large blocks of space and the associated larger lease transactions. San Mateo County Office Historical Rent vs. Vacancy 3 25% 2 15% $6.00 $5.00 $4.00 $3.00 $2.00 After flattening out much of last year, lease rates accelerated dramatically in the first half of. The average asking rate of $4.71 full service (FS) for the Greater San Francisco Peninsula and $4.40 FS for San Mateo County, has reached a level not seen since the dot-com era. Higher rents and fast growth are no longer confined to just the most in demand markets. In every submarket except for the city of Burlingame, average asking rates have exceeded $3.00 FS. Bay Meadows 5% $ YTD True Vacancy Average Asking Rent (FS) San Mateo County Industrial Historical Rent vs. Vacancy $ % $1.20 $1.00 8% $0.80 6% $0.60 4% $0.40 2% $0.20 $0.00 Source: WilsonMeany.com AVERAGE ASKING RENT (NNN) The core transit-oriented pockets of the Greater San Francisco Peninsula have led market growth for years. While downtown markets are oriented towards smaller multi-tenant users, many of the larger leases in the second quarter of were in these high demand locations. Noteworthy transactions include leases by Essex Portfolio (37,928 square feet) and ZS Pharma (37,874 square feet) at the Park Place at Bay Meadows project in San Mateo; a successful example of new urbanization. Other major deals in core locations include Playground Global s 31,537 square foot lease in Palo Alto and ShopKick s 27,033 square foot expansion into the emerging downtown Redwood City core. San Mateo County R&D Historical Rent vs. Vacancy 25% 2 $3.50 $3.00 $2.50 Market observers continue to search in vain for signs of a market bubble bursting. The level of available sublease space is an excellent indicator of market strength, and is now at a historic low. Office space available for sublease represents only 0.64 percent of the total Greater San Francisco Peninsula market. This lack of volatile, price sensitive inventory virtually assures continued upward pressure on rents going forward. 15% 5% AVERAGE ASKING RENT (NNN) $2.00 $1.50 $1.00 $0.50 $0.00 The market within San Mateo County and the Greater San Francisco Peninsula will continue to enjoy the effects of Silicon Valley s ongoing tech boom for the foreseeable future. 2 San Francisco Peninsula Research & Forecast Report Colliers International

3 While new office construction continues locally at a rate not seen in recent memory, conditions are far too strong for added square footage to have an impact. With even the traditional last resort peripheral markets of North San Mateo County under pressure from both the Peninsula and the booming San Francisco markets, large users will be forced to find their solutions even further afield Dubuque Avenue San Mateo County Office Absorption Graph 1,400,000 1,200,000 1,000, ,000 Sources: LBARealty.com 600, , ,000 0 (200,000) (400,000) (600,000) Q3 Q4 Q1 Q3 Q4 Q1 Q3 Q4 Q Gross Absorption Net Absorption Q3 Q4 Q1 As we shift to the industrial market on the Peninsula, we see the continued trend of scarcity in the market. The average asking rate this quarter has jumped to $0.98 NNN per square foot, which is the highest it has been since Q when it was $0.94 NNN per square foot. Vacancy bumped slightly from 2.52 percent during the first quarter up to 2.65 percent, and there was a slight negative net absorption of 96,375 square feet; these are insignificant stats in a market with less than 3.00 percent vacancy. Market Continues to Accelerate > > Industrial market average asking rate is up 11 percent from $0.88 NNN to $0.98 NNN > > R&D market vacancy rate dropped 38 basis points from 3.89 percent down to 3.51 percent As the second quarter of concludes, it appears that we have reached an apex in the market. Both R&D and industrial vacancies have hit all-time lows and most tenants are hard pressed to find properties that suit their needs. Most tenant requirements have very few options to choose from and landlords are able to continue to push rents. Many tenants have no choice but to remain on the Peninsula, so creativity and sacrifice is coming into play when exploring the market. The most drastic improvement in this multi-year recovery has been in the R&D market where vacancy hovered near 20 percent during all of Today, vacancy sits at a mere 3.51 percent, which is the lowest rate on record. The trend continues this quarter with gross absorption at 139,408 square feet and positive net absorption at 38,249 square feet. With nominal vacancy and modest absorption, fairly significant swings will be noticeable in asking rates due to asking prices on some larger vacancies that can heavily impact averages. It is also important to note that within this sector, South San Francisco/Brisbane is the only submarket with any sublease space available. It is the largest submarket and also has the highest average asking rate at $3.00 NNN per square foot. The most notable transaction in San Mateo County this quarter was the sale of a 112,417 square foot, multi-tenant, R&D/flex building at Dubuque Avenue in South San Francisco. LBA Realty sold this leased investment to Buchanan Street Partners who will renovate the project. Further illustrating this point is the sublease market, which has been under 1.00 percent vacancy since Q4. The only submarkets to have sublease space available are Belmont/ San Carlos and South San Francisco, which are the two largest industrial markets on the San Francisco Peninsula. The most significant lease this quarter was a 39,478 square foot, single tenant, office/warehouse building at 3575 Haven Avenue in Menlo Park leased by AM Party Rentals. The largest sale on the Peninsula was a Colliers brokered deal at Utah Avenue in South San Francisco; Kehoe Properties LLC purchased this 44,212 square foot building from Ragno LLC Utah Avenue Sources: Colliers International Redwood City Since both R&D and industrial markets are flush, tenants will continue to renew or get creative when it comes to expansion. New development is typically the solution, yet with natural boundaries and land prices pushing skyward, the R&D market is the only sector that can support new development. The industrial market will continue to shrink and land costs prohibit new industrial product from penciling. 3 San Francisco Peninsula Research & Forecast Report Colliers International

4 Significant Lease Activity Veracyte 6000 Shoreline Court, South San Francisco June 58,635 - Office GoPro DALY CITY BRISBANE SOUTH SAN FRANCISCO SAN FRANCISCO BAY 2855 Campus Drive, San Mateo May 49,266 - Office Essex Portfolio 1100 Park Place, San Mateo SAN BRUNO/ MILLBRAE FOSTER CITY May 37,928 - Office BURLINGAME SAN MATEO REDWOOD SHORES AM Party Rentals 3575 Haven Avenue, Menlo Park April 39,478 - Warehouse BELMONT/ SAN CARLOS REDWOOD CITY MENLO PARK RGN-Menlo Park I LLC 101 Jefferson Drive, Menlo Park June 31,212 - Office Significant Sale Activity PROPERTY ADDRESS SALE DATE SIZE SELLER/BUYER TYPE 28 Buildings in San Mateo County April 3,446,501 EOP/Hudson Pacific Properties Office Dubuque Avenue, South San Francisco May 112,417 LBA Realty/Buchanan Street Partners R&D 101 Lincoln Centre Drive, Foster City April 108,088 TA Associates Realty/The Travelers Companies Office Utah Avenue, South San Francisco May 44,212 Ragno LLC/Kehoe Properties LLC Warehouse 4 San Francisco Peninsula Research & Forecast Report Colliers International

5 MARKET COMPARISONS OFFICE MARKET CLASS BLDGS INVENTORY PRIOR OCCUPIED NET NET YTD WEIGHTED AVG ASKING RENTAL (FS) SOUTH PENINSULA* MOUNTAIN VIEW/LOS ALTOS A 35 3,832,205 6, , ,825,641 79, ,869 $7.79 B/C 144 2,576,105 76, , ,499,678 18,009 (881) $4.54 Total 179 6,408,310 82, , ,325,319 97, ,988 $5.68 PALO ALTO A 67 4,596,946 49, , ,547,345 45,751 33,606 $8.62 B/C 187 5,588, , , , ,332,703 60,162 (42,042) $6.41 Total ,185, , , , ,880, ,913 (8,436) $7.38 SAN MATEO COUNTY MENLO PARK A 48 1,907, , % 9, % 130, % 7.64% 1,777,392 8,364 (6,013) $9.83 B/C 135 3,787,286 93, % , % 2.88% 3,693,489 15,330 46,933 $6.61 Total 183 5,695, , % 9, % 224, % 4.46% 5,470,881 23,694 40,920 $8.15 REDWOOD CITY A 26 2,615, , % , % 4.36% 2,500,939 (522) (19,508) $4.10 B/C 126 2,200,141 91, % 3, % 95, % 4.95% 2,104,814 10,472 34,251 $4.32 Total 152 4,815, , % 3, % 209, % 4.63% 4,605,753 9,950 14,743 $4.17 BELMONT/SAN CARLOS A ,150 17, % , % 1.96% 871,597 0 (846) $4.38 B/C ,870 28, % , % 7.04% 931,735 39,470 17,758 $3.81 Total 66 1,849,020 45, % , % 4.59% 1,803,332 39,470 16,912 $4.33 REDWOOD SHORES A 49 5,409, , % 34, % 343, % 6.91% 5,065,965 (722) 33,343 $4.56 B/C ,267 15, % , % 4.89% 289,028 (366) 4,200 $4.41 Total 62 5,714, , % 34, % 359, % 6.8 5,354,993 (1,088) 37,543 $4.55 SAN MATEO A 30 3,304, , % 16, % 201, % 3,103,119 (8,647) (43,506) $5.13 B/C 163 4,745, , % 9, , % 9.47% 4,406,802 97, ,014 $3.64 Total 193 8,050, , % 26, % 540, % 7.71% 7,509,921 88, ,508 $4.54 FOSTER CITY A 14 2,697, , % 57, % 298, % 11.62% 2,399,162 14,231 9,426 $4.42 B/C , , % , % ,694 13,744 3,226 $4.45 Total 45 3,388, , % 57, % 404, % ,983,856 27,975 12,652 $4.43 BURLINGAME A 8 795,912 99, % 1, % 101, % 10.09% 694,731 (21,355) 18,480 $3.15 B/C 78 2,025,072 88, % 16, % 105, % 1,919,867 (8,159) (43,703) $2.42 Total 86 2,820, , % 18, % 206, % 6.3 2,614,598 (29,514) (25,223) $2.81 SAN BRUNO/MILLBRAE A 9 1,159,195 60, % 16, % 77, % 5.88% 1,082,026 (8,963) (5,717) $3.63 B/C ,174 32, , % 38, % 5.82% 626,399 (9,094) (2,160) $3.51 Total 43 1,824,369 93, % 22, % 115, % 5.86% 1,708,425 (18,057) (7,877) $3.56 DALY CITY A 3 501, , , % 344,332 1,626 (12,571) $3.71 B/C ,526 41, % , % 9.01% 401,683 (1,868) (16,342) $2.76 Total , , % , % 21.01% 746,015 (242) (28,913) $3.53 SOUTH SAN FRANCISCO A 18 3,139, , % 66, % 377, % 14.43% 2,761,235 73,500 76,607 $3.54 B/C 47 1,144,755 31, % 22, % 53, % 3.14% 1,090,862 (16,951) 121,003 $1.93 Total 65 4,283, , % 88, % 431, % 11.35% 3,852,097 56, ,610 $3.42 BRISBANE A 5 663, , % 19, % 345, % 50.59% 317,862 (10,116) 34,525 $3.43 B/C 6 166,534 5, % , % 0.51% 161,416 (4,264) (5,118) $2.25 Total , , % 19, % 351, % 40.55% 479,278 (14,380) 29,407 $3.42 SAN MATEO COUNTY MARKET A ,083,521 1,942, % 222, % 2,165, % 9.64% 20,918,360 47,396 84,220 $4.51 B/C ,133, , % 58, % 922, % 6.31% 16,210, , ,062 $4.09 Total ,216,650 2,806, % 280, ,087, % 8.23% 37,129, , ,282 $4.40 LY COMPARISON AND S ,216,650 2,806, % 280, ,087, % 8.23% 37,129, , ,282 $4.40 Q1-15** ,478,049 2,944, % 388, % 3,332, % 10.44% 37,145, , ,544 $4.23 Q ,209,871 3,165, % 508, % 3,674, % 10.74% 31,535, , ,141 $3.84 Q ,209,871 3,279, % 503, % 3,783, % 11.11% 31,426,782 80,102 75,267 $ ,209,871 3,391, % 520, % 3,911, % 11.28% 31,298,450 9,726 (4,835) $3.69 *THE SOUTH PENINSULA CITIES OF MOUNTAIN VIEW, LOS ALTOS, AND PALO ALTO ARE FOR REFERENCE PURPOSES AS THEY ARE NOT INCLUDED IN THE SAN MATEO COUNTY MARKET S. **DUE TO A CHANGE IN REPORTING STANDARDS, THERE MAY BE STATISTIC VARIATIONS DURING Q1 THAT ARE NOT REFLECTIVE OF ACTUAL CHANGES IN THE MARKET. 5 San Francisco Peninsula Research & Forecast Report Colliers International

6 MARKET COMPARISONS R&D MARKET BLDGS INVENTORY PRIOR OCCUPIED NET NET YTD WEIGHTED AVG ASKING RENTAL (NNN) SOUTH PENINSULA* MOUNTAIN VIEW ,757, , , , ,597,188 52,297 (2,296) $2.79 PALO ALTO 59 13,369,975 22, , , ,289,815 (37,666) (40,778) $4.15 SAN MATEO COUNTY MENLO PARK 71 4,055, , , % 3,954,186 (9,155) 52,068 $2.54 REDWOOD CITY/REDWOOD SHORES 73 2,466,145 52, % , % 3.56% 2,413,946 19,822 49,876 $2.45 BELMONT/SAN CARLOS 48 1,656,773 53, % , % 4.21% 1,603,162 (6,022) 83,073 $1.89 SAN MATEO/FOSTER CITY 61 1,702, % 1,702,979 33,228 33,228 $2.75 SAN BRUNO/MILLBRAE/BURLINGAME ,079 63, % , % 6.56% 849,898 (3,327) (32,603) $1.40 SOUTH SAN FRANCISCO/BRISBANE 103 6,225,523 27, % 299, , % 5.38% 5,898,610 3,703 5,302 $3.00 SAN MATEO COUNTY MARKET Total ,020, , % 299, , % 3.89% 16,422,781 38, ,944 $2.67 LY COMPARISON AND S ,020, , % 299, % 597, % 3.89% 16,422,781 38, ,944 $2.67 Q1-15** ,342, , % 315, % 673, % 5.21% 16,668, , ,695 $2.98 Q ,873, , % 310, % 826, % 6.37% 15,047,086 91, ,979 $2.32 Q ,873, , % 302, % 1,010, % 8.99% 14,862,969 84,472 89,562 $ ,873,386 1,075, % 351, % 1,426, % 8.72% 14,446,905 (42,599) 5,090 $2.08 INDUSTRIAL MARKET SOUTH PENINSULA* MOUNTAIN VIEW 145 1,670,654 2, , ,668,654 1,1096 7,780 $0.00 SAN MATEO COUNTY MENLO PARK 86 2,683,675 7, % , % 0.5 2,676,175 4,000 68,229 $1.29 REDWOOD CITY 186 4,172,077 87, % , % 2.37% 4,084,815 11,240 66,171 $1.35 BELMONT/SAN CARLOS 235 6,125,319 43, % 4, % 47, % 0.6 6,077,755 (10,943) 7,178 $1.30 SAN MATEO/FOSTER CITY 76 1,392,893 15, , % 1,377,639 (13,254) 6,246 $2.09 BURLINGAME 138 3,992, , % , % 2.65% 3,887, ,983 $1.15 SAN BRUNO/MILLBRAE , , $0.00 BRISBANE/DALY CITY 102 5,205, , % , % 4.8 4,933,553 (24,158) 67,118 $0.75 SOUTH SAN FRANCISCO ,329, , % 51, % 509, % 3.13% 14,819,838 (63,624) (143,276) $0.91 SAN MATEO COUNTY MARKET Total 1,239 39,504, , % 55, % 1,045, % 2.52% 38,459,094 (96,375) 83,649 $0.98 LY COMPARISON AND S -15 1,235 39,504, , % 55, % 1,045, % 2.52% 38,459,094 (96,375) 83,649 $0.98 Q1-15** 1,235 39,196, , % 42, % 986, % 3.02% 38,209, , ,024 $0.88 Q4-14 1,259 40,852,516 1,192, % 43, % 1,235, % 3.32% 39,616, , ,559 $0.86 Q3-14 1,259 40,852,516 1,228, % 127, % 1,355, % 3.93% 39,497, , ,084 $ ,259 40,844,016 1,226, , % 1,605, % 3.98% 39,238,106 1, ,098 $0.83 *THE SOUTH PENINSULA CITIES OF MOUNTAIN VIEW, LOS ALTOS, AND PALO ALTO ARE FOR REFERENCE PURPOSES AS THEY ARE NOT INCLUDED IN THE SAN MATEO COUNTY MARKET S. **DUE TO A CHANGE IN REPORTING STANDARDS, THERE MAY BE STATISTIC VARIATIONS DURING Q1 THAT ARE NOT REFLECTIVE OF ACTUAL CHANGES IN THE MARKET. 6 San Francisco Peninsula Research & Forecast Report Colliers International

7 502 offices in 67 countries on 6 continents United States: 140 Canada: 31 Latin America: 24 Asia Pacific: 199 EMEA: 108 $2.3 billion in annual revenue 1.7 billion square feet under management COLLIERS INTERNATIONAL REDWOOD CITY 203 Redwood Shores Parkway, Suite 125 Redwood City, CA USA colliers.com/redwoodcity MARKET CONTACTS: Rick Knauf Executive Managing Director CA License No rick.knauf@colliers.com Cindy Tran Market Research Analyst cindy.tran@colliers.com AngeLin Vo Senior Graphic Designer CONTRIBUTING AUTHORS: Mike Cobb Senior Vice President Mike Davis Senior Vice President 16,300 professionals and staff About Colliers International Colliers International Group Inc. (NASDAQ: CIGI; TSX: CIG) is a global leader in commercial real estate services with more than 16,300 professionals operating from 502 offices in 67 countries. With an enterprising culture and significant insider ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include brokerage, global corporate solutions, investment sales and capital markets, project management and workplace solutions, property and asset management, consulting, valuation and appraisal services, and customized research and thought leadership. Colliers International has been ranked among the top 100 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 10 consecutive years, more than any other real estate services firm. For the latest news from Colliers International, visit Colliers.com or follow us on Twitter (@ColliersIntl) and LinkedIn. colliers.com Copyright Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.