Partnership. Performance.

THIRD QUARTER 2015

San Diego Office Market Report

Avison Young - San Diego 4225 Executive Square, Suite 600La Jolla, CA 92037858.201.7070

www.avisonyoung.com

Vacancy Rates

Net Absorption

Partnership. Performance.

THIRD QUARTER 2015

Market Overview

San Diego Office Market Report

Market Snapshot Asking Rent

* The information reported is based on data pertaining to office properties that are at least 20,000 sf and 2-stories or greater. Rental rates are estimated full service and have been calculated at the monthly rate.

San Diego Office Vacancy Levels Out As Rents Continue To Climb

San Diego’s office market is moving forward with confidence, supported by its diverse industries and desirable geography. The region is a thriving hub for biotechnology, telecommunications, defense and tourism, which have contributed to the resilience of the market since the Great Recession. There is strong demand for space from healthcare innovators, independent research institutes and sectors that work closely with the local military. The unemployment rate for San Diego County, as of September 2015, dropped to 4.6%. Year-to-date, unemployment levels are markedly lower in comparison with the previous year.

The San Diego County office vacancy rate has stalled slightly at 11.5% at the third quarter of 2015, matching the same vacancy rate that had been seen in the third quarter of 2014, after year-over-year declines. Third quarter vacancy has been impacted by the downsizing of Qualcomm in the Central Coast area. Rental rates are still responding however to the larger vacancy trends and, by the end of the third quarter of 2015, the average asking rental rate for all classes reached $2.53 psf full-service gross (FSG), up from $2.36 psf FSG one year earlier. Rents are experiencing a quarter-over-quarter increases across most submarkets in the county. The highest rents, by far, are found in the Central Coast area, at $3.19 psf FSG. The North County Coastal area and the Downtown area achieved the next highest rents, while Downtown also experienced the greatest gain over the previous quarter. Total net absorption for the year to date at the third quarter of 2015 was a positive 251,919 sf.

The San Diego office market had eight investment-grade office projects under construction at the third quarter of 2015. These projects amount to more than 611,000 sf of new inventory, approximately 78% of which will be available to the market with the remainder preleased. The Downtown market saw the completion of a 320,000-sf, LEED Gold certified office tower, which is fully occupied by Sempra Energy. One La Jolla Center completed in UTC with 305,952-sf of LEED Gold certified space being marketed. There is currently more than 8 msf of proposed office development on record in the county. A gradual increase in new construction is expected to continue through 2015 and well into 2016.

Third Quarter 2015 | San Diego Office Report

M A J O R L E A S E T R A N S A C T I O N S

M A J O R S A L E T R A N S A C T I O N S

Of the 8.0m sf of proposed office space being marketed in San Diego, 23% of the volume is located in Sorrento Mesa, 11% is located in Scripps Ranch, and 13% is located Downtown.

The population in San Diego County is experiencing a faster growth rate than that of the state as a whole, expanding 5.4% over the past four years. There are approximately 3,263,431 people living in San Diego County as of 2014.

* The information reported is based on data pertaining to office properties that are at least 20,000 sf and 2-stories or greater. Rental rates are estimated full service and have been calculated at the monthly rate.

U N D E R C O N S T R U C T I O N

In 2015 San Diego ranks 17th among the top U.S. cities for the number of Energy Star rated buildings. Over 46 million sf. in 467 facilities, have achievd Energy Star labels in the county of San Diego.

More than 5% of California's utility-scale energy came from solar in 2014, leading the rest of the country. San Diego ranks 2nd (behind Los Angeles) among U.S. cities for volume of rooftop solar panels.

S a n D i e g o R e g i o n s B y T h e N u m b e r s

Third Quarter 2015 | San Diego Office Report

* The information reported is based on data pertaining to office properties that are at least 20,000 sf and 2-stories or greater. Rental rates are estimated full service and have been calculated at the monthly rate.

Third Quarter 2015 | San Diego Office Report

* The information reported is based on data pertaining to office properties that are at least 20,000 sf and 2-stories or greater. Rental rates are estimated full service and have been calculated at the monthly rate.

Third Quarter 2015 | San Diego Office Report

G e o g r a p h i c C o v e r a g e

East County College AreaMission Gorge

El CajonLa MesaSantee

Lemon Grove

Downtown Business District Downtown San Diego

Central San Diego Old Town/Sports Arena/Point Loma Mission Valley North Park/South ParkBankers Hill/Hillcrest/Mission Hills Pacific Beach/Rose Canyon/Morena Kearny Mesa

South Bay CoronadoImperial Beach Chula Vista National CityOtay MesaSoutheast San Diego

Central Coast Sorrento ValleyDel Mar Heights/Carmel ValleySorrento MesaLa JollaTorrey PinesUTCGovernor Park

North County Inland EscondidoRancho Bernardo PowayMira Mesa/Miramar Scripps Ranch

North County Coastal OceansideCarlsbadVista San Marcos EncinitasSolana Beach Del MarRancho Santa Fe

N County Inland

N County Coastal

East County

South Bay

Central City

Central Coast

Downtown

San Diego County: Improving

U n e m p l o y m e n t R a t e s

United States: Improving

Sept 2015 5.1%

Sept 2014 5.9%

Sept 2015 4.6%

Sept 2014 5.9%

California: Improving

Sept 2015 5.9%

Sept 2014 7.3%

WASHINGTON, DC

RALEIGH-DURHAM (2)

SUBURBAN MARYLAND

HALIFAX

NEW YORK CITY

ORANGE COUNTY DALLAS

HOUSTON

ATLANTA

WEST PALM BEACH (2)

BOSTON

PITTSBURGH

OTTAWA

DETRO

IT CHICAGO (2)

GUELPH

MISSISSAUGA

MONTREALEDMONTON

REGINAWINNIPEG

CALGARYVANCOUVER

LETHBRIDGE

DENVER

RENO

LAS VEGAS

SAN FRANCISCO

LOS ANGELES (4)

NEW JERSEY

TYSONS CORNER, VA

SOUTH CAROLINA (2)

TORONTO (2)

QUEBEC CITY

TORONTO NORTH

CHARLOTTE

SAN DIEGO

SACRAMENTO

SAN MATEO

FAIRFIELD/WESTCHESTER

LONG ISLAND

PHILADELPHIA

TAMPA

COLUMBUS

AUSTIN

OAKLAND

CLEVELAND

ORLANDO

MONCTON

FORT LAUDERDALE

MIAMI

MINNEAPOLIS

INDIANAPOLIS

LONDON

THAMES VALLEY

FRANKFURT

MUNICH

DUESSELDORF

HAMBURG

213.935.7435chris.cooper@avisonyoung.com

Avison Young at a Glance

Contact Information - Southern California, United States

213.935.7430 323.851.6666

www.avisonyoung.com

310.899.1800424.257.6474

Los Angeles - Downtown 555 S Flower St, Ste 3200Los Angeles, CA 90071 Primary Contact: Ted Simpsonted.simpson@avisonyoung.com

Los Angeles - North6711 Forest Lawn DrLos Angeles, CA 90068 Primary Contact: Mark Evanoff mark.evanoff@avisonyoung.com

Los Angeles - West10940 Wilshire Blvd, Ste 2100 Los Angeles, CA 90024 Primary Contact: Jonathan Larsen jonathan.larsen@avisonyoung.com

Los Angeles - Santa Monica 301 Arizona Ave, Ste 303 Santa Monica, CA 90401 Primary Contact: Randy Starrrandy.starr@avisonyoung.com

San Diego - La Jolla4225 Executive Sq, Ste 600 La Jolla, CA 92037Primary Contact: Jerry Keeney jerry.keeney@avisonyoung.com

858.201.7070

Orange County - Irvine 2030 Main Street, Ste 150 Irvine, CA 92614Primary Contact: Dan Vittonedan.vittone@avisonyoung.com

949.757.1190 858.201.7072amber.jagers@avisonyoung.com

Report Prepared By:Amber Jagers - Research Manager 4225 Executive Sq, Ste 600La Jolla, CA 92037

Regional Managing Director: Chris Cooper - Corporate 555 S Flower St, Ste 3200 Los Angeles, CA 90071

© 2015, Avison Young (Canada) Inc. The statistics contained in this report were obtained from sources deemed reliable, including Avison Young, Bureau of Labor Statistics, CoStar Group Inc., Real Capital Analytics, Inc., Reis Services, LLC, State of CA Employment Development Department, U.S. Green Building Council. However, Avison Young (Canada) Inc. does not guarantee the accuracy or completeness of the information presented, nor does it assume any responsibility or liability for any errors or omissions. All opinions expressed and data provided herein are subject to change without notice. This report cannot be reproduced in part or in full in any format without the prior written consent of Avison Young (Canada) Inc.

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Avison Young is the world’s fastest-growing commercial real estate services firm. Headquartered in Toronto, Ontario, Avison Young is a collaborative, global firm owned and operated by its principals. Founded in 1978, the company comprises 1,700 real estate professionals in 66 offices, providing value-added, clientcentric investment sales, leasing, advisory, management, financing and mortgage placement services to owners and occupiers of office, retail, industrial and multi-family properties.

Avison Young is Canada’s largest independently owned commercial real estate services company.

Founded in 1978 as Graeme Young & Associates of Edmonton; Merged with and Avison & Associates in 1996 to form Avison Young.

In 2009, Avison Young began international expansion and has since opened 45 U.S. and 5 European offices.

In 2011-2014, Avison Young won designation as one of Canada’s Best Managed Companies, Canada’s most prestigious corporate award.

In 2015, Avison Young was named a Canada’s Best Managed Companies Gold Standard winner (2014).

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