Continued Demand Drives New Occupancy

Transcription

1 Research & Forecast Report SAN JOSE SILICON VALLEY Q Continued Demand Drives New Occupancy > > There is now more than 7.2 million square feet of commercial space under construction in the Silicon Valley > > Total available space has increased 13.7 percent year-over-year for all product types combined > > 4.9 million square feet of improved space came onto the market during the second quarter of 2017 The first half of the year came to a close and the Silicon Valley has maintained momentum. With job reports still topping the charts, the unemployment rate in Santa Clara County has dipped to 3.0 percent, down from 3.5 percent one year earlier. During the second quarter of 2017 Silicon Valley start-ups raked in more than $3.6 billion from VC investment across 119 deals, a strong increase from first quarter reports. Internet took claim to the highest percentage of investments, collecting $1.7 billion of all venture capital invested in the region this period, according to data from PricewaterhouseCoopers. Leasing activity was strong in the Silicon Valley during the second quarter, gross absorption for all product types totaled 7.6 million square feet. This amount of tenant demand is a 55.9 percent increase quarter over quarter. During the second quarter, the Silicon Valley measured an increase in total occupancy, at 2.7 million square feet of positive net absorption. Total availability sits just above 29 million square feet in the Silicon Valley, this translates to an overall availability rate of 8.4 percent, 88 basis points higher than one year earlier. Vacancy Vs. Availability Rates Silicon Valley All Products 10.00% 8.00% 6.00% Market Indicators - Santa Clara County Average Household Income Population Growth White Collar Jobs Market Trends Relative to prior quarter Q Q3 2017* Vacancy Net Absorption Construction Rental Rate *Projected $145,553 Summary Statistics Q Silicon Valley All Products Previous Quarter Current Quarter Overall Vacancy Rate 6.02% 6.08% Net Absorption 243,116 2,701,157 Construction Completed 2,278,424 3,447,606 Under Construction 10,394,903 6,716,422 Office Asking Rents* $4.35 FS $4.40 FS R&D Asking Rents* $2.08 NNN $2.04 NNN Industrial Asking Rents* $1.09 NNN $1.13 NNN Warehouse Asking Rents* $0.84 NNN $0.94 NNN *Asking Rents Reported Monthly 9.75% % 4.00% 2.00% 0.00% Previous Quarter Current Quarter Economic Indicators Total VC Funding $2.7 Billion $3.6 Billion Total Number of Deals Unemployment Rate 3.6% 3.0% Availability Rate Vacancy Rate Overall availability increased 19 basis points to 8.4% during the second quarter, while vacancy increased 6 basis points to 6.1%

2 Office > > Leasing activity measured 4.6 million square feet during the second quarter of > > The Silicon Valley s office market recorded its twentieth consecutive quarterly occupancy gain during the second quarter of > > Total availability sits at 11.7 percent, up 141 basis points from one year earlier. During the second quarter of 2017 office activity was steady in the Silicon Valley, registering a total of 4.6 million square feet of gross absorption. With the strong demand realized during the second quarter of the year, gross absorption year to date totals over 6.3 million square feet. This amount of activity is nearly twice the 3.6 million square feet recorded during the same time period of The Silicon Valley office market recorded another occupancy gain during the second quarter, measuring 2.6 million square feet. The most noteworthy move-in during the second quarter of the year was Apple, as their newly constructed headquarters reached completion in June. The tech giant reported that it had begun phasing employees into the new 2.8 million square foot campus in early June. Despite the positive net absorption measured during the second quarter, total available space in the Silicon Valley office market continues to grow, now totaling 10.2 million square feet. The total amount of available sublease space also continues to grow, up 8.3 percent from the first quarter; available sublease space now accounts for 29.4 percent of total available space. Available supply in the Valley is not, however, evenly dispersed. A number of cities in the Silicon Valley, such as Cupertino, Sunnyvale and Morgan Hill, boast availability rates in the sub five percent range. Many others with less than ten percent of the city s office space available and on the market for lease. San Jose and Santa Clara have the highest overall availability rates in the Silicon Valley at 13.4 and 27.3 percent, respectively. The two cities combined account for just over 40 percent of total office inventory in the Silicon Valley, yet 72.3 percent of the total available space in the Silicon Valley. Historical Office Vacancy 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Office Availability Rates Select Silicon Valley Cities Palo Alto Mountain View Sunnyvale Santa Clara West Valley San Jose Morgan Hill 4.4% 4.5% 6.8% 6.9% 7.3% 13.4% 27.3% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% Office Availability Breakdown by Size Range Historical Average = 12.6% Currently more than 6.6 million square feet of office space is under construction, with total potential development reaching more than an astounding 70 million square feet in the form of proposed developments. Speculative office space currently under construction totals over 3.0 million square feet, with 2.6 million of that unspoken for. The availability rate for speculative development stood at just over 79 percent at the close of the quarter. 18% 10% 7% 29% 3,000-5,000 5,001-10,000 10,001-20,000 20,001-50,000 Weighted average asking rates for office space in the Silicon Valley continued their upward climb during the second quarter of the year. Closing the period at an average of $4.40 per square foot, full service, this is a 6.3 percent increase year over year. Asking rates for Class A office space weigh in at $4.59 per square foot full service and have measured a 4.2 percent increase year over year. 36% 50,001-99,999 2 Silicon Valley Research & Forecast Report Second Quarter 2017 Colliers International

3 SAN FRANCISCO BAY FREMONT 680 Select Colliers Transactions Office Lease Activity MILPITAS Abbyy Software USA, Inc. 890 Hillview Court, Milpitas 280 PALO ALTO MT. VIEW ,155 AirXpanders, Inc. SUNNYVALE 3047 Orchard Parkway, San Jose LOS ALTOS SANTA CLARA Sublease 33, CUPERTINO/ SARATOGA SAN JOSE 87 Violin Memory, Inc N 1st Street, San Jose 15,596 CAMPBELL/ LOS GATOS Ooyala, Inc Gateway Place, San Jose 18,152 MORGAN HILL/ GILROY 24/7 Customer, Inc Logic Drive, San Jose 40,500 Select Colliers Transactions - Office Sale Activity PROPERTY ADDRESS SIZE SELLER BUYER 3335 Scott Boulevard, Santa Clara 245,830 Santa Clara Campus Partners CSHV 3333 Scott Boulevard, LLC Bunker Hill Lane, Santa Clara 117,021 Bayland Corp. Buchanan Street Partners 2 Stevens Creek Boulevard, San Jose 56,661 2 Stevens Creek, LLC University Avenue Partners Sutter Boulevard, Morgan Hill 10,100 CBR-DSSI John Borch and Beverly Borch Silicon Valley Research & Forecast Report Second Quarter 2017 Colliers International 3

4 R&D > > Total leasing activity increased 6.8 percent during the second quarter of the year to 2.08 million square feet. > > The R&D availability rate sits at 10.1 percent, up 79 basis points from one year earlier. > > The Silicon Valley R&D sector measured an occupancy gain during the second quarter. The Silicon Valley R&D sector measured strong activity during the second quarter of Totaling 2.08 million square feet of gross absorption, this is 6.8 percent more than the 1.95 million square feet recorded during the first quarter of The second quarter of 2017 marks the first time since the fourth quarter of 2015 that new tenant demand was higher than 2.0 million square feet in the R&D sector. Historical R&D Vacancy 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Historical Average = 12.7% As tenant demand increased during the quarter, so did occupancy levels. The Silicon Valley R&D market measured a 300,221 square foot increase in occupancy during the second quarter of the year, putting to bed a three quarter streak in which the R&D sector measured an occupancy loss. This is also the highest quarterly occupancy gain measured since the fourth quarter of 2015, when net absorption totaled 475,765 square feet. R&D Availability Rates Select Silicon Valley Cities Mountain View Sunnyvale 4.0% 5.6% On the supply side, the pipeline of pre-improved R&D space that came on the market during the second quarter decreased 9.6 percent from totals measured during the first quarter, to 1.7 million square feet. This marks the third consecutive quarter that R&D tenants in the Silicon Valley have kicked back less space to the market quarter over quarter. Santa Clara San Jose Milpitas Fremont 11.9% 13.8% 13.2% 16.0% Total available space in the Silicon Valley R&D market tallies 15.6 million square feet. This amount of space translates to an overall availability rate of 10.1 percent, up 79 basis points from one year earlier. Sublease space in the R&D sector accounts for 19.3 percent of total availability, down slightly from the first quarter of the year, when sublease space accounted for 19.5 percent of total available supply. The largest new deals signed for R&D space during the second quarter were Cutera, Inc. inking a deal for 100,103 square feet on Paseo Padre Parkway in Fremont and Lumentum Operations commitment to a 92,608 square foot sublease from Arris Solutions on Automaton Parkway in San Jose. SonicWALL also inked a deal for 74,824 square feet of R&D space on McCarthy Boulevard in Milpitas during the second quarter of the year. Morgan Hill 3.7% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% R&D Availability Breakdown by Size Range 8% 9% 7% 38% 5,000-20,000 20,001-40,000 40,001-60,000 Starting rates for deals completed measured an uptick during the second quarter of Average starting rates recorded during the second quarter topped out at $1.83 per square foot, NNN, up 2.8 percent from the previous quarter. Weighted average asking rates for R&D space in the Silicon Valley total $2.04 per square foot, NNN, up 6.4 percent year over year. 15% 23% 60,001-80,000 80, , ,001 and Above 4 Silicon Valley Research & Forecast Report Second Quarter 2017 Colliers International

5 SAN FRANCISCO BAY FREMONT 680 Select Colliers Transactions R&D Lease Activity Tenergy Corporation 436 Kato Terrace, Fremont MILPITAS 28,700 PALO ALTO 280 MT. VIEW 237 Baidu 250 Caribbean Drive, Sunnyvale SUNNYVALE LOS ALTOS SANTA CLARA 36,324 CUPERTINO/ SARATOGA 85 SAN JOSE 87 Parade Technologies, Inc Orchard Parkway, San Jose Sublease 28,581 CAMPBELL/ LOS GATOS Megachips Technology America 2755 Orchard Parkway, San Jose 36,383 MORGAN HILL/ GILROY Harris Corporation Madrone Pkwy, Morgan Hill 64,936 Select Colliers Transactions - R&D Sale Activity PROPERTY ADDRESS SIZE SELLER BUYER 1849 Fortune Drive, San Jose 55,189 Micrel HC 1849 Fortune LLC 675 Jarvis Drive, Morgan Hill 41, Jarvis, LLC Lawrence & Penny Polayes Silicon Valley Research & Forecast Report Second Quarter 2017 Colliers International 5

6 Industrial > > Leasing activity measured 579,008 square feet during the second quarter of > > Occupancy levels were relatively flat during the second quarter in the Silicon Valley industrial sector. > > New vacant space coming back to the market measured 569,625 square feet during the second quarter. > > Overall availability in the industrial market remains below 4.0 percent for the ninth consecutive quarter. It was a modest quarter for the Silicon Valley s industrial sector. Quarterly gross absorption tallied 579,008 square feet and new leasing and user activity was down 12.9 percent from the previous quarter, as well as down 5.5 percent from the same period one year earlier. The pipeline of pre-improved rollover space decreased 6.8 percent during the quarter to measure 569,625 square feet of space that found its way back to the market. This marks the first time in nearly a year that rollover space has measured a quarterly decline. As a result in this shift, the industrial sector closed the second quarter with positive net absorption of just 9,383 square feet. As anticipated, it will be tough for the industrial market to see large occupancy gains quarter-over-quarter if the amount of available space on the market remains at historically low levels. Total available space in the Silicon Valley industrial market fell 5.6 percent quarter over quarter, dipping from 2.0 million square feet available to just 1.9 million square feet of available space at the close of the quarter. This translates to an overall availability rate of just 3.13 percent and remains at historic lows in the Silicon Valley s industrial sector. Currently only four industrial spaces are available for lease that are 40,000 square feet or greater. There were no new deals signed in the Silicon Valley industrial market during the second quarter that were greater than 36,000 square feet. Year to date, no new industrial deals greater than 82,000 square feet have been inked. The two largest new transactions recorded during the second quarter of the year included a 35,287 square foot lease signed by Kettman Machining on Snell Avenue in San Jose, followed by SRCM, LLC s lease of 32,580 square feet on Memorex Boulevard in Santa Clara. Weighted average asking rates recorded an uptick during the second quarter of 2017 in the industrial sector. At the close of the quarter, average asking rates for industrial space tallied at $1.13 per square-foot, NNN, up 3.5 percent since the first quarter of When comparing average starting rates for deals closed, the weighted average starting rents measured during the second quarter were also $1.13 per square foot, NNN. Although equal to average asking rates, starting rates measured an even larger increase quarter over quarter and were up 11.8 percent from those recorded during the first quarter of the year. Historical Industrial Vacancy 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Industrial Availability Rates Select Silicon Valley Cities Campbell Sunnyvale Santa Clara San Jose Milpitas Fremont Morgan Hill 1.1% 1.6% 2.1% 2.2% 2.1% 3.5% 4.4% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% Industrial Availability Breakdown by Size Range 15% 4% 6% 5,000-20,000 1% 20,001-40,000 74% Historical Average = 5.9% 40,001-60,000 60,001-80,000 80, , ,001 and Above 6 Silicon Valley Research & Forecast Report Second Quarter 2017 Colliers International

7 SAN FRANCISCO BAY FREMONT 680 Select Colliers Transactions Industrial Lease Activity Synnex Corporation MILPITAS 44 Nobel Drive 2, Fremont 25,333 PALO ALTO 280 MT. VIEW 237 Relectric Supply Company LOS ALTOS SUNNYVALE SANTA CLARA 2390 Zanker Road, San Jose 76, CUPERTINO/ SARATOGA SAN JOSE 87 Second Source Medical 2200 Zanker Road, San Jose 22,615 CAMPBELL/ LOS GATOS SRCM, LLC 1230 Memorex Drive, Santa Clara 32,580 MORGAN HILL/ GILROY ChargePoint 480 Vandell Way, Campbell 26,920 Select Colliers Transactions - Industrial Sale Activity PROPERTY ADDRESS SIZE SELLER BUYER Quimby Road, San Jose 198,859 Lion Business Park Mathew Street Properties, LLC Osgood Road, Fremont 143,748 Jo Mancebo Stratford School Inc Martin Avenue, Santa Clara 22,960 Martin Avenue Associates Igor Brovamy S Grimmer Boulevard, Fremont 22, Snow Venture Partners LLP S&T Real Estate Group, LLC Silicon Valley Research & Forecast Report Second Quarter 2017 Colliers International 7

8 Warehouse > > Leasing activity measured 275,700 square feet of new tenant demand during the second quarter. > > Net absorption was negative in the second quarter following nine consecutive quarters of measured occupancy gains. > > Total available warehouse space measures 1.2 million square feet in the Silicon Valley. Activity recorded in the Silicon Valley warehouse sector during the second quarter of 2017 was less than half the total demand measured the prior quarter. Totaling 275,700 square feet of gross absorption during the quarter, total demand year to date now measures 800,119 square feet. Historical Warehouse Vacancy 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Historical Average = 6.2% As a result of the decrease in activity during the quarter, the warehouse sector measured an occupancy loss totaling 274,540 square feet. The occupancy loss realized during the second quarter of the year ends a nine quarter streak of occupancy gains in which the warehouse sector recorded more than 3.2 million square feet of positive net absorption. During the second quarter the warehouse market measured an increase in the levels of pre-improved space coming onto the market. Up 16.1 percent from the first quarter, warehouse tenants in the Silicon Valley kicked back 550,240 square feet of vacant space to the market. This is the highest level of roll-over space measured on a quarterly basis since the first quarter of Warehouse Availability Rates Select Silicon Valley Cities Sunnyvale Santa Clara San Jose Milpitas 0.0% 2.9% 3.2% 8.5% Currently in the Silicon Valley, only 1.2 million square feet of space remains available in the warehouse sector, down 5.4 percent from total availability recorded during the second quarter of The overall availability rate now stands at 3.2 percent in the Silicon Valley down 14 basis points from one year earlier. Tenants looking for warehouse space in the Silicon Valley have limited option to choose from. At the close of the second quarter there were only twenty-three warehouse spaces available. More than 60 percent of the available spaces offer tenants less than 60,000 square feet. Leaving larger warehouse users only seven spaces to choose from in their search for new space. Fremont Morgan Hill Gilroy 0.0% 0.0% 2.6% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% Warehouse Availability Breakdown by Size Range Ten new deals were inked for warehouse space during the second quarter, with an average deal size of 27,570 square feet. With limited available warehouse options throughout the Silicon Valley at the close of the second quarter, tenants are restricted in their search for new space and may begin looking in neighboring regions. The largest new deal signed during the quarter was Mosaic s lease of 65,154 square feet on Richard Avenue in Santa Clara, followed by Tesla Motors, who committed to 60,800 square feet on Mabury Road in San Jose. 9% 9% 8% 13% 13% 5,000-20,000 20,001-40,000 40,001-60,000 60,001-80,000 80, ,000 48% 100,001 and Above With limited supply, weighted average asking rates for warehouse space are beginning to increase throughout the Silicon Valley. At the close of the second quarter, average asking rates for warehouse space were $0.94 per square-foot, NNN, up 12.4 percent year over year. 8 Silicon Valley Research & Forecast Report Second Quarter 2017 Colliers International

9 SAN FRANCISCO BAY FREMONT 680 Select Colliers Transactions Warehouse Lease Activity MILPITAS RK Logistics Group, Inc Christy Street, Fremont 280 PALO ALTO MT. VIEW ,080 LOS ALTOS SUNNYVALE SANTA CLARA JIT Transportation Old Warm Springs Boulevard, Fremont 43, CUPERTINO/ SARATOGA SAN JOSE 87 AC Foods, Inc Montague Expressway, Milpitas 65,082 CAMPBELL/ LOS GATOS Apple, Inc. 590 Macara Avenue, Sunnyvale 54,934 MORGAN HILL/ GILROY Select Colliers Transactions - Warehouse Sale Activity PROPERTY ADDRESS SIZE SELLER BUYER 198 E. 9th Street & 165 E. 10th Street, Gilroy 70,255 9th St. Gilroy Associates, LLC Randy Singley 1500 Duane Avenue, Santa Clara 71,296 Golden Cajun LLC TransPak Silicon Valley Research & Forecast Report Second Quarter 2017 Colliers International 9

10 Market Comparisons Silicon Valley OFFICE MARKET CLASS TOTAL INVENTORY DIRECT VACANT SUBLEASE VACANT DIRECT OCCUPIED SUBLEASE OCCUPIED TOTAL AVAILABLE AVAILABILITY RATE CURR QTR AVAILABILITY RATE PREV QTR NET ABSORPTION CURR QTR YTD COMPLETED CURR QTR UNDER CONST. FS WTD AVG ASKING CAMPBELL / LOS GATOS A 1,733,025 68,431 46,119 68,291 40, , % 11.4% (17,366) 224, ,815 $4.39 B 2,247,650 74,591 6,570 40,679 12, , % 6.6% 6,772 (13,559) - - $3.46 C 235,572 6,158 4,051 1,500-11, % 4.7% - (544) - - $3.74 Total 4,216, ,180 56, ,470 52, , % 8.5% (10,594) 210, ,815 $4.16 CUPERTINO / SARATOGA A 4,299,983 34,110 50,150 29,660 24, , % 10.9% 3,088,949 3,100,847 3,090,500 - $4.35 B 3,011,648 62,700 43,014 36,229 14, , % 5.7% 12,062 9, $3.58 C 163, , % 5.7% 5,000 5, $- Total 7,474,683 97,129 93,164 66,871 39, , % 7.1% 3,106,011 3,115,102 3,090,500 - $4.02 FREMONT / MILPITAS A 884, ,862 7,609 41, , % 22.2% 47,897 48, $2.34 B 1,758, ,763-27,785 18, , % 11.2% 45,898 41, $2.42 C 591,508 12, , % 2.4% $- Total 3,234, ,538 7,609 69,013 18, , % 12.6% 93,795 90, $2.38 GILROY / MORGAN HILL A 418,491 10, , % 2.5% - (2,027) - - $2.30 B 397,907 6, , % 1.7% - (711) - - $1.84 C 290,622 23, , % 7.8% - 3, $2.25 Total 1,107,020 40, , % 3.6% $2.15 LOS ALTOS A 295,515 34, , % 8.9% (10,705) (9,355) - - $7.41 B 510,397 37,713-7,297 17,041 62, % 10.1% 7,387 (221) - - $4.77 C 386,152 8,725-12,842-21, % 4.3% (5,130) (1,659) - - $5.30 Total 1,192,064 80,930-20,139 17, , % 7.9% (8,448) (11,235) - - $5.64 MOUNTAIN VIEW A 3,899, ,108 5,196 75,938 36, , % 7.6% 27,964 17, ,638 $7.41 B 1,313,549 56,905 1,250 35,097 7,913, % 8.7% 5,810 5, $5.71 C 512,873 2,391 3,300 5,478 5,000 16, % 5.0% 3,953 3, $7.50 Total 5,725, ,404 9, ,513 49, , % 7.6% 37,727 26, ,638 $7.23 PALO ALTO A 4,998,328 64,868 15,103 74, , , % 7.6% 12, , ,274 $8.33 B 4,337,125 60,833 28,289 93, , , % 7.4% $7.19 C 1,267,705 18,486-15,421 8,992 42, % 5.2% 7,068 10, $8.07 Total 10,603, ,187 43, , , , % 7.2% 20, , ,274 $7.90 SAN JOSE A 14,567,488 1,676, , , ,924 2,510, % 15.9% (99,031) (17,662) 357,106 1,273,798 $3.78 B 9,614, ,661 23, ,455 75, , % 10.0% 76,525 29, $3.02 C 4,005, ,139 4,112 89,234 10, , % 7.9% (2,431) $2.28 Total 28,186,917 2,501, , , ,278 3,769, % 12.7% (24,937) 13, ,106 1,273,798 $3.57 SANTA CLARA A 8,598,882 1,424,929 1,113, , ,795 3,050, % 30.9% (486,175) (749,929) - 2,065,981 $4.14 B 4,042, ,508 38,567 50,060 47, , % 12.7% (20,428) (39,656) - - $3.13 C 632,494 85,107-7,979-93, % 14.1% (10,671) (13,080) - - $2.04 Total 13,274,223 1,855,544 1,152, , ,436 3,625, % 24.4% (517,274) (802,665) - 2,065,981 $3.97 SUNNYVALE A 10,521, ,924 25, ,086 85, , % 4.7% 25, ,711-1,744,812 $5.30 B 1,553, ,581 6,283-10, , % 11.5% (56,268) (176,440) - - $3.80 C 490,595 1, , % 0.5% $2.60 Total 12,565, ,945 31, ,086 96, , % 5.4% (30,668) (63,369) - 1,744,812 $5.02 SILICON VALLEY TOTALS A 50,217,041 3,698,196 1,629, , ,943 7,117, % 14.2% 2,589,459 2,966,157 3,447,606 6,661,318 $4.59 B 28,787,557 1,503, , , ,103 2,499, % 9.3% 78,485 (143,464) - - $3.84 C 8,575, ,883 11, ,436 24, , % 6.7% (1,851) 7, $2.76 Total 87,580,374 5,633,294 1,789,215 1,577,070 1,218,946 10,218, % 11.7% 2,666,093 2,830,183 3,447,606 6,661,318 $4.40 QUARTERLY COMPARISON AND TOTALS 2Q-17 87,580,374 5,633,294 1,789,215 1,577,070 1,218,946 10,218, % 11.7% 2,666,093 2,830,183 3,447,606 6,661,318 $4.40 1Q-17 84,144,876 5,663,121 1,041,698 1,442,899 1,736,242 9,883, % 10.6% 164, ,090 1,133,270 9,843,293 $4.35 4Q-16 82,861,783 5,143, ,462 1,041,630 1,782,172 8,810, % 9.6% 501,669 1,682, ,665 10,607,669 $4.23 3Q-16 82,403,798 5,058, ,639 1,100,560 1,058,077 7,914, % 10.3% 610,155 1,180, ,694 9,023,145 $4.08 2Q-16 81,622,131 5,606, ,552 1,318, ,509 8,378, % 8.7% 38, ,753 1,144,432 8,203,116 $ Silicon Valley Research & Forecast Report Second Quarter 2017 Colliers International

11 Market Comparisons Silicon Valley R&D, INDUSTRIAL & WAREHOUSE MARKETS TYPE TOTAL INVENTORY DIRECT VACANT SUBLEASE VACANT DIRECT OCCUPIED SUBLEASE OCCUPIED TOTAL AVAILABLE AVAILABILITY RATE CURR QTR AVAILABILITY RATE PREV QTR NET ABSORPTION CURR QTR YTD COMPLETED CURR QTR UNDER CONSTR. NNN WTD AVG ASKING CAMPBELL R&D 1,378,087 61,212-40,000 25, , % 9.6% 30,519 27, $2.56 IND 995,329 28,316-6,419-34, % 6.4% 8,143 (19,062) - - $2.37 TOTAL 2,373,416 89,528-46,419 25, , % 8.2% 38,662 8, $2.51 CUPERTINO R&D 3,098,845 16, , % 0.5% (12,868) 283, $- TOTAL 3,098,845 16, , % 0.5% (12,868) 283, $- FREMONT R&D 20,494,891 1,879,538 25, , ,395 2,706, % 12.7% (33,603) 25, $1.56 IND 9,926, ,529 25,353 36,655 8, , % 2.3% (42,644) (1,538) - - $0.93 WSE 8,446, ,758 47,703 23, , % 3.5% - (140,808) - - $0.79 TOTAL 38,867,290 2,030, , , ,799 3,149, % 8.0% (76,247) (116,597) - - $1.47 GILROY R&D 372,087 18,821-97, , % 7.3% - 2, $0.92 IND 1,643,282 13, , % 1.7% 4,200 3, $1.16 WSE 3,837, % 0.0% $- TOTAL 5,853,322 32,158-97, , % 0.9% 4,200 5, $0.93 LOS GATOS R&D 337, % 0.4% 1,400 1, $- TOTAL 337, % 0.4% 1,400 1, $- MILPITAS R&D 13,744,682 1,217,503 35, ,421 87,200 2,195, % 11.7% 98,348 89, $1.71 IND 2,939,092 1,078-47,591 12,858 61, % 0.3% - 10, ,610 $0.95 WSE 4,715, , , % 0.7% $1.14 TOTAL 21,399,064 1,218,581 35,937 1,303, ,058 2,658, % 7.7% 98,348 99, ,610 $1.48 MORGAN HILL R&D 2,874, , , % 3.6% (3,498) (27,985) - - $1.11 IND 2,374,297 44,725-4,104-48, % 1.9% (15,859) 53, $1.28 WSE 482, % 0.0% TOTAL 5,731, ,214-4, , % 2.6% (19,357) 25, $1.17 MOUNTAIN VIEW R&D 13,932, , , , , , % 4.6% 44,075 (24,137) - - $3.69 IND 1,712,168 39,585-45,342 10,460 95, % 4.1% 9,336 7, $2.65 TOTAL 15,644, , , , , , % 4.5% 53,411 (16,790) - - $3.56 PALO ALTO R&D 13,736,882 22,961 82,334 37, , , % 2.3% 6,515 (71,119) - 36,120 $6.22 TOTAL 13,736,882 22,961 82,334 37, , , % 2.3% 6,515 (71,119) - 36,120 $6.22 SAN JOSE R&D 42,355,522 4,191, , , ,690 5,841, % 14.3% 81, ,249 -,374 $1.86 IND 24,578, ,960 87, ,299 11,280 1,088, % 5.1% 90,680 64, $0.93 WSE 16,875, , ,360 73, , % 3.3% (252,540) (99,180) - - $0.84 TOTAL 83,809,924 5,343, , , ,102 7,476, % 9.3% (80,173) 159,234 -,374 $1.65 SANTA CLARA R&D 19,148,127 1,797, , , ,274 2,282, % 11.5% 75,609 (111,190) - - $2.15 IND 11,394,563 81,413-74,996 22, , % 1.4% (6,189) (25,618) - - $1.49 WSE 3,505,235 22,000 38,800 41, , % 3.0% (22,000) (40,969) - - $1.00 TOTAL 34,047,925 1,900, , , ,354 2,562, % 7.2% 47,420 (177,777) - - $2.11 SUNNYVALE R&D 22,851, , , , ,033 1,280, % 6.9% 12,037 (113,660) - - $2.69 IND 6,162,125 55,401-11,600-67, % 1.1% (12,284) (14,156) - - $2.22 WSE 1,702, % 0.0% - 56, $- TOTAL 30,715, , , , ,033 1,347, % 5.3% (247) (71,043) - - $2.68 SILICON VALLEY TOTALS R&D 154,324,625 10,259,900 1,211,208 2,370,534 1,819,367 15,661, % 9.9% 300, , ,494 $2.04 IND 62,914,163 1,416, , ,135 65,182 1,969, % 3.3% 9,383 63, ,610 $1.13 WSE 39,744, , , ,326 97,032 1,271, % 2.5% (274,540) (224,184) - - $0.94 TOTAL 256,983,032 11,999,386 1,512,372 3,407,995 1,981,581 18,901, % 7.1% 35, , ,104 $1.86 QUARTERLY COMPARISON AND TOTALS 2Q ,983,032 11,999,386 1,512,372 3,407,995 1,981,581 18,901, % 7.1% 35, , ,104 $1.86 1Q ,251,978 12,380,440 1,479,305 2,559,598 1,899,311 18,318, % 7.4% 79,026 79,026 1,145, ,610 $1.88 4Q ,798,490 12,156,427 1,102,412 3,543,600 2,056,995 18,859, % 7.1% (716,222) (7,402) - 1,261,992 $1.83 3Q ,471,062 11,377,688 1,293,887 3,632,197 1,785,892 18,089, % 6.7% (115,732) 708, , ,067 $1.77 2Q ,252,645 11,353,715 1,129,372 3,121,314 1,591,499 17,195, % 6.9% 1,499, ,552 1,092,988 1,059,424 $1.76 Silicon Valley Research & Forecast Report Second Quarter 2017 Colliers International 11

12 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 increased by 886,581 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 1Q17 32,068,299 Plus: Vacant & Occupied Space that came available in 2Q17 5,062,017 Plus: New Shell added in 2Q17 3,447,606 1Q17 Available + Newly Available in 2Q17 40,577,922 Less: 2Q17 Gross Absorption -7,606,671 Less: 2Q17 Adjustments/Taken off Market -16,371 Total Available end of 2Q17 32,954, 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 2Q17-652,511 Previously Available Space that was vacated in 2Q17-4,253,003 2Q17 Total Vacant added (Occupancy Loss) -4,905,514 2Q17 Gross Absorption (occupancy gain) 7,606,671 2Q17 Net Absorption (change in Occupancy) 2,701,157 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 is not. 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. 396 offices in 68 countries on 6 continents United States: 153 Canada: 29 Latin America: 24 Asia Pacific: 78 EMEA: 111 $2.6 billion in annual revenue* 2.0 billion square feet under management 15,000 professionals and staff * All statistics are for 2016 and include affiliates New Vacant Space that came available 2Q17-652,511 Occupied Space that came available 2Q17-4,409,506 2Q17 Total Available added -5,062,017 2Q17 Gross Absorption 7,606,671 2Q17 Effective Net Absorption 2,544,654 FOR MORE INFORMATION Jeff Fredericks, SIOR Executive Managing Director San Jose Silicon Valley jeff.fredericks@colliers.com tel CA License No Jennifer Vaux, CPRC Regional Research Manager San Jose Silicon Valley jennifer.vaux@colliers.com tel Colliers International San Jose 450 West Santa Clara Street San Jose, CA United States tel fax CA License No Copyright 2017 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.