Partnership. Performance. avisonyoung.com Market Overview The San Diego office market continued to make steady gains as of the fourth quarter of 2016. Vacancy is gradually getting tighter, while rent increases have not slowed down. The market is supported by diverse industries and desirable geography while benefitting from strong demand for space by healthcare innovators, independent research institutes and sectors that work closely with the local military. The San Diego County unemployment rate, as of the fourth quarter of 2016 dropped to 4.2% from 4.8% one year earlier. Vacancy was 11.0% at the end of the fourth quarter of 2016, down from 12.3% at the same point in 2015. While vacancy is tighter year-over-year post-recession, vacancy in the fourth quarter is also down from the previous quarter. Rental increases are not expected to slow, even as new construction is introduced. Office space is spending less time on the market, and fewer months vacant. The rental rate average for all classes reached $2.68 psf FSG at Q4 2016, up from Q4 2015, when rents were at $2.56 psf FSG. The highest rents were in the Central Coast submarket at $3.28 psf FSG with the next highest in the Downtown submarket at $2.63 psf FSG, followed by the North County Coastal area at $2.53 psf FSG. In the past 12-month period, San Diego County recorded a net absorption of positive 1,317,708 sf. The San Diego office market had nine investment-grade office projects under construction at the fourth quarter, including life science projects, amounting to 1,120,850 SF of new inventory that is expected to be delivered in 2017. Fourth Quarter 2016 / Office Market Report San Diego Market Facts 4.2% San Diego County Unemployment Rate As Of December 2016 440,651 SF Positive Net Absorption Current Quarter Positive 1,317,708 SF Year-To-Date 11.0% Total Vacancy Rate Down From 11.5% In Q3 2016 $2.68 PSF Asking Rental Rate Weighted Average
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Partnership. Performance. avisonyoung.com
Market Overview
The San Diego office market continued to make steady gains as of the fourth quarter of 2016. Vacancy is gradually getting tighter, while rent increases have not slowed down. The market is supported by diverse industries and desirable geography while benefitting from strong demand for space by healthcare innovators, independent research institutes and sectors that work closely with the local military. The San Diego County unemployment rate, as of the fourth quarter of 2016 dropped to 4.2% from 4.8% one year earlier. Vacancy was 11.0% at the end of the fourth quarter of 2016, down from 12.3% at the same point in 2015.
While vacancy is tighter year-over-year post-recession, vacancy in the fourth quarter is also down from the previous quarter. Rental increases are not
expected to slow, even as new construction is introduced. Office space is spending less time on the market, and fewer months vacant. The rental rate average for all classes reached $2.68 psf FSG at Q4 2016, up from Q4 2015, when rents were at $2.56 psf FSG. The highest rents were in the Central Coast submarket at $3.28 psf FSG with the next highest in the Downtown submarket at $2.63 psf FSG, followed by the North County Coastal area at $2.53 psf FSG. In the past 12-month period, San Diego County recorded a net absorption of positive 1,317,708 sf.
The San Diego office market had nine investment-grade office projects under construction at the fourth quarter, including life science projects, amounting to 1,120,850 SF of new inventory that is expected to be delivered in 2017.
Fourth Quarter 2016 / Office Market Report
San Diego
Market Facts
4.2%San Diego County
Unemployment Rate As Of December 2016
440,651 SFPositive Net Absorption
Current Quarter
Positive 1,317,708 SF Year-To-Date
11.0%Total Vacancy Rate
Down From 11.5% In Q3 2016
$2.68 PSFAsking Rental RateWeighted Average
Partnership. Performance. avisonyoung.com
Top Leases
Top Sales
Under Construction
Asking Rent Vacancy Rates Net Absorption
San Diego Fourth Quarter 2016 / Office Market Report
8.00%
10.00%
12.00%
14.00%
16.00%
2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q4
‐200,000
0
200,000
400,000
600,000
800,000
2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q4$1.80
$2.00
$2.20
$2.40
$2.60
$2.80
2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q4
Price SFAddress
Torrey Ridge Science Center, Torrey Pines - Life Science
Buyer Seller
Alexandria Real Estate Equities, Inc. SteelWave, Inc. $182,500,000 339,445
402 W Broadway, Downtown Kearny Real Estate Company Deutsche Asset & Wealth Mgmt $91,670,000 364,160
2550 5th Ave, Bankers Hill Manchester Financial Group Westbrook Partners $71,500,000 161,430
11535-11772 Sorrento Valley Rd, Sorrento Valley Parallel Capital Partners, Inc. Angelo, Gordon & Co. $68,400,000 391,020
10641 Scripps Summit Ct, Scripps Ranch Newport National Corporation HD Supply, Inc. $31,360,000 146,500
Tenant Type Address Submarket SF
City of San Diego New 101 Ash St Downtown 314,545
Renovate America New 16399 W Bernardo Dr Rancho Bernardo 160,924
U.S. Drug Enforcement Administration Renewal 4560 Viewridge Ave Kearny Mesa 95,471
La Jolla Pharmaceutical Company - Life Science New 4550 Towne Centre Ct UTC 83,008
Guild Mortgage Company Renewal 5887 Copley Dr Kearny Mesa 76,488
SF CompletionAddress
4775-4795 Executive Dr, UTC - Lab Space
Developer
The Blackstone Group LP 316,262 Q1 2017
10290 Campus Point Dr, UTC - Lab Space TIAA 304,326 Q1 2017
16909 W Bernardo Dr, Rancho Bernardo Sharp Rees-Stealy 100,000 Q3 2017
9779 Towne Centre Dr, UTC The Irvine Company 96,435 Q1 2017
3420-3430 Carmel Mountain Rd, Del Mar Heights American Assets Trust 88,440 Q3 2017
Partnership. Performance. avisonyoung.com
San Diego Fourth Quarter 2016 / Office Market Report
San Diego By The Numbers
Q4 2016 Inventory (SF)
Q4 2016 Vacancy (SF)
Q4 2016 Vacancy (%)
Q3 2016 Vacancy (%)
Current Quarter
Absorption
Year-To-Date Absorption
Q4 2016 Rental Rates
Q3 2016 Rental Rates
Qtr/Qtr Change (%)
Current Quarter
Deliveries
YTD Deliveries
Under Construction Quarter-End
Scheduled 2017
Completions
North County CoastalClass A 2,458,413 460,637 18.70% 17.80% -5,107 37,568 $2.68 $2.69 -0.37% 0 0 0 0
Class B 6,606,622 895,466 13.60% 12.40% -75,752 -69,273 $2.47 $2.47 0.00% 20,461 253,070 90,632 90,632
Class C 411,677 71,152 17.30% 18.40% 4,516 14,490 $1.89 $1.73 9.25% 0 0 0 0
Total 9,476,712 1,427,255 15.10% 14.10% -76,343 -17,215 $2.53 $2.52 0.40% 20,461 253,070 90,632 90,632
North County InlandClass A 5,311,034 260,489 4.90% 5.40% 26,277 130,232 $2.79 $2.79 0.00% 0 0 0 0
Class B 6,413,292 600,921 9.40% 11.20% 118,975 281,671 $2.21 $2.23 -0.90% 0 0 100,000 100,000
Class C 564,540 44,740 7.90% 7.50% -2,308 5,501 $1.93 $1.56 23.72% 0 0 0 0
Total 12,288,866 906,150 7.40% 8.50% 142,944 417,404 $2.32 $2.31 0.43% 0 0 100,000 100,000
Central CoastClass A 14,460,594 1,732,213 12.00% 12.90% 126,726 -51,624 $3.63 $3.71 -2.16% 295,609 295,609 184,875 184,875
Class B 11,522,518 1,529,022 13.30% 13.70% 51,294 102,124 $2.87 $2.79 2.87% 0 127,261 745,343 745,343
Class C 631,077 29,131 4.60% 5.10% 3,112 13,264 $2.20 $2.09 5.26% 0 0 0 0
Total 26,614,189 3,290,366 12.40% 13.00% 181,132 63,764 $3.28 $3.26 0.61% 295,609 422,870 930,218 930,218
Central CityClass A 5,330,204 537,657 10.10% 9.80% -13,681 78,998 $2.94 $2.96 -0.68% 0 0 0 0
Class B 11,245,697 903,621 8.00% 9.30% 143,526 292,591 $2.21 $2.20 0.45% 0 0 0 0
Class C 3,922,833 328,848 8.40% 8.60% 10,035 48,048 $1.64 $1.64 0.00% 0 0 0 0
Total 20,498,734 1,770,126 8.60% 9.30% 139,880 419,637 $2.29 $2.28 0.44% 0 0 0 0
Downtown Business DistrictClass A 6,688,586 540,818 8.10% 7.40% -47,056 44,742 $2.98 $2.93 1.71% 0 0 0 0
Class B 4,140,850 1,061,182 25.60% 28.80% 130,804 247,551 $2.31 $2.26 2.21% 0 0 0 0
Class C 1,500,580 133,769 8.90% 8.60% -4,381 -1,273 $2.42 $2.27 6.61% 0 0 0 0
Total 12,330,016 1,735,769 14.10% 14.70% 79,367 291,020 $2.63 $2.56 2.73% 0 0 0 0
East CountyClass A 233,830 11,040 4.70% 4.70% -71 8,086 $2.57 $2.37 8.44% 0 0 0 0
Class B 2,224,417 81,844 3.70% 4.70% -2,304 36,757 $2.45 $2.47 -0.81% 0 0 0 0
Class C 937,558 52,442 5.60% 7.10% 14,362 13,167 $1.16 $1.33 -12.78% 0 0 0 0
Total 3,395,805 145,326 4.30% 4.60% 11,987 58,010 $2.01 $2.11 -4.74% 0 0 0 0
South BayClass A 447,583 127,145 28.40% 28.50% 317 12,021 $2.54 $2.28 11.40% 0 0 0 0
Class B 2,016,743 207,962 10.30% 28.50% -41,979 62,797 $2.34 $1.83 27.87% 0 0 0 0
Class C 332,559 23,696 7.10% 8.10% 3,346 10,270 $2.00 $2.00 0.00% 0 0 0 0
Total 2,796,885 358,803 12.80% 11.50% -38,316 85,088 $2.40 $2.02 18.81% 0 0 0 0
San Diego County Class A 34,930,244 3,669,999 10.50% 10.70% 87,405 260,023 $3.19 $3.20 -0.31% 295,609 295,609 184,875 184,875
Class B 44,170,139 5,280,018 11.90% 12.70% 324,564 954,218 $2.43 $2.39 1.67% 20,461 380,331 935,975 935,975
Class C 8,300,824 683,778 8.20% 8.60% 28,682 103,467 $1.86 $1.78 4.49% 0 0 0 0
Total 87,401,207 9,633,795 11.00% 11.50% 440,651 1,317,708 $2.68 $2.64 1.52% 316,070 675,940 1,120,850 1,120,850
Vacancy Net Absorption Avg. Advertised Rates (FSG) Construction Pipeline
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
2006 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q4
Vacancy by Region
North Inland Central CoastNorth Coastal Central City
Downtown East County South Bay
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
Rental Rate by Region
2006 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q4
North Coastal North Inland Central Coast Central City Downtown East County South Bay
Partnership. Performance. avisonyoung.com
San Diego Fourth Quarter 2016 / Office Market Report
Office Markets
Existing Inventory (SF) Total Vacancy % Under Construction Existing Inventory Direct Vacancy % Total Vacancy % Total Net Absorption Average Asking Rents
5,195,626 19.40% 30,632 4,984,169 17.40% 19.70% -96,233 $2.53
1,609,321 6.50% 0 1,579,662 6.50% 6.50% 1,188 $3.44
796,285 12.00% 0 733,514 13.00% 13.00% 101 $2.03
1,079,815 8.70% 60,000 783,472 11.90% 11.90% 26,491 $2.52
795,665 15.50% 0 770,355 16.10% 16.10% -10,899 $1.94
Carlsbad
Encinitas/Solana Beach/Del Mar/RSF
Oceanside
San Marcos
Vista
North County Coastal 9,476,712 15.10% 90,632 8,851,172 14.50% 15.80% -79,352 $2.53
Existing Inventory Total Vacancy% Under Construction Existing Inventory Direct Vacancy % Total Vacancy % Total Net Absorption Average Asking Rents
848,138 9.90% 0 822,738 10.30% 10.30% 5,171 $2.21
1,470,935 8.50% 0 1,448,950 8.40% 8.70% 98,485 $2.03
1,149,458 6.60% 0 739,673 5.20% 7.50% -5,547 $2.42
6,450,716 6.50% 100,000 4,880,444 5.40% 8.50% 35,026 $2.55
2,369,619 8.60% 0 1,714,809 11.20% 11.90% 9,809 $2.29
Escondido
Miramar/Mira Mesa
Poway
Carmel Mountain Ranch/Rancho Bernardo
Scripps Ranch
North County Inland 12,288,866 7.40% 100,000 9,606,614 7.30% 9.20% 142,944 $2.33
Existing Inventory Total Vacancy% Under Construction Existing Inventory Direct Vacancy % Total Vacancy % Total Net Absorption Average Asking Rents
4,504,821 16.00% 88,440 4,398,601 14.20% 16.30% -85,251 $4.11
795,607 5.90% 0 795,607 5.90% 5.90% 4,886 $2.58
1,134,678 7.80% 0 1,134,678 7.30% 7.80% 8,376 $3.06
9,034,831 12.20% 0 6,064,577 17.40% 18.10% 96,699 $2.71
485,868 3.90% 0 421,751 4.50% 4.50% 1,376 $2.00
2,279,594 4.40% 63,000 1,119,657 8.30% 9.00% 5,129 $3.63
8,378,790 14.50% 778,778 8,018,649 12.80% 15.20% 149,917 $3.34
Del Mar Heights/Carmel Valley
Governor Park
La Jolla
Sorrento Mesa
Sorrento Valley
Torrey Pines
UTC
Central Coast 26,614,189 12.40% 930,218 21,953,520 13.40% 15.00% 181,132 $3.28
Existing Inventory Total Vacancy% Under Construction Existing Inventory Direct Vacancy % Total Vacancy % Total Net Absorption Average Asking Rents
1,861,277 8.70% 0 1,535,158 8.10% 8.40% 13,183 $2.54
9,697,695 9.10% 0 6,987,611 11.10% 11.10% 90,049 $2.02
6,471,708 8.90% 0 5,851,563 9.50% 9.80% 11,021 $2.41
1,710,883 7.10% 0 1,313,464 8.00% 8.00% 14,158 $2.14
757,171 4.10% 0 597,776 5.20% 5.20% 11,423 $2.27
Bankers Hill/Hillcrest/Mission Hills/North Park
Kearny Mesa
Mission Valley
Old Town/Sports Arena/Point Loma
Pacific Beach/Rose Canyon/Morena
Central City 20,498,734 8.60% 0 16,285,572 9.80% 9.90% 139,834 $2.23
Existing Inventory Total Vacancy% Under Construction Existing Inventory Direct Vacancy % Total Vacancy % Total Net Absorption Average Asking Rents
12,330,016 14.10% 0 12,102,016 14.10% 14.30% 79,367 $2.63Downtown San Diego
Downtown Business District 12,330,016 14.10% 0 12,102,016 14.10% 14.30% 79,367 $2.63
Existing Inventory Total Vacancy% Under Construction Existing Inventory Direct Vacancy % Total Vacancy % Total Net Absorption Average Asking Rents
938,693 5.30% 0 819,693 5.90% 6.10% -1,197 $2.44
2,078,759 3.30% 0 1,902,909 3.60% 3.60% 17,146 $2.09
378,353 7.20% 0 319,040 8.60% 8.60% 0 $1.11
College Area
El Cajon/La Mesa/Lemon Grove/Santee
Mission Gorge
East County 3,395,805 4.30% 0 3,041,642 4.70% 4.80% 15,949 $2.01
Existing Inventory Total Vacancy% Under Construction Existing Inventory Direct Vacancy % Total Vacancy % Total Net Absorption Average Asking Rents
1,863,769 12.00% 0 1,471,441 14.80% 15.30% 518 $2.41
83,001 13.90% 0 57,001 20.30% 20.30% 0 -
676,008 17.10% 0 595,046 19.40% 19.40% -38,834 $2.50
174,107 4.20% 0 174,107 4.20% 4.20% 0 $1.91
Chula Vista
Coronado/Imperial Beach National
City/Southeast San Diego Otay
Mesa
South Bay 2,796,885 12.80% 0 2,297,595 15.30% 15.60% -38,316 $2.40
San Diego County Total 87,401,207 11.00% 1,120,850 74,138,131 11.80% 12.70% 441,558 $2.68
Total Marketincluding owner occupied space
Leased Market
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