RESEARCH 2Q 2020 SOUTH PENINSULA R&D MARKET...Personalis 1330 O’Brien Dr Menlo Park (Highway 101) Expansion 31,280 Rivian Automotive 850 Hansen Way Palo Alto (Stanford Research Park)

SOUTH PENINSULAR&D MARKET

RESEARCH 2Q 2020

RESEARCH | 1

MARKET ANALYSIS

Asking Rent & Vacancy

Net Absorption (Square Feet, Thousands)

MARKET SUMMARYCurrent Quarter

PriorQuarter

Year AgoPeriod

12 MonthForecast

Total Inventory 26.6M SF 26.6M SF 26.4M SF

Total Vacancy Rate 9.5% 8.2% 8.0%

Quarterly Net Absorption -336K SF -126K SF -192K SF

Total NNN Asking Rent $5.36/SF $5.43/SF $5.49/SF

Under Construction 0 SF 0 SF 679K SF

Deliveries 0 SF 85K SF 0 SF

-600

-400

-200

0

200

400

2Q15 2Q16 2Q17 2Q18 2Q19 2Q20

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

$0.00

$1.20

$2.40

$3.60

$4.80

$6.00

2Q15 2Q16 2Q17 2Q18 2Q19 2Q20

Average Asking Rent ($/SF) Vacancy (%)

0

300

600

900

1200

2016 2017 2018 2019 2020 2021

Deliveries Under Construction Projected

Construction & Deliveries (Square Feet, Thousands)

© NEWMARK KNIGHT FRANK | 2019

LOW VOLUME CONTINUES FOR SOUTH PENINSULA R&D MARKET• Stanford Research Park showing positive signs with large

transactions pending• Gross absorption, significantly decreased from the fourth quarter

of 2019, remains flat• Look for a rebound for the remainder of the year, buoyed by the life

science sector

Look for a rebound for the remainder of 2020 in the R&D sector on the South Peninsula. Specifically, the Stanford Research Park, which is accounting for 34.0% of the total availability on the South Peninsula in the second quarter. Look to the life science sector for some positive signs that might allow the region to weather the storm of COVID-19. With certain significant transactions in progress and demand making a comeback, life science is a bright spot. The hope is that large requirements that have pressed the pause button, waiting for more certainty, will land significant square footage on the South Peninsula by late 2020.

Gross absorption in the first quarter moved downward significantly by 44.0% and stayed relatively flat for the second quarter. The approximately 555,000-square-foot former HPE Campus at 3000 Hanover Street in the Stanford Research Park is still available, but there are positive signs that a transaction or transactions will occur prior to the close of 2020.

Vacancy rates and rents experienced no significant adjustment from the previous quarter, but the decrease in transaction volume and disappearance of demand suggests a notable reset is looming. There hasn’t been enough activity as it relates to R&D leases; that lack of comparables makes it difficult to formulate new market economics. Most are predicting a softening, but landlords are fighting hard to maintain rental values and looking to entice tenants with other concessions like rental abatement, improvement allowances and flexible lease terms.

The quarter also saw eight lease transactions over 10,000 square feet and six lease transactions over 20,000 square feet. The most notable lease transactions were in the Stanford Research Park. TripActionsextended and expanded for a total of 96,690 square feet at 1501 Page Mill Road, and Stanford School of Medicine expanded into 1070 Arastredero Road, totaling 75,420 square feet.

RESEARCH | 2

2Q 2020 SOUTH PENINSULA R&D MARKET

VACANCY BREAKDOWN

Square Feet, Millions

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2Q15 2Q16 2Q17 2Q18 2Q19 2Q20

Sublease Vacancy Direct Vacancy

AVERAGE ASKING RENTS

Weighted, NNN, Monthly

$0.00

$1.40

$2.80

$4.20

$5.60

$7.00

2Q15 2Q16 2Q17 2Q18 2Q19 2Q20

Overall Ask Rent Sublease Ask Rent

© NEWMARK KNIGHT FRANK | 2019

SELECT LEASE / OWNER-USER TRANSACTIONSTenant Building(s) Submarket Type Square Feet

TripActions 1501 Page Mill Rd, Bldg 1 Palo Alto (Stanford Research Park) Direct Lease 98,690

Stanford School of Medicine 1070 Arastradero Rd Palo Alto (Stanford Research Park) Expansion 75,420

BilliontoOne 1035 O’Brien Dr Menlo Park (Highway 101) Direct Lease 36,068

Personalis 1330 O’Brien Dr Menlo Park (Highway 101) Expansion 31,280

Rivian Automotive 850 Hansen Way Palo Alto (Stanford Research Park) Sublease 22,478

FS Group 2189 Leghorn St Mountain View (Central Expy) Direct Lease 13,650

Seer 3800 Bridge Pkwy Redwood Shores Direct Lease 13,638

Undisclosed 398 Convention Way Redwood City (Downtown) Direct Lease 8,676

Undisclosed 1360 O’Brien Dr Menlo Park (Highway 101) Lease Renewal 5,914

Building(s) Submarket Reported Sale Price Reported $/RSF Square Feet

2485 Charleston Rd Mountain View (Central Expy) $6,800,000 $456.33 15,000

Before the pandemic, high-tech job growth and economic growth in the region remained above the national average. The effect of the pandemic will continue to add to already-existing barriers in the R&D leasing market and will likely produce decreased transaction volume and decreased overall absorption for a period of time. R&D will

continue to become increasingly dependent on the life-science/healthcare sector. Look for R&D and life-science building conversion from older industrial product to traditional Class A office and everything in between.

RESEARCH | 3

OVERALL SUBMARKET STATISTICSTotal

Inventory (SF)

TotalAvailability

(SF)

SubleaseAvailability

(SF)

Total Availability

Rate

Qtr Gross Absorption

(SF)

Qtr Net Absorption

(SF)

YTD Net Absorption

(SF)

Total NNNAsking Rent(Price/SF)

Menlo Park 3,534,477 204,768 102,384 5.79% 81,619 -15,107 -2,854 $3.09

Middlefield Road 257,981 20,486 10,243 7.94% 0 -2,293 -68 $3.46

Highway 101 3,276,496 184,282 92,141 5.62% 81,619 -12,814 -2,786 $3.07

Mountain View 10,532,759 723,540 343,845 6.87% 13,650 -121,099 -210,337 $4.67

Central 1,714,665 62,163 23,154 3.63% 13,650 13,650 13,650 $4.04

Shoreline 4,371,110 44,210 44,210 1.01% 0 -44,210 -44,210 $5.25

South Middlefield 4,446,984 617,167 276,481 13.88% 0 -90,539 -166,278 $4.69

Palo Alto 9,381,498 1,301,591 306,366 13.87% 196,588 -221,991 -297,476 $6.31

Bayshore 2,079,611 194,372 44,933 9.35% 0 -25,923 -96,731 $3.97

California Avenue 375,229 138,217 27,443 36.84% 0 -34,876 -79,420 $7.16

Stanford Research Park 6,926,658 969,002 233,990 13.99% 196,588 -161,192 -121,325 $6.62

Redwood City 2,186,991 49,040 3,350 2.24% 8,676 8,676 54,366 $2.50

Downtown 61,192 3,350 3,350 5.47% 8,676 8,676 8,676 $2.50

Seaport 1,273,721 45,690 0 3.59% 0 0 45,690 -

South 852,078 0 0 0.00% 0 0 0 -

Redwood Shores 998,483 251,966 150,678 25.23% 13,638 13,638 105,507 $4.11

SOUTH PENINSULA 26,634,208 2,530,905 906,623 9.50% 314,171 -335,883 -350,794 $5.36

2Q 2020 SOUTH PENINSULA R&D MARKET

© NEWMARK KNIGHT FRANK | 2019

RESEARCH | 4

HISTORICAL GROSS ABSORPTION

3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20

Menlo Park 15,090 5,500 19,275 21,695 29,893 106,135 16,477 81,619

Mountain View 174,563 944,418 132,154 335,537 235,377 74,738 73,878 13,650

Palo Alto 126,907 120,520 53,049 98,133 165,906 269,841 100,797 196,588

Redwood City 0 15,121 137,638 19,600 0 11,388 24,591 8,676

Redwood Shores 7,315 176,038 11,916 37,500 12,628 58,072 91,869 13,638

SOUTH PENINSULA 323,875 1,291,597 354,032 512,465 443,804 700,834 307,612 314,171

HISTORICAL NET ABSORPTION3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20

Menlo Park 3,160 -2,225 -18,440 1,860 -17,665 14,100 12,253 -15,107

Mountain View 19,732 -108,383 -49,780 -63,308 99,018 25,160 -104,918 -121,099

Palo Alto -53,123 -477,288 -15,595 -74,757 -39,593 43,861 -125,512 -221,991

Redwood City -12,893 -8,676 2,706 -22,963 -57,173 11,388 0 8,676

Redwood Shores -56,160 75,848 -51,524 -32,799 12,628 -90,393 91,869 13,638

SOUTH PENINSULA -99,284 -520,724 -132,633 -191,967 -2,785 4,116 -126,308 -335,883

HISTORICAL VACANCY RATES3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20

Menlo Park 1.92% 2.63% 3.67% 2.93% 3.19% 2.79% 2.40% 5.79%

Mountain View 5.12% 5.94% 6.86% 6.65% 5.71% 5.37% 6.22% 6.87%

Palo Alto 4.87% 9.43% 10.63% 11.13% 11.11% 10.26% 11.56% 13.9%

Redwood City 1.18% 0.95% 0.82% 1.87% 4.49% 3.97% 3.97% 2.2%

Redwood Shores 25.02% 18.26% 22.82% 24.57% 23.37% 31.86% 26.60% 20.68%

SOUTH PENINSULA 5.00% 6.72% 7.91% 8.05% 7.87% 7.73% 8.17% 9.3%

HISTORICAL NNN ASKING RENTS3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20

Menlo Park $4.39 $3.77 $3.77 $4.00 $3.27 $4.25 $3.80 $3.09

Mountain View $4.08 $4.50 $4.56 $4.42 $4.18 $4.16 $4.57 $4.67

Palo Alto $5.31 $6.27 $6.65 $6.70 $6.87 $6.62 $6.36 $6.31

Redwood City $3.70 $3.78 $3.90 $3.44 $3.51 $3.00 $3.78 $2.50

Redwood Shores $4.08 $3.92 $4.07 $4.01 $4.24 $3.92 $3.96 $4.11

SOUTH PENINSULA $4.56 $5.28 $5.49 $5.49 $5.44 $5.35 $5.43 $5.36

2Q 2020 SOUTH PENINSULA R&D MARKET

© NEWMARK KNIGHT FRANK | 2019

NEWMARK KNIGHT FRANK245 Lytton Avenue, Suite 150Palo Alto, CA 94301650.322.2600Corporate CA RE #: 00832933

© NEWMARK KNIGHT FRANK | 2019 RESEARCH | 5

Newmark Knight Frank has implemented a proprietary database and our tracking methodology has been revised. With this expansion and refinement in our data, there may be adjustments in historical statistics including availability, asking rents, absorption and effective rents. Newmark Knight Frank Research Reports are available at www.ngkf.com/research

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2Q 2020 SOUTH PENINSULA R&D MARKET