Q2 2011 Industrial Report

SAN DIEGO:

Jim Spain, SiORRegional managing Director | San Diego Region

License no. 00804745

4660 La Jolla Village Drive, Suite 100 San Diego, Ca 92122 | USatEl +1 858.677.5311FAX +1 858.795.4111

rESEArchEr:

CHRiSTOpHER REUTZResearch Director | San Diego Region


This report has been prepared by Colliers international for general information only. information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof. Colliers international does not guarantee, warrant or represent that the information contained in this document is correct. any interested party should undertake their own inquiries as to the accuracy of the information. Colliers international excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from.

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0%

2%

4%

6%

8%

10%

12%

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q2

Vaca

ncy

Rate

SF (M

illio

ns)

Net Absorption New Supply Vacancy

NEW SUPPLY, ABSORPTION AND VACANCY RATES

7.4%

10.9%

10.0%

10.0%

19.4%

12.0%

14.5%

14.8%

0% 5% 10% 15% 20% 25%

I-15 Corridor

North County

Central County

S.D. County

R&D Industrial

INDUSTRIAL VACANCY RATESQ2 2011

$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Q2 06

Q3 06

Q4 06

Q1 07

Q2 07

Q3 07

Q4 07

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

Q2 11

$ /

SF /

Mon

th (N

NN

)

Industrial R&D Combined

HISTORICAL RENTAL RATE TRENDSIndustrial, R&D and Combined RatesQuarterly Average Asking Rate Per SF Per Month (NNN)

45.5%

36.0%

11.2%4.1%

3.1%<= 2,000 SF [231]

2,001 - 5,000 SF [183]

5,001 - 10,000 SF [57]

10,001 - 20,000 SF [21]

>= 20,001 SF [16]

INDUSTRIAL LEASING ACTIVITY BY TENANT SIZEPercentage of Total Leases Completed in Q2 2011

0%

2%

4%

6%

8%

10%

12%

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q2

Vaca

ncy

Rate

SF (M

illio

ns)



7.4%

10.9%

10.0%

10.0%

19.4%

12.0%

14.5%

14.8%

0% 5% 10% 15% 20% 25%

I-15 Corridor

North County

Central County

S.D. County

R&D Industrial


$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Q2 06

Q3 06

Q4 06

Q1 07

Q2 07

Q3 07

Q4 07

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

Q2 11

$ /

SF /

Mon

th (N

NN

)



45.5%

36.0%

11.2%4.1%

3.1%<= 2,000 SF [231]

2,001 - 5,000 SF [183]

5,001 - 10,000 SF [57]

10,001 - 20,000 SF [21]

>= 20,001 SF [16]


rENtAl rAtES

Since a historical high point in Q3 2008, average asking rental rates for combined industrial and R&D space has been steadily decreasing. in Q2 2011, R&D rental rates increased while industrial rates stayed flat. It is likely that rates increase throughout the last half of 2011, but a very slow pace.

lEASING ActIVItY

Over 500 leases were completed in Q2 totaling over 2.2 million square feet. Over 81% of all leases were 5,000 SF or less indicating demand by smaller tenants continues to increase.

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maRKET REpORTSAN DIEGO cOUNtY


Industrial demand softens; asking rents stabilize

MArKEt OVErVIEW after four consecutive quarters of positive net absorption, Q2 ended with slightly negative net absorption of just over 125,000 square feet. The reversal in demand for the quarter is a clear indication that the industrial market has not fully committed to complete recovery and it can be expected that San Diego County will bump along for a few more quarters. industrial asking rental rates appear to have bottomed out but increases in asking rents for R&D space have been recorded in many submarkets countywide. The may 2011 San Diego County unemployment rate measured 9.6% – a 0.2% decrease from the previous month. The California unemployment rate decreased in may and stands at 11.4% while the national rate stayed level at 8.7%. as of may 2011, San Diego County experienced a year-over-year increase in non-farm employment totaling 11,200 jobs. The combined industry sectors of “Trade, Transportation, and Utilities” and “manufacturing” – the two predominant industrial-utilizing employment sectors – posted a net increase of 1,500 jobs over the same period. at the end of may, the USD index of Leading Economic indicators for San Diego posted its seventh consecutive month of increases. This contributes to a total of 26 months where the index has either risen or remained flat. For the first five months of 2011, the index increased by 5.9% with the February 2011 increase of 2.0% being the largest one-month increase on record according to the index’s publisher, Dr. alan Gin. may’s increase was driven by significant increases in help wanted advertising and the national economic indicators.

MArKEt trENDS

Diminished demand in Q2 drove countywide net absorption to a negative 126,046 square feet. Only 202,340 square feet remains under construction which means new demand will be focused in pre-existing space over the couple of years.

MArKEt INDIcAtOrS

INDUStrIAl VAcANcY rAtESQ2 2011

Q2 2011 Q3 2011 (P)

VAcANcY

NEt ABSOrPtION

cONStrUctION

rENtAl rAtE

Q2 2011 | INDUSTRIAL

0%

2%

4%

6%

8%

10%

12%

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q2

Vaca

ncy

Rate

SF (M

illio

ns)



7.4%

10.9%

10.0%

10.0%

19.4%

12.0%

14.5%

14.8%

0% 5% 10% 15% 20% 25%

I-15 Corridor

North County

Central County

S.D. County

R&D Industrial


$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Q2 06

Q3 06

Q4 06

Q1 07

Q2 07

Q3 07

Q4 07

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

Q2 11

$ /

SF /

Mon

th (N

NN

)



45.5%

36.0%

11.2%4.1%

3.1%<= 2,000 SF [231]

2,001 - 5,000 SF [183]

5,001 - 10,000 SF [57]

10,001 - 20,000 SF [21]

>= 20,001 SF [16]


0%

2%

4%

6%

8%

10%

12%

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q2

Vaca

ncy

Rate

SF (M

illio

ns)



7.4%

10.9%

10.0%

10.0%

19.4%

12.0%

14.5%

14.8%

0% 5% 10% 15% 20% 25%

I-15 Corridor

North County

Central County

S.D. County

R&D Industrial


$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Q2 06

Q3 06

Q4 06

Q1 07

Q2 07

Q3 07

Q4 07

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

Q2 11

$ /

SF /

Mon

th (N

NN

)



45.5%

36.0%

11.2%4.1%

3.1%<= 2,000 SF [231]

2,001 - 5,000 SF [183]

5,001 - 10,000 SF [57]

10,001 - 20,000 SF [21]

>= 20,001 SF [16]


The Q2 combined industrial / R&D direct vacancy rate was 11.4% compared to 11.1% at the end of Q1. Sublease vacancy remained unchanged 0.7%. Vacant sublease space made up 1.3 million square feet countywide with 46% of the space concentrated within the three submarkets of Otay mesa, Campus point/Eastgate and Carlsbad. The industrial market hasn’t been overbuilt to the same level as the office market. But demand dropped off completely from 2007 through 2009 while new construction continued. The combined effects of strong construction activity along with severe negative absorption over the last few years had caused vacancy to settle in at the high-11% range. now that new construction has nearly ceased, vacancy will continue a downward trend that started in 2010, even if only moderate demand persists over the next couple of years.

NEW SUPPlY no new construction was completed in Q1. an additional 238,340 feet is under construction within Carlsbad and Escondido. Once completed this year, no new industrial space will be under construction in San Diego County. proposed new development totals about 6.3 million square feet with nearly 42% of this space concentrated in Otay mesa and Oceanside. It is unlikely that any significant new construction will commence within the next couple of years. any new development will likely favor build-to-suits to accommodate companies that have little or no options available within the current available inventory.

512 offices in 61 countries on 6 continentsUnited States: 125Canada: 38Latin america: 18Asia Pacific: 214EmEa: 117

• $59.6 billion in annual transactions

• 1.0 billion square feet under management

• Over 12,500 professionals

MARKET REPORT | Q2 2011 | INDUSTRIAL | SAN DIEGO COUNTY

SAN DIEGO cOUNtY

The San Diego County industrial/R&D market is comprised of 188.2 million square feet of industrial and R&D space. The county is divided into three major market areas with 21 submarkets within them. Just over 61% of countywide industrial/R&D space is located within the 13 submarkets of the Central County market. industrial buildings (including manufacturing, warehouse, distribution, and multi-tenant/incubator) make up 71% of total inventory while R&D buildings (including flex, wet lab and corporate headquarters) make up the remaining 29% of the total inventory.

PROPERTY NAME/ADDRESS SUBMARKET TYPE SIZE SF SALE PRICE PRICE/SF

5781 Van Allen Way Carlsbad R&D 328,700 $56,000,000 $170.37

10770 Wateridge Circle Sorrento Mesa Corp. HQ 176,983 $32.700,000 $184.76

Center Pointe Business Park El Cajon R&D 220,360 $22,400,000 $101.65

4010 Ocean Ranch Boulevard Oceanside Industrial 203,779 $14,555,000 $71.43

16707 Via Del Campo Court Rancho Bernardo R&D 46,414 $10,311,000 $222.15

PROPERTY NAME/ADDRESS SUBMARKET TYPE SIZE SF

2885 E. Loker Avenue Carlsbad R&D 88,329 BREG

9880 Mesa Rim Road Sorrento Mesa R&D 45,540 Biotix, Inc.

7825 Trade Street Miramar Industrial 42,942

7720 Kenamar Court Miramar R&D 29,238

2655 Vista Pacific Drive Oceanside Industrial 29,142 Enviremedial Services, Inc.

TRANSACTION ACTIVITY - Q2 2011

SALES ACTIVITY

LEASING ACTIVITY

G.B. Sales

TENANT NAME

Red Bull

NEt ABSOrPtION Q2 combined industrial / R&D net absorption totaled a negative 126,046 square feet. Countywide net absorption for industrial space (manufacturing, warehouse, distribution, and multi-tenant/incubator buildings) totaled a negative 117,193 square feet and R&D space (flex, wet lab and corporate headquarters buildings) totaled a negative 8,853 square feet. north County was the only market area of the county that posted positive net absorption (87,954 square feet). Carlsbad led all the submarkets with 199,438 square feet of positive net absorption while Oceanside followed with 81,511 square feet. Vista had the largest decrease with 152,574 square feet of negative net absorption while Sorrento mesa fell close behind with 147,778 square feet. The San Diego County industrial market saw considerable improvement in demand during 2010. net absorption of nearly 1.3 million square feet was the only positive year of demand in the last four years. While leasing demand still remains relatively high, several transactions during the quarter involved larger tenants relocating and – in several cases – reducing the amount of space they leased.

Leasing activity totaled approximately 2.2 million square feet in Q2. This was the fourth quarter of consistent quarterly decreases in lease signings. The decrease in leasing activity should equate to positive net absorption as tenants take occupancy in Q3 and Q4, but the magnitude of will be considerably less than the last two quarters of 2010. For the first time in twelve quarters, an increase in the combined industrial and R&D countywide average asking rent was achieved. While the industrial average remained unchanged, the R&D average increased by 2% during the quarter. Specifically, R&D rates increased in all market areas of the county with Central County and north County reporting 2% increases and the i-15 Corridor reporting a 3% increase. VAcANcY The Q2 overall vacancy rate increased by 33 basis points to stand at 11.4%. The industrial and R&D vacancy components measured 10.0% and 14.8%, respectively. Compared to one year ago, R&D vacancy has dropped by only 2 basis points (14.8% in Q2 2010) while industrial vacancy has decreased by 36 basis points (10.4% in Q2 2010).

NORTH COUNTYI-15 CORRIDORCENTRAL COUNTYDOWNTOWNSOUTH BAY/EAST COUNTY

NORTh cOUNTy

I-15 cORRIDOR

McAS MIRAMAR

cENTRALcOUNTy

Submarket / Class Bldgs

Total

Inventory

SF

Direct

Vacancy

Rate

Sublease

Vacancy

Rate

Total

Vacancy

Rate

Prior Qtr

Vacancy

Rate

Net Abs

Current Qtr

SF

Net Abs

YTD

SF

New Supply

Current Qtr

SF

Under

Construction

SF

Proposed

SF

INDUSTRIAL TOTALS BY MARKET Manufacturing, warehouse, distribution, and multi-tenant/incubatorCentral County 3,059 81,800,037 9.5% 0.5% 10.0% 9.9% (52,362) (202,122) 0 0 2,203,591 $0.62North County 2,199 40,414,837 10.6% 0.3% 10.9% 10.2% (100,983) 37,339 0 0 1,315,951 $0.69I-15 Corridor 302 10,569,130 6.6% 0.7% 7.4% 7.7% 36,152 102,071 0 0 431,400 $0.89TOTAL 5,560 132,784,004 9.6% 0.4% 10.0% 9.8% (117,193) (62,712) 0 0 3,950,942 $0.67R&D TOTALS BY MARKET Flex, wet lab and corporate headquartersCentral County 821 34,295,911 12.8% 1.7% 14.5% 13.3% (163,342) (118,145) 0 0 1,524,633 $1.15North County 344 11,806,967 11.5% 0.4% 12.0% 13.2% 188,937 149,962 0 202,340 1,079,674 $1.02I-15 Corridor 134 9,331,215 18.0% 1.5% 19.4% 18.9% (34,448) (48,599) 0 0 605,000 $0.98TOTAL 1,299 55,434,093 13.4% 1.4% 14.8% 14.2% (8,853) (16,782) 0 202,340 3,209,307 $1.08COMBINED INDUSTRIAL / R&D BY MARKET AND SUBMARKETCentral CountyAirport / SA 76 1,878,846 3.6% 0.0% 3.6% 3.9% 5,775 (1,610) 0 0 0 $0.70Campus Pt / Egate 42 4,065,257 15.9% 7.0% 22.9% 21.5% (11,207) (89,132) 0 0 601,967 N/ACentral San Diego 397 8,369,886 5.6% 0.6% 6.2% 5.7% 14,680 (31,727) 0 0 0 $0.68East County 604 14,174,371 6.2% 0.1% 6.3% 6.2% (10,185) (79,884) 0 0 1,229,000 $0.68Kearny Mesa 650 17,389,145 6.0% 0.3% 6.3% 5.5% (103,016) (57,014) 0 0 65,691 $0.95Miramar 586 13,783,010 11.6% 0.3% 11.9% 12.4% 61,164 (14,764) 0 0 0 $0.82Mission Gorge / Vly 100 2,289,328 8.5% 3.3% 11.9% 11.3% (12,752) (57,495) 0 0 0 $0.88Otay Mesa 293 14,579,019 21.5% 1.6% 23.0% 23.5% 67,767 100,793 0 0 1,389,591 $0.47Rose Cyn / Morena 188 4,069,957 3.9% 0.1% 4.0% 3.6% (13,660) 29,868 0 0 72,000 $0.71Sorrento Mesa 273 13,502,553 14.6% 0.6% 15.1% 13.0% (147,778) (89,653) 0 0 236,136 $1.09Sorrento Valley 106 3,411,705 8.1% 1.9% 10.0% 9.8% (6,184) 35,575 0 0 0 $1.61South Bay 498 13,566,612 7.6% 0.1% 7.7% 7.0% (71,739) (85,858) 0 0 0 $0.61Torrey Pines 67 5,016,259 14.2% 1.5% 15.7% 15.9% 11,431 20,634 0 0 133,839 N/ATOTAL 3,880 116,095,948 10.5% 0.8% 11.3% 10.9% (215,704) (320,267) 0 0 3,728,224 $0.79North CountyCarlsbad 484 14,829,987 11.1% 0.7% 11.8% 13.1% 199,438 221,489 0 176,000 987,832 $1.00Escondido 635 7,149,799 5.9% 0.3% 6.3% 6.2% (6,516) 57,015 0 26,340 30,000 $0.74Oceanside 395 8,026,752 16.8% 0.1% 16.9% 17.4% 81,511 127,095 0 0 1,227,361 $0.63San Marcos 487 8,697,523 8.9% 0.0% 8.9% 7.7% (33,905) (56,153) 0 0 53,000 $0.72Vista 542 13,517,743 10.8% 0.2% 11.0% 9.2% (152,574) (162,145) 0 0 97,432 $0.67TOTAL 2,543 52,221,804 10.8% 0.3% 11.1% 10.9% 87,954 187,301 0 202,340 2,395,625 $0.79I-15 CorridorPoway 215 8,196,451 4.0% 0.9% 4.9% 4.8% 7,406 55,943 0 0 496,400 $0.82Rancho Bernardo 146 9,559,699 18.7% 0.6% 19.3% 19.4% 8,176 (94) 0 0 0 $1.00Scripps Ranch 75 2,144,195 12.1% 3.8% 15.9% 15.9% (13,878) (2,377) 0 0 540,000 $0.88TOTAL 436 19,900,345 12.0% 1.1% 13.0% 13.0% 1,704 53,472 0 0 1,036,400 $0.94SAN DIEGO COUNTY COMBINED INDUSTRIAL / R&DTOTAL 6,859 188,218,097 10.7% 0.7% 11.4% 11.1% (126,046) (79,494) 0 202,340 7,160,249 $0.81QUARTERLY COMPARISONQ2 2011 6,859 188,218,097 10.7% 0.7% 11.4% 11.1% (126,046) (79,494) 0 202,340 7,160,249 $0.81Q1 2011 6,837 188,338,224 10.4% 0.7% 11.1% 11.3% 355,001 355,001 0 238,340 6,264,113 $0.80Q4 2010 6,835 188,521,231 10.5% 0.9% 11.3% 11.6% 819,595 1,278,337 54,313 212,000 5,853,913 $0.83Q3 2010 6,833 188,440,137 10.7% 1.0% 11.6% 11.7% 861,592 778,591 135,020 230,313 5,823,913 $0.84Q2 2010 6,837 188,292,664 10.6% 1.1% 11.7% 11.8% 284,835 275,585 98,000 189,333 5,823,913 $0.84

Average rental rates are defined as the average asking monthly rate per square foot normalized to a "triple net" basis.

San Diego County Industrial Market

VACANCY NET ABSORPTIONAvg

Rental

Rate

(NNN)

CONSTRUCTIONEXISTING PROPERTIES

INDUSTRIAL OVERVIEW

Q2 2011

cOllIErS INtErNAtIONAl | P. 3


continued on page 4

P. 2 | cOllIErS INtErNAtIONAl


SAN DIEGO cOUNtY

The San Diego County industrial/R&D market is comprised of 188.2 million square feet of industrial and R&D space. The county is divided into three major market areas with 21 submarkets within them. Just over 61% of countywide industrial/R&D space is located within the 13 submarkets of the Central County market. industrial buildings (including manufacturing, warehouse, distribution, and multi-tenant/incubator) make up 71% of total inventory while R&D buildings (including flex, wet lab and corporate headquarters) make up the remaining 29% of the total inventory.

PROPERTY NAME/ADDRESS SUBMARKET TYPE SIZE SF SALE PRICE PRICE/SF

5781 Van Allen Way Carlsbad R&D 328,700 $56,000,000 $170.37

10770 Wateridge Circle Sorrento Mesa Corp. HQ 176,983 $32.700,000 $184.76

Center Pointe Business Park El Cajon R&D 220,360 $22,400,000 $101.65

4010 Ocean Ranch Boulevard Oceanside Industrial 203,779 $14,555,000 $71.43

16707 Via Del Campo Court Rancho Bernardo R&D 46,414 $10,311,000 $222.15

PROPERTY NAME/ADDRESS SUBMARKET TYPE SIZE SF

2885 E. Loker Avenue Carlsbad R&D 88,329 BREG

9880 Mesa Rim Road Sorrento Mesa R&D 45,540 Biotix, Inc.

7825 Trade Street Miramar Industrial 42,942

7720 Kenamar Court Miramar R&D 29,238

2655 Vista Pacific Drive Oceanside Industrial 29,142 Enviremedial Services, Inc.


SALES ACTIVITY

LEASING ACTIVITY

G.B. Sales

TENANT NAME

Red Bull

NEt ABSOrPtION Q2 combined industrial / R&D net absorption totaled a negative 126,046 square feet. Countywide net absorption for industrial space (manufacturing, warehouse, distribution, and multi-tenant/incubator buildings) totaled a negative 117,193 square feet and R&D space (flex, wet lab and corporate headquarters buildings) totaled a negative 8,853 square feet. north County was the only market area of the county that posted positive net absorption (87,954 square feet). Carlsbad led all the submarkets with 199,438 square feet of positive net absorption while Oceanside followed with 81,511 square feet. Vista had the largest decrease with 152,574 square feet of negative net absorption while Sorrento mesa fell close behind with 147,778 square feet. The San Diego County industrial market saw considerable improvement in demand during 2010. net absorption of nearly 1.3 million square feet was the only positive year of demand in the last four years. While leasing demand still remains relatively high, several transactions during the quarter involved larger tenants relocating and – in several cases – reducing the amount of space they leased.

Leasing activity totaled approximately 2.2 million square feet in Q2. This was the fourth quarter of consistent quarterly decreases in lease signings. The decrease in leasing activity should equate to positive net absorption as tenants take occupancy in Q3 and Q4, but the magnitude of will be considerably less than the last two quarters of 2010. For the first time in twelve quarters, an increase in the combined industrial and R&D countywide average asking rent was achieved. While the industrial average remained unchanged, the R&D average increased by 2% during the quarter. Specifically, R&D rates increased in all market areas of the county with Central County and north County reporting 2% increases and the i-15 Corridor reporting a 3% increase. VAcANcY The Q2 overall vacancy rate increased by 33 basis points to stand at 11.4%. The industrial and R&D vacancy components measured 10.0% and 14.8%, respectively. Compared to one year ago, R&D vacancy has dropped by only 2 basis points (14.8% in Q2 2010) while industrial vacancy has decreased by 36 basis points (10.4% in Q2 2010).

NORTH COUNTYI-15 CORRIDORCENTRAL COUNTYDOWNTOWNSOUTH BAY/EAST COUNTY

NORTh cOUNTy

I-15 cORRIDOR

McAS MIRAMAR

cENTRALcOUNTy

Submarket / Class Bldgs

Total

Inventory

SF

Direct

Vacancy

Rate

Sublease

Vacancy

Rate

Total

Vacancy

Rate

Prior Qtr

Vacancy

Rate

Net Abs

Current Qtr

SF

Net Abs

YTD

SF

New Supply

Current Qtr

SF

Under

Construction

SF

Proposed

SF

INDUSTRIAL TOTALS BY MARKET Manufacturing, warehouse, distribution, and multi-tenant/incubatorCentral County 3,059 81,800,037 9.5% 0.5% 10.0% 9.9% (52,362) (202,122) 0 0 2,203,591 $0.62North County 2,199 40,414,837 10.6% 0.3% 10.9% 10.2% (100,983) 37,339 0 0 1,315,951 $0.69I-15 Corridor 302 10,569,130 6.6% 0.7% 7.4% 7.7% 36,152 102,071 0 0 431,400 $0.89TOTAL 5,560 132,784,004 9.6% 0.4% 10.0% 9.8% (117,193) (62,712) 0 0 3,950,942 $0.67R&D TOTALS BY MARKET Flex, wet lab and corporate headquartersCentral County 821 34,295,911 12.8% 1.7% 14.5% 13.3% (163,342) (118,145) 0 0 1,524,633 $1.15North County 344 11,806,967 11.5% 0.4% 12.0% 13.2% 188,937 149,962 0 202,340 1,079,674 $1.02I-15 Corridor 134 9,331,215 18.0% 1.5% 19.4% 18.9% (34,448) (48,599) 0 0 605,000 $0.98TOTAL 1,299 55,434,093 13.4% 1.4% 14.8% 14.2% (8,853) (16,782) 0 202,340 3,209,307 $1.08COMBINED INDUSTRIAL / R&D BY MARKET AND SUBMARKETCentral CountyAirport / SA 76 1,878,846 3.6% 0.0% 3.6% 3.9% 5,775 (1,610) 0 0 0 $0.70Campus Pt / Egate 42 4,065,257 15.9% 7.0% 22.9% 21.5% (11,207) (89,132) 0 0 601,967 N/ACentral San Diego 397 8,369,886 5.6% 0.6% 6.2% 5.7% 14,680 (31,727) 0 0 0 $0.68East County 604 14,174,371 6.2% 0.1% 6.3% 6.2% (10,185) (79,884) 0 0 1,229,000 $0.68Kearny Mesa 650 17,389,145 6.0% 0.3% 6.3% 5.5% (103,016) (57,014) 0 0 65,691 $0.95Miramar 586 13,783,010 11.6% 0.3% 11.9% 12.4% 61,164 (14,764) 0 0 0 $0.82Mission Gorge / Vly 100 2,289,328 8.5% 3.3% 11.9% 11.3% (12,752) (57,495) 0 0 0 $0.88Otay Mesa 293 14,579,019 21.5% 1.6% 23.0% 23.5% 67,767 100,793 0 0 1,389,591 $0.47Rose Cyn / Morena 188 4,069,957 3.9% 0.1% 4.0% 3.6% (13,660) 29,868 0 0 72,000 $0.71Sorrento Mesa 273 13,502,553 14.6% 0.6% 15.1% 13.0% (147,778) (89,653) 0 0 236,136 $1.09Sorrento Valley 106 3,411,705 8.1% 1.9% 10.0% 9.8% (6,184) 35,575 0 0 0 $1.61South Bay 498 13,566,612 7.6% 0.1% 7.7% 7.0% (71,739) (85,858) 0 0 0 $0.61Torrey Pines 67 5,016,259 14.2% 1.5% 15.7% 15.9% 11,431 20,634 0 0 133,839 N/ATOTAL 3,880 116,095,948 10.5% 0.8% 11.3% 10.9% (215,704) (320,267) 0 0 3,728,224 $0.79North CountyCarlsbad 484 14,829,987 11.1% 0.7% 11.8% 13.1% 199,438 221,489 0 176,000 987,832 $1.00Escondido 635 7,149,799 5.9% 0.3% 6.3% 6.2% (6,516) 57,015 0 26,340 30,000 $0.74Oceanside 395 8,026,752 16.8% 0.1% 16.9% 17.4% 81,511 127,095 0 0 1,227,361 $0.63San Marcos 487 8,697,523 8.9% 0.0% 8.9% 7.7% (33,905) (56,153) 0 0 53,000 $0.72Vista 542 13,517,743 10.8% 0.2% 11.0% 9.2% (152,574) (162,145) 0 0 97,432 $0.67TOTAL 2,543 52,221,804 10.8% 0.3% 11.1% 10.9% 87,954 187,301 0 202,340 2,395,625 $0.79I-15 CorridorPoway 215 8,196,451 4.0% 0.9% 4.9% 4.8% 7,406 55,943 0 0 496,400 $0.82Rancho Bernardo 146 9,559,699 18.7% 0.6% 19.3% 19.4% 8,176 (94) 0 0 0 $1.00Scripps Ranch 75 2,144,195 12.1% 3.8% 15.9% 15.9% (13,878) (2,377) 0 0 540,000 $0.88TOTAL 436 19,900,345 12.0% 1.1% 13.0% 13.0% 1,704 53,472 0 0 1,036,400 $0.94SAN DIEGO COUNTY COMBINED INDUSTRIAL / R&DTOTAL 6,859 188,218,097 10.7% 0.7% 11.4% 11.1% (126,046) (79,494) 0 202,340 7,160,249 $0.81QUARTERLY COMPARISONQ2 2011 6,859 188,218,097 10.7% 0.7% 11.4% 11.1% (126,046) (79,494) 0 202,340 7,160,249 $0.81Q1 2011 6,837 188,338,224 10.4% 0.7% 11.1% 11.3% 355,001 355,001 0 238,340 6,264,113 $0.80Q4 2010 6,835 188,521,231 10.5% 0.9% 11.3% 11.6% 819,595 1,278,337 54,313 212,000 5,853,913 $0.83Q3 2010 6,833 188,440,137 10.7% 1.0% 11.6% 11.7% 861,592 778,591 135,020 230,313 5,823,913 $0.84Q2 2010 6,837 188,292,664 10.6% 1.1% 11.7% 11.8% 284,835 275,585 98,000 189,333 5,823,913 $0.84

Average rental rates are defined as the average asking monthly rate per square foot normalized to a "triple net" basis.

San Diego County Industrial Market

VACANCY NET ABSORPTIONAvg

Rental

Rate

(NNN)

CONSTRUCTIONEXISTING PROPERTIES

INDUSTRIAL OVERVIEW

Q2 2011

cOllIErS INtErNAtIONAl | P. 3


continued on back page

P. 2 | cOllIErS INtErNAtIONAl


AT A GLANCECARLSBAD

www.colliers.com/carlsbad

Market Conditions

After moderate activity in Q1 mostly comprised of renewals and movement by existing tenants, Carlsbad enjoyed an infl ux of tenants from surrounding submarkets that resulted in nearly 200,000 s.f. of positive absorption in Q2. Tenants like Aptera Motors, BREG and Heat Factory recognized an opportunity to upgrade their corporate image and move further west with the help of aggressive landlords eager to fi ll space. The overall vacancy rate for Industrial/R&D dropped by more than a percentage point to 11.76%.

While leasing activity increased, the relatively limited number of larger buildings available for sale in Carlsbad combined with low pricing expectations by prospective buyers resulted in back to back quarters without an owner user sale above 15,000 s.f. Sale prices in Carlsbad are at or near historical lows, but they still remain higher than those in neighboring submarkets to the east and north. Owner users looking for a “great buy” must be willing to expand their search parameters to include submarkets such as Oceanside or Vista. Most of the bank owned buildings off ered at a discount have now traded, including Raceway Point where Prana (owner user) has the last building under contract.

Land prices have reached a new low with the sale of Lot 16 at Raceway Point in east Carlsbad. This 3.74 acre parcel was purchased by an investor for $8.75/s.f. and represented the last of the bank owned land sales. With the close of this chapter we expect to see land prices stabilize and slowly increase.

MARKET INDICATORS

INDUSTRIAL/R&D VACANCY RATESQ2 2011


CARLSBAD HISTORICAL MARKET TRENDS

10.9%

11.8%

8.7%

17.4%

5.5%

10.4%

12.0%

5.7%

10.2%

13.1%

21.0%

13.1%

0% 5% 10% 15% 20% 25%

North County

Vista

San Marcos

Oceanside

Escondido

Carlsbad

R&D Industrial


VISTA HISTORICAL MARKET TRENDS

OCEANSIDE HISTORICAL MARKET TRENDS SAN MARCOS HISTORICAL MARKET TRENDS

0%

2%

4%

6%

8%

10%

12%

14%

16%

-100

0

100

200

300

400

500

600

700

2003 2004 2005 2006 2007 2008 2009 2010 2011 Q2

Vacancy R

ate

SF (

00

0s)


CARLSBAD HISTORICAL MARKET TRENDSINDUSTRIAL/R&D VACANCY RATESQ2 2011



Q22011

Q32011 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

Ocean

OceansideVista

SanMarcosCarlsbad

Carlsbad

# PROPERTY NAME/ADDRESS BUYER TYPE SIZE SF SALE PRICE PRICE/SF

1 El Fuerte & Carlsbad Oaks Multi Portfolio Investor 127,000 $11,900,000 $93.65

# PROPERTY NAME/ADDRESS TENANT NAME SIZE SF TERM RATE

SALES ACTIVITY

LEASING ACTIVITY




2 2885 Loker Avenue BREG 88,329 Confidential Confidential

3 2765 Loker Avenue Aptera Motors 54,661 60 months $0.84 NNN

4 1958 Kellogg Avenue Heat Factory 38,900 65 months $0.45 NNN

5 6190 Corte del Cedro Photothera 20,423 48 months $0.85 NNN

6 1940 Camino Vida Roble MV Technical (renewal) 44,682 65 months $0.87 NNN

SALES ACTIVITY

LEASING ACTIVITY


El Camino Real

El Camino Real

El Camino Real

Gateway RdGateway Rd

Whiptail LoopWhiptail Loop

El Camino Real

Cannon Rd

Faraday Ave

Faraday Ave

College Blvd

College Blvd

Palomar

Airpo

rt Rd

Palomar

Airpo

rt Rd

Poinsettia Ave

Poinsettia Ave El Fuerte St

El Fuerte St

Alga Rd

Melrose Dr

Me

Poins

ettia

Ave

Armada Dr

Paseo Del Norte

Palomar Airport Rd

Avenida Encinas

Aviara Pkwy

Business Park Dr

Sycamore Ave

Palomar Airport RdPalomar Airport Rd

El Fuerte StEl Fuerte St

Faraday AveFaraday Ave

Melr

ose D

r

Melr

ose D

r

Loker Ave

Loker Ave

Pacif icOcean

Lionshead AveLionshead Ave

McClellan Palomar Airport

McClellan Palomar Airport

Vista

City

Boundary

Park Hyatt Aviara Resort

La Costa Resort & Spa

The Crossings at CarlsbadGolf Course

The Crossings at CarlsbadGolf Course

Legoland

Palomar AirportBusiness Park

Palomar AirportBusiness Park

Carlsbad Airport Center

Carlsbad Airport Center

CarlsbadResearchCenter

CarlsbadResearchCenter

Carlsbad Oaks

Carlsbad Oaks

Carlsbad

Oaks North

Carlsbad

Oaks North

Carlsbad RacewayCarlsbad Raceway

Palomar Forum

Palomar Forum

Bressi RanchBressi Ranch

CarlsbadRanch

EFF RATE

prepared by ADAM MOLNAR, GREG LEWIS

TUCKER HOHENSTEIN & MIKE ERWIN 760 438 8950

This document has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from.

AT A GLANCE | Q2 2011 | INDUSTRIAL | CARLSBAD

AT A GLANCEVISTA


Market Conditions

After a surge in activity from owner-users in Q1, tenants return to the market and lead the way during Q2. Leasing out-paced sales by a ratio of 2 to 1 in the Vista submarket. Renewals accounted for the majority of leasing activity as the most tenants opt to avoid moving costs and accept attractive renewal off ers.

Lease rates have held stable during Q2 with $.575/SF NNN as the current median lease rate in Vista. Good quality product is leasing relatively quick, while any property with functional issues e.g. limited loading, low clear, bay depth etc. is sitting on the market and/or leasing well below the median rate. Sale prices continue to move downward as bank owned and stressed properties contribute to new lows.

Vista experienced negative net absorption during Q2 mainly due to BREG inking a deal to move to Carlsbad. It is widely expected that the 104,000 SF BREG is vacating will be back-fi lled by a local tenant during Q3, cancelling out this negative absorption. It is worth noting that the fi nancial caliber of tenants in the market has improved during the fi rst half of the year with companies such as: John Deere, BREG, Zodiac and DJO looking for space or recently completed leases.

MARKET INDICATORS




10.9%

11.8%

8.7%

17.4%

5.5%

10.4%

12.0%

5.7%

10.2%

13.1%

21.0%

13.1%

0% 5% 10% 15% 20% 25%

North County

Vista

San Marcos

Oceanside

Escondido

Carlsbad

R&D Industrial





0%

2%

4%

6%

8%

10%

12%

-200

-100

0

100

200

300

400

500

600

700

2003 2004 2005 2006 2007 2008 2009 2010 2011 Q2

Vacancy R

ate

SF (

00

0s)




Q22011

Q32011 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

Ocean

OceansideVista

SanMarcosCarlsbad

Vista


1 2440 Grand Avenue Owner-user 14,975 $1,189,000 $79.40

2 2390 Oak Ridge Way Bank (REO) 39,672 $3,152,788 $79.47


SALES ACTIVITY

LEASING ACTIVITY




3 1491 Poinsettia Avenue Opthonix, Inc (renewal) 49,302 62 months $0.60 NNN

4 1225 Park Center Dr Bonner's (renew/expand) 41,440 36 months $0.55 NNN

5 1251 Avenida Chelsea Westbridge Ag 11,300 48 months $0.55 Gross

6 2611 Commerce Phoenix Wheel (mkt rate adjust) 57,171 36 months $.61 NNN

SALES ACTIVITY

LEASING ACTIVITY


Sycamore Ave

Sycamore Ave

Syca

more A

ve

Oleander Ave

eander Ave

Green Oak Rd

Green Oak Rd

Shadowridge Dr

University Dr

La Mirada Dr

La Mirada Dr

Melros

e Dr

Melros

e Dr

Park

Cen

ter D

r

Park

Cen

ter D

r

Lionshead AveLionshead Ave

Palomar Airport Rd

Poin

setti

a Av

e

Poin

setti

a Av

e

ShadowridgeGolf Course

ShadowridgeResidential

Business Park Dr

Business Park Dr

Faraday AveFaraday Ave

EFF RATE


AT A GLANCE | Q2 2011 | INDUSTRIAL | VISTA



AT A GLANCEOCEANSIDE


Market Conditions

Summit Steel became the latest tenant in Oceanside to convert to an owner user, capitalizing on a bank owned property off of Industry Street that they were able to purchase for $78.00/s.f.. This represents the fourth owner user sale above 15,000 s.f. in Oceanside in 2011. There was also a rare investor purchase in 2Q 2011 with the sale of 4010 Ocean Ranch Boulevard to Alliance Commercial. This 203,000 s.f. building was originally designed and built for Ashworth Golf and most recently occupied by Aptera Motors. Alliance was able to buy the property well below replacement cost at $71.43/s.f. and the transaction also included 6 excess acres of land that allows for up to 100,000 s.f. of additional build out.

Leasing activity including tenants such as Allied Swiss and Enviremedial Services contributed to another positive quarter in Oceanside. In total there was approximately 81,511 s.f. of positive absorption and the overall vacancy rate for Industrial in Oceanside continued to slowly rebound, down nearly a percentage point to 16.88%. There are several new tenant requirements looking at signifi cant portions of warehouse space in Oceanside which should bode well for the rest of 2011.

MARKET INDICATORS




10.9%

11.8%

8.7%

17.4%

5.5%

10.4%

12.0%

5.7%

10.2%

13.1%

21.0%

13.1%

0% 5% 10% 15% 20% 25%

North County

Vista

San Marcos

Oceanside

Escondido

Carlsbad

R&D Industrial






0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

-400

-200

0

200

400

600

800

2003 2004 2005 2006 2007 2008 2009 2010 2011 Q2

Vacancy R

ate

SF (

00

0s)



Q22011

Q32011 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

Ocean

OceansideVista

SanMarcosCarlsbad

Oceanside


1 4010 Ocean Ranch Blvd. Investor 203,779 $14,555,000 $71.43

2 2511 Industry Street Owner/User 26,040 $2,031,500 $78.01


3 4665 North Avenue Allied Swiss Screw Products 63,964 120 months $0.68 NNN

4 2655 Vista Pacific Drive Enviremedial Services, Inc. 29,142 60 Months $0.62 Gross

SALES ACTIVITY

LEASING ACTIVITY


El CorazonEl Corazon

Ocean RanchPlaza RetailOcean RanchPlaza Retail

Paci c CoastBusiness ParkPaci c CoastBusiness Park

OceanRanchOceanRanch

Rancho Del OroRancho Del Oro

OceansideGateway

OceansideGateway

Sprinter LightRail Line

Sprinter LightRail Line

Rancho Del Oro Dr

Rancho Del Oro Dr

College Blvd

College Blvd

Mesa Dr

Mesa Dr

Avenida De La PlataAvenida De La Plata

Old Grove Road

Old Grove Road

Ocean Ranch Blvd

Ocean Ranch Blvd

North

Ave

North

Ave

Temple Heights Dr

Temple Heights Dr

Avenida Del Oro

Avenida Del Oro

Melrose Dr

Oceanside BlvdOceanside Blvd

Corp

orate C

enter D

r

Corp

orate C

enter D

r


AT A GLANCE | Q2 2011 | INDUSTRIAL | OCEANSIDE



EFF RATE

AT A GLANCESAN MARCOS & ESCONDIDO


Market Conditions

San Marcos and Escondido continually boast the lowest vacancy rates in North County with rates of 8.7% and 5.5%, respectively. Considering this submarket is primarily composed of buildings under 20,000 SF, it is no surprise that all the activity during Q2 occurred in spaces that were less than 20k.

Owner-user activity was stronger than lease activity for the quarter. Sale prices are still under pressure with bank owned and distressed properties setting new lows. Examples of distressed sales include: 160 Bosstick at $76/SF and 1413 Linda Vista at $68/SF. At the same time well located, functional product commands a higher price as indicated by the sale of 140 Vallecitos del Oro at $111/SF.

Land values continue to take a hit in San Marcos as few investors and developers are willing to gamble on land. A recent example of this is a two acre industrial site located on Twin Oaks Valley Road that sold to an investor in mid 2008 for $1,725,000 and just went back to the bank for $455,000 in foreclosure; a 74% discount to 2008 values. Current lease rates and sale prices of fi nished product do not justify new construction and will likely keep land prices depressed for some time.

MARKET INDICATORS




10.9%

11.8%

8.7%

17.4%

5.5%

10.4%

12.0%

5.7%

10.2%

13.1%

21.0%

13.1%

0% 5% 10% 15% 20% 25%

North County

Vista

San Marcos

Oceanside

Escondido

Carlsbad

R&D Industrial






OCEANSIDE HISTORICAL MARKET TRENDS

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

-300

-200

-100

0

100

200

300

2003 2004 2005 2006 2007 2008 2009 2010 2011 Q2

Vacancy R

ate

SF (

00

0s)


SAN MARCOS HISTORICAL MARKET TRENDS

Q22011

Q32011 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

Ocean

OceansideVista

SanMarcos

EscondidoCarlsbad

San Marcos

Escondido


1 160 Bosstick Blvd Owner-user (short-sale) 19,770 $1,502,750 $76.01

2 1413 Linda Vista Owner-user (REO) 17,280 $1,175,000 $68.00

3 140 Vallecitos De Oro Owner-user 10,360 $1,150,000 $111.00

4 505 Corporate Drive Owner-user 17,033 $1,500,000 $88.06

5 1250 Industrial Owner-user 11,264 $1,080,000 $95.88


SALES ACTIVITY

LEASING ACTIVITY




6 804 Rancheros Hub Has It! (Renewal) 16,000 Undisclosed

7 220 Bingham R&M Industries 11,550 36 months $0.63 Gross

8 911 S. Andreasen Drive Arcmate Manufacturing Corp 14,545 48 months $0.72 Gross

SALES ACTIVITY

LEASING ACTIVITY


Palomar Airport Rd

W San Marcos Blvd

W San Marcos Blvd

Linda Vista Dr

Linda Vista Dr Las

Posa

s Rd

Las

Posa

s Rd

La Mirada Dr

La Mirada Dr

W Mission RdW Mission Rd

E Mission RdE Mission Rd

Barham DrBarham Dr

N Tw

in O

aks

Valle

y Rd

N Tw

in O

aks

Valle

y Rd

S Tw

in O

aks

Valle

y Rd

S Tw

in O

aks

Valle

y Rd

San Elijo

Rd

San Elijo Rd

Armorlite Dr

Armorlite Dr

Ranc

ho Sa

nta Fe

Rd

Melrose Dr

Discovery StDiscovery St

Craven RdCraven Rd

78

Rancho Santa Fe Rd

Lake San Marcos

San Elijo HillsResidential

Cal StateUniversity

San Marcos

Cal StateUniversity

San Marcos

Kaiser PermanenteMed Center

Kaiser PermanenteMed Center

San MarcosCivic CenterSan MarcosCivic Center

RestaurantRow

RestaurantRow

Discovery HillsResidential

Discovery HillsResidential

Vista

La Costa Meadows

Business Park

Nord

ahl R

oad

N

Mission Road

Mission Road

Montiel Rd

Montiel Rd

Auto Park Way

Auto Park Way

Country Club DrCountry Club Dr

Industrial Ave

Industrial Ave

Simpson Way

Simpson Way

Citracado Pkwy

Citracado Pkwy

N An

drea

sen

Drive

N An

drea

sen

Drive

S An

drea

sen

Drive

S An

drea

sen

Drive

Enterprise St

Valle

y Pa

rkwa

ywa

y

9th Ave

Washington Avenue

Tulip St

Mission Avenue

Escondido Ave

Center City Parkway

Quince St

Rock Springs Rd

PalomarPomeradoHospital

PalomarPomeradoHospital

EscondidoAuto ParkEscondidoAuto Park

Myers Avenue Myers Avenue

Auto Park Way

Auto

N. H

ale A

venu

e

N. H

ale A

venu

e

78

EscondidoResearch

& Tech Center

EscondidoResearch

& Tech Center




AT A GLANCE | Q2 2011 | INDUSTRIAL | SAN MARCOS & ESCONDIDO

ESCONDIDO >

< SAN MARCOS

EFF RATE

SAN DIEGO:

Jim Spain, SiORRegional managing Director | San Diego Region

License no. 00804745


rESEArchEr:

CHRiSTOpHER REUTZResearch Director | San Diego Region


This report has been prepared by Colliers international for general information only. information contained herein has been obtained from sources deemed reliable and no representation is made as to the accuracy thereof. Colliers international does not guarantee, warrant or represent that the information contained in this document is correct. any interested party should undertake their own inquiries as to the accuracy of the information. Colliers international excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from.

accelerating success.

0%

2%

4%

6%

8%

10%

12%

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q2

Vaca

ncy

Rate

SF (M

illio

ns)



7.4%

10.9%

10.0%

10.0%

19.4%

12.0%

14.5%

14.8%

0% 5% 10% 15% 20% 25%

I-15 Corridor

North County

Central County

S.D. County

R&D Industrial


$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Q2 06

Q3 06

Q4 06

Q1 07

Q2 07

Q3 07

Q4 07

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

Q2 11

$ /

SF /

Mon

th (N

NN

)



45.5%

36.0%

11.2%4.1%

3.1%<= 2,000 SF [231]

2,001 - 5,000 SF [183]

5,001 - 10,000 SF [57]

10,001 - 20,000 SF [21]

>= 20,001 SF [16]


0%

2%

4%

6%

8%

10%

12%

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q2

Vaca

ncy

Rate

SF (M

illio

ns)



7.4%

10.9%

10.0%

10.0%

19.4%

12.0%

14.5%

14.8%

0% 5% 10% 15% 20% 25%

I-15 Corridor

North County

Central County

S.D. County

R&D Industrial


$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Q2 06

Q3 06

Q4 06

Q1 07

Q2 07

Q3 07

Q4 07

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

Q2 11

$ /

SF /

Mon

th (N

NN

)



45.5%

36.0%

11.2%4.1%

3.1%<= 2,000 SF [231]

2,001 - 5,000 SF [183]

5,001 - 10,000 SF [57]

10,001 - 20,000 SF [21]

>= 20,001 SF [16]


rENtAl rAtES

Since a historical high point in Q3 2008, average asking rental rates for combined industrial and R&D space has been steadily decreasing. in Q2 2011, R&D rental rates increased while industrial rates stayed flat. It is likely that rates increase throughout the last half of 2011, but a very slow pace.

lEASING ActIVItY

Over 500 leases were completed in Q2 totaling over 2.2 million square feet. Over 81% of all leases were 5,000 SF or less indicating demand by smaller tenants continues to increase.


maRKET REpORTSAN DIEGO cOUNtY


Industrial demand softens; asking rents stabilize

MArKEt OVErVIEW after four consecutive quarters of positive net absorption, Q2 ended with slightly negative net absorption of just over 125,000 square feet. The reversal in demand for the quarter is a clear indication that the industrial market has not fully committed to complete recovery and it can be expected that San Diego County will bump along for a few more quarters. industrial asking rental rates appear to have bottomed out but increases in asking rents for R&D space have been recorded in many submarkets countywide. The may 2011 San Diego County unemployment rate measured 9.6% – a 0.2% decrease from the previous month. The California unemployment rate decreased in may and stands at 11.4% while the national rate stayed level at 8.7%. as of may 2011, San Diego County experienced a year-over-year increase in non-farm employment totaling 11,200 jobs. The combined industry sectors of “Trade, Transportation, and Utilities” and “manufacturing” – the two predominant industrial-utilizing employment sectors – posted a net increase of 1,500 jobs over the same period. at the end of may, the USD index of Leading Economic indicators for San Diego posted its seventh consecutive month of increases. This contributes to a total of 26 months where the index has either risen or remained flat. For the first five months of 2011, the index increased by 5.9% with the February 2011 increase of 2.0% being the largest one-month increase on record according to the index’s publisher, Dr. alan Gin. may’s increase was driven by significant increases in help wanted advertising and the national economic indicators.

MArKEt trENDS

Diminished demand in Q2 drove countywide net absorption to a negative 126,046 square feet. Only 202,340 square feet remains under construction which means new demand will be focused in pre-existing space over the couple of years.

MArKEt INDIcAtOrS

INDUStrIAl VAcANcY rAtESQ2 2011

Q2 2011 Q3 2011 (P)

VAcANcY

NEt ABSOrPtION

cONStrUctION

rENtAl rAtE


0%

2%

4%

6%

8%

10%

12%

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q2

Vaca

ncy

Rate

SF (M

illio

ns)



7.4%

10.9%

10.0%

10.0%

19.4%

12.0%

14.5%

14.8%

0% 5% 10% 15% 20% 25%

I-15 Corridor

North County

Central County

S.D. County

R&D Industrial


$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Q2 06

Q3 06

Q4 06

Q1 07

Q2 07

Q3 07

Q4 07

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

Q2 11

$ /

SF /

Mon

th (N

NN

)



45.5%

36.0%

11.2%4.1%

3.1%<= 2,000 SF [231]

2,001 - 5,000 SF [183]

5,001 - 10,000 SF [57]

10,001 - 20,000 SF [21]

>= 20,001 SF [16]


0%

2%

4%

6%

8%

10%

12%

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q2

Vaca

ncy

Rate

SF (M

illio

ns)



7.4%

10.9%

10.0%

10.0%

19.4%

12.0%

14.5%

14.8%

0% 5% 10% 15% 20% 25%

I-15 Corridor

North County

Central County

S.D. County

R&D Industrial


$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Q2 06

Q3 06

Q4 06

Q1 07

Q2 07

Q3 07

Q4 07

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

Q2 11

$ /

SF /

Mon

th (N

NN

)



45.5%

36.0%

11.2%4.1%

3.1%<= 2,000 SF [231]

2,001 - 5,000 SF [183]

5,001 - 10,000 SF [57]

10,001 - 20,000 SF [21]

>= 20,001 SF [16]


The Q2 combined industrial / R&D direct vacancy rate was 11.4% compared to 11.1% at the end of Q1. Sublease vacancy remained unchanged 0.7%. Vacant sublease space made up 1.3 million square feet countywide with 46% of the space concentrated within the three submarkets of Otay mesa, Campus point/Eastgate and Carlsbad. The industrial market hasn’t been overbuilt to the same level as the office market. But demand dropped off completely from 2007 through 2009 while new construction continued. The combined effects of strong construction activity along with severe negative absorption over the last few years had caused vacancy to settle in at the high-11% range. now that new construction has nearly ceased, vacancy will continue a downward trend that started in 2010, even if only moderate demand persists over the next couple of years.

NEW SUPPlY no new construction was completed in Q1. an additional 238,340 feet is under construction within Carlsbad and Escondido. Once completed this year, no new industrial space will be under construction in San Diego County. proposed new development totals about 6.3 million square feet with nearly 42% of this space concentrated in Otay mesa and Oceanside. It is unlikely that any significant new construction will commence within the next couple of years. any new development will likely favor build-to-suits to accommodate companies that have little or no options available within the current available inventory.

512 offices in 61 countries on 6 continentsUnited States: 125Canada: 38Latin america: 18Asia Pacific: 214EmEa: 117

• $59.6 billion in annual transactions

• 1.0 billion square feet under management

• Over 12,500 professionals
