East bay office & flex space 1 q10 market report dp

First Quarter 2010 • East Bay Office and Flex Space EMERYVILLE & OAKLAND OFFICES

5980 Horton Street, Suite 100 • Emeryville, CA 94608 • Tel: 510.923.6200 • Fax: 510.923.6260 10 Clay Street, Suite 250 • Oakland, CA 94607 • Tel: 510.995.3560 • 510.995.3561

www.ccarey.com

Cornish & Carey Commercial East Bay Office and Flex Space Quarterly Report is based on a quarterly survey of competitive Office, and R&D buildings. The data included in this report incorporates not only space presently available on the market, but also space that we have been led to believe will come onto the market in the foreseeable future. Information contained herein has been given to us by the owner of the property or other sources we deem reliable. We have no reason to doubt its accuracy, but make no guarantee, warranty or representation about it. All information should be verified prior to lease or purchase.

EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010

TABLE OF CONTENTS

Coverage Map 1

East Bay Market Overview 2

Office Market: Market Summary 5 Market Highlights 6 Historical Statistics 7

East Bay Tenant Activity 9

Tenants in the Market 10

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COVERAGE MAP

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EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010

EAST BAY MARKET OVERVIEW

First Quarter, 2010 Office Summary The East Bay Office Market for the first quarter of 2010 can best be described as “flat”. For every square foot of space leased another became vacant as absorption across the entire 25 million square foot market was negative 25,991 square feet. Two of the largest leases signed were government tenants with the US Bankruptcy Courts’ renewal of their 38,000 square foot lease in Shorenstein’s City Center, while the Social Security Administration leased 35,000 square feet at 2100 Franklin, CIM’s newest building. The Social Security Administration will relocate from its current location in Downtown Richmond. Kaiser Permanente renewed a 65,000 square foot lease at Harbor Bay in Alameda. The vacancy rate for the East Bay remains steady at 20.27% and effective rates stayed about the same throughout most of the markets – it is still a great time to be a tenant as there are some great deals out there to be had. The market is experiencing a “flight to quality” where tenants can upgrade their spaces or move to a better building for the same rate or a lower rate than they had previously been paying. Market activity is good; we are presently tracking 68 tenants active in the market looking for a total of over one million square feet of space. On a bright note, toward the end of the first quarter we are beginning to see indicators that there may be some real growth in the economy, although in the East Bay much of this growth appears to be in the manufacturing sector. Alternative energy companies and solar power companies continue to be active in the market as venture capital and government stimulus monies are flowing to these industries. Emeryville’s Amyris, an alternative fuels company, has filed papers to begin their IPO process. The healthcare sector also is active as aging Baby Boomers drive growth in this sector. No new large blocks of sublease space were put on the market during the quarter. Sublease space only takes up 2.22% of the total vacancy of 20.27%, accounting for only about ten percent of the total vacant space in the market. Some observers question whether rents have much further distance to fall, we believe the answer is “not much if any”. Rents have fallen to the point of the “zero return transaction,” where the cost of the lease transaction and putting in tenant improvements and fees are equal to or close to the total net return that the Landlord will realize from the rental income stream. Most property owners will not go below this “zero return” threshold.

On the investment side, no buildings of any significance traded except for 80 Swan Way in the Oakland Airport area. This 52,544 square foot 3-story office building was foreclosed upon and auctioned on the courthouse steps; the prevailing bidder paid $1,580,000 ($28.75 PSF). This building was originally put on the market by the owner at $4 million dollars, the CMBS loan balance was $3.2 million dollars. Downtown Oakland Downtown Oakland was the most active of the submarkets during the first quarter. The US Bankruptcy Court renewed their lease for 38,077 square feet at Shorenstein’s 1300 Clay Street. The University of California Office of the President renewed their 23,000 square foot lease on the 14th floor of 1111 Broadway, also a Shorenstein building. Offices of Ben Gerwick, Inc. took 14,996 square feet at 1300 Clay Street and DeVry University opened a new branch leasing 15,768 square feet at Shorenstein’s 505 14th Street. The Social Security Administration leased a floor and a half at CIM’s 2100 Franklin Street taking 35,000 square feet. This group will be relocating from their present location in Downtown Richmond. At the Swig Company’s 300 Lakeside building, law firm Foley & Mansfield leased a 23,000 square foot floor, relocating from 1111 Broadway at City Center. The Downtown Oakland Class A market commands the highest rents in the East Bay with most leases in the $2.65-$2.85 PSF range, fully serviced. Between Oakland’s two largest landlords, Shorenstein at City Center and CIM in the Lake Merritt area, they control over 60% of the inventory in the submarket. The only other building which changed hands in Oakland this quarter was the Pacific Building at 600-610 16th Street. AB Chestnut LC bought the building in a foreclosure sale for $4,436,106 or $67.24 PSF. This 4-story Class C structure was built in 1912. The Oakland Class A submarket absorbed a total of 77,162 square feet of space in the first quarter, perhaps indicating that the “flight to quality” phenomenon is actually occurring. Emeryville Software company Gracenote renewed and expanded its lease at US Bank’s 2000 Powell Street in Tower III of the Watergate Project. The tenant took a total of 48,000 square feet consisting of the entire 12th and 15th floors of

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the building. The Class A market had negative absorption of 34,141 square feet and the Class B market in Emeryville had a negative absorption of 46,826 square feet indicating a shrinkage of total space occupied across all product types. Class A rents in Emeryville currently are in the $2.00-$2.35 PSF range, fully serviced, which represents a discount to the Oakland markets of approximately $0.50 PSF. As mentioned previously, alternative energy innovator Amyris has filed papers to begin an IPO which is believed could occur in the second half of this year, indicating the health and strength of the capital flows for alternative energy. Random House leased 9,162 square feet in TMG Partners’ 6001 Shellmound. Class A vacancy in Emeryville is 20.12%, almost a third of which is sublease space. Jack London Square Ellis Partners’ new Jack London Market Building consisting of 110,000 square feet of Class A space and 65,000 square feet of public market and restaurants is shell complete and is scheduled to be opened in late 2010. The building is a creative mixed use project with a public market style gourmet market and sustainable cuisine on the first two levels of the building. Ellis Partners also completed a lease with solar installer Sungevity for 20,000 square feet on the 3rd (top) floor of their 66 Franklin Street building. Alameda Software maker Wind River Corporation was acquired by Intel. This tenant had been trying to sublease 125,000 square feet of space but has taken this space off of the market resulting in a positive absorption for the Marina Village submarket of 109,876 square feet. Biotech innovator Arriva Pharmaceuticals closed the doors on its business, putting 22,000 square feet of office/lab back on the market in Marina Village. Yang Ming Lines signed a lease at Legacy’s Marina Village in Alameda and will relocate to the business park from its previous location in Oakland’s City Center. Wind River’s activity dropped the vacancy in Marina Village from 33.72% to 27.8%. In Harbor Bay, Kaiser Permanente renewed their lease for 65,000 square feet in 1451 Harbor Bay Parkway. It was rumored that this requirement was going to be moved to Kaiser’s new Pleasanton campus so it was a vote of confidence for this submarket that Kaiser decided to

renew. Absorption in Harbor Bay was negative 19,500 square feet. Berkeley There was 13,231 square feet of negative absorption in Berkeley through the quarter. MSCI Barra downsized from 59,000 square feet to 34,000 square feet and renewed their lease at 1st Milvia LLC’s 2100 Milvia Street. SKM will be marketing the remaining 30,000 square feet in the building, which MSCI Barra previously occupied. Cobalt Law signed a 6,066 square foot lease at Eat/Work Development LP’s 918 Parker Street. The law firm relocated from Bancroft Plaza. Hydro Science Engineers relocated from Napa to a 4,909 square foot suite on the 2nd floor of 739 Allston Way. After subleasing within the building for a number of years Northern California Cancer Center signed a direct lease for 3,328 square feet with Disability Rights Advocates at 2001 Center Street. A notice of default has been filed for the 2120 University Avenue building. This 44,000 square foot building has remained almost totally vacant since Lawrence Berkeley National Labs moved out of the building mid-2009. Richmond Voxis expanded and relocated to take a total of 6,500 square feet at Burt Clausen’s 1160 Brickyard Cove. The company was formerly located at 1150 Brickyard Cove. There was a 32,000 square foot lease signed at 1401 Marina Way South, the Lessee is rumored to be a Bingo parlor. In the hilltop area of Richmond, Landlords have indicated that Tenant tour activity is up substantially in the Blume Drive and Lakeside Drive areas. The Richmond market absorbed 2,080 square feet in the first quarter. Oakland Airport The Regional Center of the East Bay vacated approximately 60,000 square feet of space at Cranbrook’s 7677 Oakport Street moving to their new building near the San Leandro BART station. This vacancy coupled with other tenant shrinkage led to a negative absorption of 94,812 square feet for the quarter. In a trustee sale, 80 Swan Way, a 3-story 52,544 square foot building sold. The sales price was $1,580,000 or $28.75 PSF. At a point several years ago, raw land was selling in the Airport area for $25.00 PSF to give an indication in the drop in office values in this submarket. This was a CMBS Loan. 8393 Capwell Drive also sold, a 21,064 square foot 2-story office building. The buyer was Hume Jung and the seller

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was the John E. Pessin Living Trust, the sales price was $2,150,000 or $102.07 PSF. The Oakland Airport has always been one of the most economical markets in the East Bay. Some Landlords are marketing space quoting asking rates of $1.10-$1.20 PSF, fully serviced. Conclusion We’ve been hoping there was light at the end of the tunnel for quite some time for owners of office buildings in the East Bay. Based on some of the current economic trends and other favorable happenings, it looks as though relief may be on the way. It may take several years for a full recovery to manifest itself but in the meantime, tenants can take advantage of historical low rents in the market, upgrade their spaces, and receive flexible terms allowing for growth. We are hopeful that the rest of 2010 will bring continued good news and revive the job creation engine that we have historically been fortunate enough to experience in the East Bay. Best Regards,

Daniel Pivnick (510) 923-9150 [email protected]

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OFFICE - AVAILABLE SPACE

* (Includes R&D Space) ** (Rental Rates are Class “A” Fully Serviced, except Class “B” Emeryville and Oakland)

OFFICE ABSORPTION

Area

1st Quarter 2010

YTD 2009

Year 2008

Year 2007

Richmond * 2,080 (85,675) (85,099) 78,183

Berkeley (13,231) (4,841) (70,908) 41,689

Emeryville Class A (46,856) 42,537 (48,752) 23,552

Emeryville Class B (46,826) 32,503 (33,859) 49,232

Oakland - Class A 77,162 (201,667) (43,524) 275,349

Oakland - Class B (907) (9,238) (36,539) 46,380

Oakland Airport (94,812) 74,718 (176,031) (51,405)

Jack London Square - Oakland 19,326 (48,993) 7,077 26,797

Alameda - Harbor Bay (19,500) 47,940 (55,280) 122,545

Alameda - Marina Village 97,573 (100,800) (133,081) 117,391

METROPOLITAN TOTAL: (25,991`) (253,516) (675,996) 729,713 THE INFORMATION CONTAINED HEREIN WHILE NOT GUARANTEED HAS BEEN SECURED BY SOURCES WE DEEM RELIABLE. ALL INFORMATION SHOULD BE VERIFIED PRIOR TO LEASE OR SALE SOURCE: CORNISH & CAREY COMMERCIAL – 5980 HORTON STREET, SUITE 100, EMERYVILLE, CA 94608 510.923.6200 FAX 510.923.6260

Area Inventory Total SF

Direct

Total Direct

Vacancy

Sublet Sublet

Vacancy Total

Available

Total Vacancy

3Q09 Rental

Rates **

Richmond * 2,153,517 605,724 28.13% 12,257 0.57% 617,981 28.70% $1.50- $1.85

Berkeley 2,558,666 324,364 12.68% 75,709 2.96% 400,073 15.64% $1.75- $2.45

Emeryville - Class A 2,557,268 335,534 13.12% 179,060 7.00% 514,594 20.12% $2.00- $2.35

Emeryville - Class B 1,331,081 183,504 13.79% 8,093 0.61% 191,597 14.39% $1.50- $1.75

Oakland - Class A 6,227,704 740,444 11.89% 136,506 2.19% 876,950 14.08% $2.35- $2.95

Oakland - Class B 2,972,483 726,268 24.43% 37,925 1.28% 764,193 25.71% $1.50- $2.25

Oakland Airport 1,975,828 544,646 27.57% 24,520 1.24% 569,166 28.81% $1.55- $1.95

Jack London Square - Oakland 1,435,330 276,202 19.24% 13,944 0.97% 290,146 20.21% $1.50- $3.00

Alameda - Harbor Bay 1,840,329 282,528 15.35% 40,712 2.21% 323,240 17.56% $1.65- $1.85

Alameda - Marina Village 1,659,874 441,902 26.62% 20,254 1.22% 462,156 27.84% $1.60- $2.00

TOTAL: 24,712,080 4,461,116 18.05% 548,980 2.22% 5,010,096 20.27%

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OFFICE MARKET HIGHLIGHTS

Building Tenant Landlord City Size

1451 Harbor Bay Parkway Kaiser Permanente Limar Realty Corporation Alameda 65,000 (Renewal)

2000 Powell Street Gracenote US Bank Emeryville 48,000

1300 Clay Street US Bankruptcy Court Shorenstein Oakland 38,877 (Renewal)

2100 Franklin Social Security Administration CIM Group Oakland 35,000

2100 Milvia MSCI Barra SRM Berkeley 34,000 (Renewal)

1111 Broadway UC Office of the President Shorenstein Oakland 23,000

300 Lakeside Drive Foley & Mansfield SWIG Oakland 23,000 (Renewal)

66 Franklin Street Sungevity Ellis Parnters Oakland 20,000

505 14th Street DeVry University Shorenstein Oakland 15,768

1300 Clay Street Offices of Ben Berwick, Inc. Shorenstein Oakland 14,996

6001 Shellmound Street Random House TMG Partners Emeryville 9,162

Building Seller Buyer City Size (SF)

600-610 16th Street Affinity Bank AB Chestnut LC Oakland 65,974

80 Swan Way Credit Swiss Hamilton Zanz Oakland 52,544

Building City Size (SF) Availability Direct/Sublease

1945 Broadway Oakland 200,000 Now Direct

2600 Hilltop Drive Richmond 150,000 (labs) Now Direct

2100 Franklin Oakland 142,000 Now Direct

55 Harrison Oakland 100,000 Now Direct

4655-4677 Meade St Richmond 82,000 (labs) Now Direct

2100 Powell Street Emeryville 75,000 Now Sublease

1201 Harbor Bay Parkway Alameda 61,000 (labs) Now Direct

1999 Harrison Street Oakland 61,000 Now Sublease

880 Harbour Way South Richmond 60,000 Now Direct

1111 Broadway Oakland 60,000 Now Sublease

1608 Fourth Street Berkeley 58,281 Now Sublease

SIGNIFICANT FIRST QUARTER 2010 OFFICE AVAILABILITIES

LARGEST FISRT QUARTER 2010 OFFICE SALE TRANSACTIONS

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OFFICE HISTORICAL STATISTICS

Year Quarter Inventory Direct Available Sublease Available Vacancy Absorption Rental Rates*

2001 2001/Q1 21,960,741 2,182,095 518,157 12.30% (601,056) $3.152001/Q2 21,861,666 2,107,121 842,519 13.49% (49,448) $3.00

2001/Q3 22,099,492 2,121,551 1,513,815 16.45% (654,145) $2.652001/Q4 22,337,318 2,943,630 1,468,472 19.75% (956,094) $2.55

2002 2002/Q1 22,697,258 3,288,485 1,391,274 20.62% (138,794) $2.102002/Q2 22,793,133 3,644,727 1,479,172 22.48% (348,175) $2.002002/Q3 22,793,133 3,688,676 1,514,435 22.83% (79,302) $1.85

2002/Q4 22,804,596 3,692,737 1,441,720 22.52% 48,768 $1.952003 2003/Q1 22,810,966 3,587,822 1,734,957 24.47% (189,578) $1.90

2003/Q2 22,810,966 3,603,370 1,851,034 23.91% (131,622) $1.852003/Q3 23,071,869 3,865,721 1,438,000 22.99% 356,372 $1.75

2003/Q4 23,076,486 3,805,828 1,378,922 22.47% 118,961 $1.752004 2004/Q1 22,988,486 3,602,772 1,421,122 21.85% 161,323 $1.65

2004/Q2 23,088,553 3,901,125 1,194,400 21.57% 73,363 $1.652004/Q3 25,944,650 4,213,810 1,047,373 20.28% 163,192 $1.702004/Q4 25,756,180 4,364,608 851,531 20.25% 122,881 $1.75

2005 2005/Q1 26,100,228 4,254,204 825,622 16.30% 271,398 $1.852005/Q2 25,498,654 3,947,467 882,868 18.94% 197,291 $1.952005/Q3 25,496,633 3,730,235 821,619 17.85% 278,490 $2.202005/Q4 25,429,849 3,656,601 779,369 17.44% 115,884 $2.35

2006 2006/Q1 25,429,849 3,568,831 765,385 17.04% 101,754 $2.452006/Q2 25,566,765 3,659,578 692,945 17.02% (18,299) $2.502006/Q3 25,532,623 3,609,841 507,798 16.13% 254,890 $2.602006/Q4 25,536,582 3,562,062 399,933 15.51% 328,290 $2.70

2007 2007/Q1 25,552,224 3,482,140 519,873 15.66% 111,982 $2.80

2007/Q2 25,552,224 3,497,873 500,096 15.65% 6,185 $2.852007/Q3 25,792,224 3,662,587 557,460 16.36% 23,010 $2.852007/Q4 26,089,061 3,746,922 544,061 16.45% 227,215 $2.85

2008 2008/Q1 26,030,198 3,841,106 593,005 17.03% (237,306) $2.852008/Q2 25,982,846 4,046,533 485,143 15.57% (132,438) $2.80

2008/Q3 25,924,053 4,251,529 384,686 17.88% (104,910) $2.702008/Q4 25,937,721 4,292,569 450,818 18.29% (117,172) $2.60

2009 2009/Q1 25,799,610 4,485,101 430,793 19.05% (172,499) $2.502009/Q2 25,628,459 4,355,712 520,272 19.03% (72,663) $2.40

2009/Q3 25,798,455 4,346,253 589,036 19.13% (34,694) $2.352009/Q4 24,711,629 4,478,717 529,518 20.27% (117,625) $2.35

2010 2010/Q1 24,712,080 4,461,116 548,980 20.27% (25,991) $2.35

CLASS A HISTORICAL VACANCY RATES (%) VS. AVERAGE RENTAL RATES ($/SF/MONTH)*Class A, Fully Serviced

$1.00$1.50$2.00$2.50$3.00$3.50$4.00

0.00%5.00%

10.00%15.00%20.00%25.00%30.00%

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OFFICE HISTORICAL STATISTICS

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1,000,000

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Sublease

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Historical Net Absorption (SF) vs. Vacancy Rates (%)

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EAST BAY TENANT ACTIVITY – YTD 1Q10

BUILDING CITY PREVIOUS LOCATION TENANT LANDLORD SIZE (SF)

1 2000 Powell Street Emeryville Expansion Sony Corporation (Gracenote) US Bank 48,000

2 1300 Clay Street Oakland Renewal US Bankruptcy Courts Shorenstein 38,077

3 2100 Milvia Street Berkeley Downsize MSCI Barra SRM 34,148

4 2100 Franklin Street Oakland Richmond GSA - Social Security CIM 30,000

5 1111 Broadway Oakland Renewal US Treasurers Office Shorenstein 22,980

6 7901 Oakport Oakland Concord ITT Educational Services Ardenbrook 20,000

7 66 Franklin Street Oakland Berkeley Sungevity Ellis Partners 19,326

8 505 14th Street Oakland New Location DeVry University Shorenstein 15,768

9 1300 Clay Street Oakland Expansion Ben Gerwick Shorenstein 14,996

10 427 13th Street Oakland Jack London Square Rumsey Engineers Leslie Bldg. Assoc. 13,522

50% of Tenants Renewed or 5 out of 10 10 Tenants Compiling 256,817 Total Square Feet

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TENANTS IN THE MARKET – 1Q10

Tenant Demand by Submarket Desired

Tenant Demand by Desired Size (Richmond to Oakland)

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TENANTS IN THE MARKET – 1Q10

Tenant Demand by Business Type (Number of requirements out of a total of 70)

Documents

East bay office & flex space 1 q10 market report dp