Q1 2012 Industrial Report

Industrial ReportNorth San Diego County

1st Quarter 2012

PREPARED BY:

Adam Molnar

Greg Lewis

Tucker Hohenstein

Mike Erwin

COLLIERS INTERNATIONAL

5901 Priestly Drive, Suite 100

Carlsbad, CA 92008

Fax 760 438 8925

www.colliers.com/carlsbad

NORTH COUNTYAT A GLANCE


MARKET INDICATORS

INDUSTRIAL/R&D VACANCY RATESQ1 2012

Q1 2012 | INDUSTRIAL

CARLSBAD HISTORICAL MARKET TRENDS

10.6%

8.1%

6.9%

15.5%

6.5%

14.4%

0% 5% 10% 15% 20%

North County

Vista

San Marcos

Oceanside

Escondido

Carlsbad


VISTA HISTORICAL MARKET TRENDS

OCEANSIDE HISTORICAL MARKET TRENDS SAN MARCOS HISTORICAL MARKET TRENDS

Q12012

Q22012 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

LEASE CONCESSIONS

Ocean

Escondido

Oceanside

Vista

San

MarcosCarlsbad

Submarket Buildings Total Inventory Vacant SF Vacancy Rate

Carlsbad 485 15,025,194 2,165,696 14.4%

Escondido 637 7,183,097 445,352 6.5%

Oceanside 396 8,038,265 1,246,094 15.5%

San Marcos 489 8,710,664 604,631 6.9%

Vista 530 13,374,822 1,081,203 8.1%

Total 2,537 52,333,280 5,566,778 10.6%

OVERVIEW

The North San Diego County industrial market is largely decentralized and comprised of

fi ve cities including Carlsbad, Escondido, Oceanside, San Marcos and Vista. Situated 35

miles north of downtown San Diego and 52 miles south of John Wayne Airport in Orange

County, the coastal location is a major factor in the area’s appeal to corporate users and

its 826,985 residents.

The industrial market consists of approximately 52.3 million square feet. By comparison,

the total San Diego industrial market is 188.3 million square feet. North County represents

27% of the total. For Q1 2012 North County vacancy was 10.6%. The vacancy rate

is decreasing as 172,000 SF of positive net absorption occurred. The following table

summarizes the inventory and vacancy by submarket:

North San Diego County is well known for its highly skilled labor force, excellent

transportation network, pro-growth business environment, signifi cant Federal

Government presence, desirable vacation destination including world class beaches,

resorts, golf venues, and abundant employee housing.

The North San Diego County industrial market is home to a diversifi ed mix of users

including defense, telecommunications, software, medical manufacturing, golf and leisure

Coca-Cola

Medtronic

Titleist Golf

ViaSat

Covidien

Abbott Labs

Genentech

Callaway Golf

L-3 Communications

SAIC

Isis Pharmaceuticals

Life Technologies

Cobra / Puma Golf

TaylorMade Golf

Denso Wireless

US Foods

Philips Respironics

Thomson Reuters

Rockwell Collins

John Deere

DJO, Inc.

Linear

Killion Industries

Jeld-Wen Windows and Doors

Sumitomo Electric

McCain, Inc.

Directed Electronics

GIA

Hunter Industries

Watkins Manufacturing

ESCONDIDO HISTORICAL MARKET TRENDS NORTH COUNTY NET ABSORPTION TRENDS

5-Yr. Avg. = 91,368 SF

0%

2%

4%

6%

8%

10%

12%

14%

-1,000

-500

0

500

1,000

1,500

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Q1

Vacancy R

ate

SF

(0

00

s)

Net Absorption New Supply Vacancy

NORTH COUNTY HISTORICAL MARKET TRENDS

ACTIVITY

Land appears to have reversed its downward

slide with the sale of 28 acres in Ocean

Ranch, Oceanside to US Foods for $11.50/

SF. To help put this price improvement in

perspective, a year earlier the same property

was purchased as a short-sale by a local

investor/developer for $7.23/SF. Supply of

industrial land, particularly large contiguous

sites in North County, is limited. It will not take

much in the way of demand to see further

increases in land prices.

The sale of several distressed properties

during Q1 pulled the median sale price down

to $76.50/SF. As distressed real estate is

cleared from the market look for sale prices

to gradually increase and good quality product to command a sizable premium over the Q1 median price. Many

“would be” sellers have chosen to lease rather than compete with distressed opportunities. This has resulted in

the supply of properties available for lease out numbering those for sale by a ratio of 6 to 1 in the 25,000-50,000

square foot range.

It was a positive sign to see investors, owner-occupiers and tenants active during Q1. Investors purchased

two vacant buildings located in Vista. Pacifi ca Enterprises bought 65,000 square feet 1081 Poinsettia for $58/

SF, while SR Commercial purchased 39,000 square feet at 2390 Oak Ridge for $69.57/SF. Owner occupiers

purchased four buildings for a total of 113,449 square feet with prices ranging between $65.78/SF and $127.90/

SF. Signifi cant tenant transactions included; La Cantina Doors leasing 67,000 square feet in Oceanside, PODS

renewing their lease of 64,000 square feet in Carlsbad, Astro Converters renewing their lease of 25,000 square

feet in San Marcos and Balboa Cal Inc. occupying 23,000 square feet in Vista.

FORECAST

There are several transactions underway at the end of Q1 that will likely help boost activity when they are

completed during Q2. Look for investors and tenants to lead the way, while owner-occupiers fi nd it diffi cult to

locate good quality properties or are reluctant to fi ll the price gap that has been created by recent distressed

sales. Lease rates will move sideways in the near term, but should begin to increase later in the year as vacancy

continues its slow decline. The current supply of spaces between 25,000-50,000 square feet for lease will force

landlords to complete aggressively for these tenants.

New speculative construction while being analyzed is still at least 24 months away. Filling the gap will be an

occasional build-to-suit if companies are unable to fi nd a desirable existing alternative.

AT A GLANCE | Q1 2012 | INDUSTRIAL | NORTH COUNTY

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.

prepared by ADAM MOLNAR, GREG LEWIS

TUCKER HOHENSTEIN & MIKE ERWIN, 760 438 8950


OVERVIEW

This year is off to a slow start in Carlsbad with a meager 14,650 square feet of positive

absorption in 1Q 2012. The overall vacancy rate for Industrial/R&D product sits at 14.41%

with industrial product continuing to outperform R&D (12.51% and 16.17% respectively).

There is no new construction underway or in the planned stage.

ACTIVITY

The limited activity in the leasing market was mostly concentrated in the 10,000 to

20,000 square foot segment with companies like Scratch Media and Iris International

committing to space in Carlsbad. Renewals remain prevalent as current Landlords tend

to have a leg up on the competition due to prohibitive moving and Tenant Improvements

costs associated with a new location. Examples of this during 1Q 2012 are PODS who

renewed in 64,541 SF and Luxtera who downsized and renewed in 32,510 SF. There

were no signifi cant sales transactions in 1Q 2012 in Carlsbad.

FORECAST

Investment sales appear to be on the rebound in Carlsbad with multiple large Industrial/

R&D projects expected to trade hands in 2Q 2012. The remaining shortage of large

blocks of contiguous, functional space above 75,000 SF suggests that companies with

forward thinking and the desire to consolidate operations will continue to explore Build

to Suit options. Overall activity and demand in the market appear to be up and supply is

expected to diminish, meaning that Landlords should benefi t from a slight uptick in rental

rates with no new product in the pipeline.

MARKET INDICATORS




10.6%

8.1%

6.9%

15.5%

6.5%

14.4%

0% 5% 10% 15% 20%

North County

Vista

San Marcos

Oceanside

Escondido

Carlsbad




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 2012

Q1

Vacancy R

ate

SF

(0

00

s)


CARLSBAD HISTORICAL MARKET TRENDSINDUSTRIAL/R&D VACANCY RATESQ1 2012



Ocean

Oceanside

Vista

SanMarcosCarlsbad

Q12012

Q22012 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

LEASE CONCESSIONS

CARLSBADAT A GLANCE

Carlsbad

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

There were no building sales larger than 15,000 SF during Q1

# PROPERTY NAME/ADDRESS TENANT NAME SIZE (SF) TERM EFF RATE/SF

1 3254 GreyHawk Court Scratch Media 12,835 48 months $0.91 MG

2 1891 Rutherford Road Iris International 20,000 84 months $1.53 NNN

3 2320 Camino Vida Roble Luxtera, Inc. (renewal) 32,510 43 months $0.98 NNN

4 2858 Loker Avenue PODS 64,541 84 months $0.70 NNN

SALES ACTIVITY

LEASING ACTIVITY

TRANSACTION ACTIVITY - Q1 2012

El C

amino R

eal

El C

amino R

eal

El C

amino R

eal

Gateway RdGateway Rd

Whiptail LoopWhiptail Loop

El Camino Real

Cannon Rd

Faraday Ave

Faraday Ave

College B

lvd

College B

lvd

Palom

ar A

irpo

rt R

d

Palom

ar A

irpo

rt R

d

Poinsettia Ave

Poinsettia Ave E

l Fuerte S

t

El F

uerte S

t

Alga Rd

Melrose D

r

Melrose D

r

Poinse

ttia Ave

Arm

ada D

r

Paseo

Del N

orte

Palomar Airport Rd

Aven

ida E

ncin

as

Aviara Pkwy

Busin

ess P

ark Dr

Busin

ess P

ark Dr

Sycamore Ave

Palomar Airport Rd

Palomar Airport Rd

El Fuerte St

El Fuerte St

Faraday AveFaraday Ave

Mel

rose

Dr

Mel

rose

Dr

Loker A

ve

Loker A

ve

Pacif icOcean

Lionshead Ave

Lionshead Ave

McClellan Palomar Airport

McClellan Palomar Airport

VistaC

ity B

oundary

Park Hyatt Aviara Resort

La Costa Resort & Spa

The Crossings at CarlsbadGolf Course

sings badurse

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









AT A GLANCE | Q1 2012 | INDUSTRIAL | CARLSBAD


OVERVIEW

The Escondido Industrial Market had minimal activity during the 1Q 2012, but continues to

have the lowest vacancy rate of any city in North San Diego County at 6.5%. There is no

new speculative industrial building or fl ex construction underway at this time. We most

likely will see Hamann Construction break ground on Cor-O-Van’s ~100,000 sf build-to-

suit in 2Q 2012. The new Palomar Medical Center under construction on a 56 acre site

in the Escondido Research and Technology Center continues to take shape with a target

opening of 3Q 2012.

ACTIVITY

There were no signifi cant sale or lease transactions in Escondido during 1Q 2012, but

there was good lease activity in the multi-tenant parks with 24 lease transactions ranging

between 1,000 - 5,000 square feet. Lease rates remained steady for 1Q 2012; sales

activity was minimal with only three transactions, all below $500,000.

FORECAST

The road ahead is bright for Escondido. With a healthy vacancy rate, there will be upward

pressure on rental rates and sale prices in 2012. The economy is showing signs of

recovery with an increase in employment which will drive demand for industrial space.

One of our clients is tentatively planning on breaking ground on a new speculative, for

lease industrial project in Escondido which is something we have not seen for several

years.

MARKET INDICATORS




10.6%

8.1%

6.9%

15.5%

6.5%

14.4%

0% 5% 10% 15% 20%

North County

Vista

San Marcos

Oceanside

Escondido

Carlsbad




0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

-400

-300

-200

-100

0

100

200

300

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Q1

Vacancy R

ate

SF

(0

00

s)


ESCONDIDO HISTORICAL MARKET TRENDSS NORTH COUNTY NET ABSORPTION TRENDS

5-Yr. Avg. = 91,368 SF

NORTH COUNTY HISTORICAL MARKET TRENDS

Ocean

SanMarcos

Oceanside

Vista

Escondido

Carlsbad

Q12012

Q22012 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

LEASE CONCESSIONS

ESCONDIDOAT A GLANCE

Escondido

Nor

dahl Roa

d

Nor

dahl Roa

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 P

kwy

Citracado P

kwy

N A

ndr

ease

n D

rive

N A

ndr

ease

n D

rive

S A

ndr

ease

n D

rive

S A

ndr

ease

n D

rive

Enterprise St

Enterprise St

Val

ley

Par

kway

Val

ley

Par

kway

9th AveAv

Washington Avenue

Washington Avenue

Tulip

St

Tulip

St

Mission Avenue

Mission Avenue

Esco

ndid

o A

ve

Esco

ndid

o A

ve

Cen

ter City P

arkway

Cen

ter City P

arkway

Quin

ce St

Quin

ce St

Rock S

prin

gs R

d

Rock S

prin

gs R

d

PalomarPomeradoHospital

PalomarPomeradoHospital

EscondidoAuto ParkEscondidoAuto Park

Myers Avenue Myers Avenue

Auto Park Way

Auto Park Way

N. H

ale

Ave

nue

N. H

ale

Ave

nue

78

EscondidoResearch

& Tech Center

EscondidoResearch

& Tech Center


No building sales above 10,000 square feet


1 302 Enterprise, Suite A Nexsan 13,772 19 months $0.63 Gross

SALES ACTIVITY

LEASING ACTIVITY










AT A GLANCE | Q1 2012 | INDUSTRIAL | ESCONDIDO


OVERVIEW

While Oceanside still maintains the highest vacancy rate in North County at 15.46% the

115,069 SF of positive net absorption during Q1 2012 was the best quarterly performance

since Q2 2008. This extremely positive indicator signals the long anticipated recovery is

underway.

With just under 1.2m SF of vacant industrial space available there are numerous newer

and older properties of all sizes available to choose from including multi-tenant, free-

standing and larger manufacturing and warehouse distribution facilities.

ACTIVITY

Industrial sale transactions

were highlighted by the 28

acre user purchase by US

Foods in the Ocean Ranch

business park which closed in

March for $11.50 SF. Long term

plans include the construction

of 400,000 – 500,000 SF of

food storage and distribution

facilities replacing multiple

lease properties in Vista as

leases term out.

Industrial building sales

included the Gilead Sciences purchase of 35,856 SF at 4039 Avenida de la Plata. Gilead

owns the property next door and this expansion includes plans for a major renovation

of the property and a substantial capital improvement investment expanding their life

sciences business in the Oceanside area.

Lease transaction activity was strong this quarter and included a 66,780 SF lease in La

Pacifi ca in Ocean Ranch with La Cantina Doors, a tenant that expanded and relocated

from the Vista market. Four other leases between 12,000 and 18,000 were completed

showing momentum in medium size tenant activity which is a very positive factor.

FORECAST

Oceanside will continue to see positive net absorption this coming quarter and for the

remainder of the year. All economic indicators are trending positive and commercial

real estate offi ces are all reporting the best activity in years. Overall, deals are still taking

a long time to process, landlords are making concessions to keep existing tenants and

lower building sale prices and attractive interest rates are making user purchases very

aff ordable.

MARKET INDICATORS




10.6%

8.1%

6.9%

15.5%

6.5%

14.4%

0% 5% 10% 15% 20%

North County

Vista

San Marcos

Oceanside

Escondido

Carlsbad






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 2012

Q1

Vacancy R

ate

SF

(0

00

s)


OCEANSIDE HISTORICAL MARKET TRENDSS SAN MARCOS HISTORICAL MARKET TRENDS

Ocean

Oceanside

Vista

SanMarcosCarlsbad

Q12012

Q22012 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

LEASE CONCESSIONS

OCEANSIDEAT A GLANCE

Oceanside


1 4039 Avenida de la Plata Gilead Services / User 35,856 $4,586,000 $127.90

2 Ocean Ranch Lots 27 & 28 U.S. Foods 27.96 Acres $14,000,000 $11.50


3 2817 Ocean Ranch Boulevard La Cantina Doors 66,780 60 months $0.55/NNN

4 398 Via El Centro Windigo International 12,000 36 months $0.50/G

5 3801 Ocean Ranch Blvd Star Metal Plating 12,450 60 months $0.49/NNN

6 2612 Temple Heights Dr Apical Industries 18,160 60 months $0.55/G

7 1353 Rocky Point Dr Dixon Scientific 18,911 38 months $0.64/G

SALES ACTIVITY

LEASING ACTIVITY


El CorazonEl Corazon

Ocean Ranch

Plaza Retail

Ocean Ranch

Plaza Retail

Paci c CoastBusiness ParkPaci c CoastBusiness Park

OceanRanchOceanRanch

Rancho Del OroRancho Del Oro

OceansideGateway

OceansideGateway

Sprinter Light

Rail Line

Sprinter Light

Rail Line

Ran

cho D

el O

ro D

r

Ran

cho D

el O

ro D

r

College B

lvd

College B

lvd

Mes

a Dr

Mes

a Dr

Avenida De La PlataAvenida De La Plata

Old Grove Road

Old Grove Road

Ocean

Ranch

Blvd

Ocean

Ranch

Blvd

Nor

th

Ave

Nor

th

Ave

Temple H

eights Dr

Temple H

eights Dr

Avenida D

el Oro

Avenida D

el Oro

Melro

se Dr

Oceanside BlvdOceanside Blvd

Cor

po

rate

Cen

ter D

r

Cor

po

rate

Cen

ter D

r

7

AT A GLANCE | Q4 2011 | INDUSTRIAL | OCEANSIDE










OVERVIEW

The San Marcos industrial market positive absorption was 36,664 square feet and the

quarter ended with a vacancy rate of 6.9%. This is the second best in North County

following only Escondido at 6.5%. The positive absorption was on par with some of the best

quarters in the last three years and now San Marcos has posted three consecutive quarters

of net absorption which it hasn’t done since the recession started.

ACTIVITY

Industrial building sale activity was light with just one sale closing in the quarter. Metro

Western Sign & Awnings purchased a 24,128 square foot distressed property with an

outside yard area at 261 South Pacifi c Street from the Small Business Administration.

Leasing activity consisted of 3 leases between 13,000 and 25,000 square feet the largest

of which was a renewal. Leasing velocity is up with several transactions in the market that

should close in the next 30-60 days.

FORECAST

We expect to see a continued reduction in supply in the market as space is taken down and

no new product is added to the market. Activity in all product types including multi-tenant,

manufacturing and warehouse distribution is up signifi cantly. As the economy continues

to improve the nascent recovery should benefi t owners of industrial property in this core

market .

MARKET INDICATORS




10.6%

8.1%

6.9%

15.5%

6.5%

14.4%

0% 5% 10% 15% 20%

North County

Vista

San Marcos

Oceanside

Escondido

Carlsbad






OCEANSIDE HISTORICAL MARKET TRENDS

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

-300

-200

-100

0

100

200

300

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Q1

Vacancy R

ate

SF

(0

00

s)


SAN MARCOS HISTORICAL MARKET TRENDS

Ocean

Oceanside

Vista

SanMarcos

Escondido

Carlsbad

Q12012

Q22012 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

LEASE CONCESSIONS

SAN MARCOSAT A GLANCE

San Marcos


1 261 South Pacific Street Metro Western Sign 24,128 $1,550,000 $64.24


2 170 Bosstick Blvd Proformance Apparel 12,816 36 months $0.62 GRS

3 970 Los Vallecitos Mountain Shadows 19,544 63 months $0.77 GRS

4 155 Mata Way Astro Converters 24,814 60 months $0.64 NNN

SALES ACTIVITY

LEASING ACTIVITY


Palomar Airport Rd

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 Rd

E Mission Rd

Barham DrBarham Dr

N T

win

Oaks V

alley R

dN

Tw

in O

aks V

alley R

d

S T

win

Oaks V

alley R

d

S T

win

Oaks V

alley R

dSan

Elij

o Rd

San E

lijo

Rd

San Elijo Rd

Armorlite Dr

Armorlite DrRa

ncho

San

ta F

e Rd

Ranc

ho S

anta

Fe Rd

Melro

se D

r

Melro

se D

r

Discovery St

Discovery St

Craven RdCraven Rd

78

78

Rancho S

anta Fe Rd

Rancho S

anta Fe Rd

Lake San Marcos

Lake San Marcos

San Elijo HillsResidential

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

VistaVista

La Costa Meadows

Business Park

La Costa Meadows

Business Park









AT A GLANCE | Q1 2012 | INDUSTRIAL | SAN MARCOS


OVERVIEW

Investors and owner-occupiers took advantage of the few remaining distressed/

challenged real estate opportunities by purchasing four properties with an average sale

price of $69/SF. Demand from occupiers helped Vista post its third consecutive quarter

of positive net absorption resulting in a current vacancy rate of 8.1%. Vista continues to

plod a slow and steady course to recovery.

ACTIVITY

Investors showed confi dence in the market by purchasing two vacant buildings, which

included 65,000 square feet at 1081 Poinsettia Avenue and 39,672 square feet at 2390

Oak Ridge Way. Prices well below replacement cost and continued positive net absorption

are helping boost investor confi dence. Investors were not alone as owner-occupiers

purchased two more buildings totaling 61,000 square feet at an average price of $75/SF.

Leasing activity consisted of three transactions all occurring in the 20-25,000 square

foot range. Two of the tenants, PCA and Stroke Rehab, relocated from within the park and

Balboa Cal was a new tenant representing positive net absorption.

FORECAST

There are several transactions underway at the end of Q1 that will likely help boost

activity when they are completed during Q2. Look for investors and tenants to lead

the way, while owner-occupiers fi nd it diffi cult to locate good quality properties or are

reluctant to fi ll the price gap that has been created by recent distressed sales. Lease

rates will move sideways in the near term, but should begin to increase later in the year

as vacancy continues its slow decline. The current supply of spaces between 25-50,000

SF for lease will force landlords to complete aggressively for these tenants.

MARKET INDICATORS




10.6%

8.1%

6.9%

15.5%

6.5%

14.4%

0% 5% 10% 15% 20%

North County

Vista

San Marcos

Oceanside

Escondido

Carlsbad





0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

-200

-100

0

100

200

300

400

500

600

700

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Q1

Vacancy R

ate

SF

(0

00

s)




Q12012

Q22012 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

LEASE CONCESSIONS

Ocean

Oceanside

Vista

SanMarcosCarlsbad

VISTAAT A GLANCE

Vista


1 1211 Liberty Way Owner User 25,189 $2,100,000 $83.37

2 991 Park Center Owner User 36,404 $2,395,000 $65.78

3 2390 Oak Ridge Way Investor 39,672 $2,760,000 $69.57

4 1081 Poinsettia Avenue Investor 65,000 $3,770,000 $58.00


5 1389 Park Center Drive Ste B Balboa Cal, Inc. 23,493 84 months $0.51 NNN

6 1335 Sycamore Avenue Ste F PCA 25,394 60 months Undisclosed

7 1255 Keystone Avenue Stroke Rehab 21,065 60 months Undisclosed

SALES ACTIVITY

LEASING ACTIVITY


Sycamore Ave

Sycamore Ave

Syc

amor

e Ave

Oleander Ave

eander Ave

Green Oak Rd

Green Oak Rd

Shadowridge Dr

University Dr

La Mirada Dr

La Mirada Dr

Mel

rose

Dr

Mel

rose

Dr

Par

k Cen

ter Dr

Par

k Cen

ter Dr

Lionshead Ave

Palomar Airport R

d

Poin

settia

Ave

Poin

settia

Ave

Shadowridge

Golf Course

Shadowridge

Residential

Busin

ess

Park D

rB

usin

ess

Park D

r

Faraday AveFaraday Ave

7

AT A GLANCE | Q1 2012 | INDUSTRIAL | VISTA









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.

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 2012Q1

Vaca

ncy

Rate

SF (M

illio

ns)


NEW SUPPLY, ABSORPTION AND VACANCY RATES

7.4%

10.1%

9.9%

9.7%

18.5%

12.6%

14.8%

14.9%

0% 5% 10% 15% 20%

I-15 Corridor

North County

Central County

S.D. County

R&D Industrial

INDUSTRIAL VACANCY RATESQ1 2012

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

$ /

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)

49.0%

29.0%

13.1%5.1%

3.8%<= 2,000 SF [232]

2,001 - 5,000 SF [137]

5,001 - 10,000 SF [62]

10,001 - 20,000 SF [24]

>= 20,001 SF [18]

INDUSTRIAL LEASING ACTIVITY BY TENANT SIZEPercentage of Total Leases Completed in Q1 2012

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 2012Q1

Vaca

ncy

Rate

SF (M

illio

ns)



7.4%

10.1%

9.9%

9.7%

18.5%

12.6%

14.8%

14.9%

0% 5% 10% 15% 20%

I-15 Corridor

North County

Central County

S.D. County

R&D Industrial


$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

$ /

SF /

Mon

th (N

NN

)



49.0%

29.0%

13.1%5.1%

3.8%<= 2,000 SF [232]

2,001 - 5,000 SF [137]

5,001 - 10,000 SF [62]

10,001 - 20,000 SF [24]

>= 20,001 SF [18]


rENtAl rAtES

Since a historical high point in Q3 2008, the countywide average asking rental rate for combined industrial and R&D space has been steadily decreasing. Since Q1 2011, rents have stabilized in the low-$0.80/SF/mo. range. The Q1 2012 average rate of $0.82/SF/mo. is still 17% less than the historical high..

lEASING ActIVItY

Over 470 leases were completed in Q1 2012, totaling nearly 2.2 million square feet. 91% of all leases were 10,000 SF or less, while only 9% of all leases were over 10,000 SF in size. Smaller tenants made up a larger proportion of all leases signed in Q1.

www.colliers.com/sandiego

maRKET REpORTSAN DIEGO cOUNtY


Industrial Demand Starts Strong During Q1 Net absorption soars to over half-a-million square feet

MArKEt OVErVIEW San Diego County’s industrial/R&D market experienced a large surge in demand in Q1 as nearly 560,000 SF of net absorption was recorded. This was the strongest quarter of net absorption since Q4 2010 and may be the strongest quarter this year. Robust leasing activity in Q3 and Q4 last year led to increased occupancies in Q1 this year. The leasing activity in late 2011 will carry into mid-2012 absorption activity which will likely translate into positive net absorption, but not at this recent surge level. While not as remarkable as Q3 and Q4 leasing, Q1 leasing activity was robust nevertheless and the next few quarters should post steady activity. This is an indicator of reasonably strong absorption for remainder of the year. net absorption for 2012 will likely be between 1.0 and 1.5 million SF with vacancy standing at 10.8% to 11.0%.

The February 2012 San Diego County unemployment rate measured 9.3%, exhibiting no change from January. The California unemployment rate increased (+0.1%) in February and stood at 11.4% while the national rate decreased (-0.1%) to 8.7%. as of February 2012, San Diego County experienced a year-over-year increase in non-farm employment totaling 9,000 jobs. The combined industry sectors of “Trade, Transportation, and Utilities” and “manufacturing” – the two predominant industrial-utilizing employment sectors – posted a net increase of 2,900 jobs over the same period.

in January, the USD Burnham-moores Center for Real Estate’s index of Leading Economic indicators for San Diego posted a 0.9% increase. This was the third consecutive month of increases that was driven primarily by significant gains in local consumer confidence, decreased

MArKEt trENDS

Strong positive demand drove countywide net absorption to over 559,000 square feet in Q1. in 2012, net absorption will stand at around 1.0 to 1.5 million SF, making it potentially the best year for demand since 2006. no new construction was completed in Q1 but nearly 130,000 SF will be completed for the year. Vacancy stood at 11.3% and will settle at or near 11.0% by year-end.

MArKEt INDIcAtOrS

INDUStrIAl VAcANcY rAtESQ1 2012

Q1 2012 Q2 2012 (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 2012Q1

Vaca

ncy

Rate

SF (M

illio

ns)



7.4%

10.1%

9.9%

9.7%

18.5%

12.6%

14.8%

14.9%

0% 5% 10% 15% 20%

I-15 Corridor

North County

Central County

S.D. County

R&D Industrial


$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

$ /

SF /

Mon

th (N

NN

)



49.0%

29.0%

13.1%5.1%

3.8%<= 2,000 SF [232]

2,001 - 5,000 SF [137]

5,001 - 10,000 SF [62]

10,001 - 20,000 SF [24]

>= 20,001 SF [18]


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 2012Q1

Vaca

ncy

Rate

SF (M

illio

ns)



7.4%

10.1%

9.9%

9.7%

18.5%

12.6%

14.8%

14.9%

0% 5% 10% 15% 20%

I-15 Corridor

North County

Central County

S.D. County

R&D Industrial


$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

$ /

SF /

Mon

th (N

NN

)



49.0%

29.0%

13.1%5.1%

3.8%<= 2,000 SF [232]

2,001 - 5,000 SF [137]

5,001 - 10,000 SF [62]

10,001 - 20,000 SF [24]

>= 20,001 SF [18]


9 basis points to 0.7% in Q1. Vacant sublease space comprises 1.3 million SF countywide. nearly 43% of all this space is concentrated in wet lab and R&D space in the Golden Triangle submarkets of Campus point/Eastgate and Torrey pines. Otay mesa – with over 182,000 square feet – has the most vacant warehouse sublease space in the county.

Vacancy has tended to remain stable in the 11%-12% range for the last two years, in part due to comparable levels of new construction (supply) and net absorption (demand). minimal demand in 2011 coupled with a virtually equal level of new construction has done very little to affect vacancy to a significant degree. Demand is forecasted to pick up in 2012 causing absorption to drive vacancy down to or near 11%.

NEW SUPPlY no new construction was completed in Q1; there is 253,245 square feet under construction. This includes a 129,845-square-foot build-to-suit for HOiST Fitness in poway to be completed in Q4 2012 and a 123,400-square-foot additional building in the illumina campus in the Campus point/Eastgate submarket which will be completed in mid-2013.

proposed new development totals about 7.75 million SF with over 70% of this space concentrated in just four submarkets: Otay mesa, Carlsbad, East County and Oceanside. most proposed future development is concentrated in build-to-suits with speculative development trailing for several years to come.

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 | Q1 2012 | INDUSTRIAL | SAN DIEGO COUNTY

SAN DIEGO cOUNtY

The San Diego County industrial/R&D market is comprised of 188.4 million square feet of industrial and R&D space. The county is divided into three major market areas with 21 submarkets within them. nearly 62% 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 70% of total inventory while R&D buildings (including flex, wet lab and corporate headquarters) make up the remaining 30% of the total inventory.

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

13550 Stowe Drive Poway Industrial 112,000 $11,800,000 $105

4039 Avenida De La Plata Oceanside R&D 35,856 $4,586,000 $128

1081 Poinsettia Avenue Vista Industrial 65,000 $3,770,000 $58

2390 Oak Ridge Way Vista Industrial 39,672 $2,760,000 $70

9355 Chesapeake Drive Kearny Mesa R&D 14,586 $2,375,000 $163

PROPERTY NAME/ADDRESS SUBMARKET TYPE SIZE SF

2858 Loker Avenue E. Carlsbad Industrial 64,541 PODS Enterprises (renewal)

7130 Miramar Road Miramar Industrial 58,368 Ashley Furniture

7590 Carroll Road Miramar Industrial 52,103

10445 Pacific Center Court Sorrento Mesa R&D 48,709

5950 Nancy Ridge Drive Miramar Industrial 46,800 InCharacter Costumes LLC


SALES ACTIVITY

LEASING ACTIVITY

Qualcomm

TENANT NAME

R.R. Donnelley & Sons (renewal)

initial claims for unemployment insurance and increased local stock prices. January initial claims for unemployment insurance hit their lowest level – on a seasonally-adjusted basis – since august 2008, while help wanted advertising increased for the 13th straight month.

NEt ABSOrPtION Q1 combined industrial/R&D net absorption totaled a positive 559,233 SF. if this rate of absorption continues throughout the rest of the year, demand in 2012 will be close to pre-recession levels. Countywide net absorption for industrial space (manufacturing, warehouse, distribution, and multi-tenant/incubator building uses) totaled a positive 320,241 SF and R&D space (flex, wet lab and corporate headquarters building uses) totaled a positive 238,992 SF.

absorption over the last two years has been primarily bolstered by large tenants and users who have expanded or leased additional space throughout the county. However, the majority of Q1 absorption activity was attributed to smaller tenants below 10,000 SF. This was especially true in the north County and South County areas. This included not only expansions and relocations, but new tenants and users as well. as the local and national economy continues to improve, we

can expect this trend to endure over the next couple of years, providing a stable level of demand that is less prone to extreme levels of negative absorption.

The countywide overall industrial/R&D average asking rental rate reached its market bottom of $0.80/SF/mo. in Q1 2011. For the last five quarters, the rent has settled in the low-$0.80 range and stood at $0.82/SF/mo. in Q1 2012. in Q1, rental rates began to appreciate in all submarkets of the i-15 Corridor and most submarkets of the Central County with an overall increase in the total Central County. However, the north County submarkets yielded either no change or minor decreases in their rental rates.

VAcANcY The Q1 overall vacancy rate decreased by 26 basis points to stand at 11.3%. The industrial and R&D vacancy components measured 9.7% and 14.9%, respectively. Compared to one year ago, R&D vacancy has increased by 71 basis points (14.2% in Q1 2011) while industrial vacancy has decreased by 9 basis points (9.8% in Q1 2011).

The Q1 combined industrial/R&D direct vacancy rate was 10.6% compared to 10.8% at the end of 2011. Sublease vacancy inched down by

NORTH COUNTYI-15 CORRIDORCENTRAL COUNTYDOWNTOWNSOUTH BAY/EAST COUNTY

NORTh cOUNTy

I-15 cORRIDOR

McAS MIRAMAR

cENTRALcOUNTy

cOllIErS INtErNAtIONAl | P. 3


continued on page 4

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 3,054 81,812,573 9.5% 0.4% 9.9% 10.0% 194,335 194,335 0 0 2,361,960 $0.62North County 2,190 40,302,817 10.0% 0.0% 10.1% 10.4% 108,584 108,584 0 0 1,315,951 $0.70I-15 Corridor 302 10,569,503 7.0% 0.4% 7.4% 7.3% 17,322 17,322 0 129,845 382,900 $0.87TOTAL 5,546 132,684,893 9.4% 0.3% 9.7% 9.9% 320,241 320,241 0 129,845 4,060,811 $0.68R&D TOTALS BY MARKET Flex, wet lab and corporate headquartersCentral County 823 34,399,640 12.6% 2.2% 14.8% 15.1% 97,162 97,162 0 123,400 1,622,724 $1.13North County 347 12,030,463 12.0% 0.5% 12.6% 12.6% 63,762 63,762 0 0 1,458,474 $1.05I-15 Corridor 134 9,331,288 17.5% 1.0% 18.5% 20.5% 78,068 78,068 0 0 605,000 $1.01TOTAL 1,304 55,761,391 13.3% 1.6% 14.9% 15.4% 238,992 238,992 0 123,400 3,686,198 $1.08COMBINED INDUSTRIAL / R&D BY MARKET AND SUBMARKETCentral CountyAirport / SA 76 1,878,846 3.8% 0.0% 3.8% 1.3% (39,970) (39,970) 0 0 0 $0.89Campus Pt / Egate 42 4,065,514 16.0% 11.4% 27.4% 26.1% (46,693) (46,693) 0 123,400 601,967 $2.25Central San Diego 397 8,377,286 4.9% 0.6% 5.5% 5.6% 12,569 12,569 0 0 0 $0.65East County 604 14,148,926 8.1% 0.0% 8.1% 7.8% (13,792) (13,792) 0 0 1,229,000 $0.67Kearny Mesa 650 17,391,882 5.7% 0.3% 6.0% 6.5% 75,697 75,697 0 0 65,691 $0.97Miramar 586 13,792,527 10.5% 0.4% 10.8% 11.4% 76,662 76,662 0 0 0 $0.88Mission Gorge / Vly 95 2,273,798 10.2% 2.9% 13.1% 13.2% 1,319 1,319 0 0 0 $0.82Otay Mesa 294 14,645,809 21.2% 1.3% 22.5% 23.0% 104,622 104,622 0 0 1,619,960 $0.47Rose Cyn / Morena 189 4,140,283 5.8% 0.0% 5.8% 3.9% (3,427) (3,427) 0 0 0 $0.75Sorrento Mesa 273 13,495,753 13.3% 0.2% 13.5% 14.2% 93,159 93,159 0 0 229,136 $1.08Sorrento Valley 106 3,411,905 9.4% 2.0% 11.4% 11.6% 7,526 7,526 0 0 0 $1.38South Bay 498 13,556,827 7.4% 0.0% 7.4% 7.5% (4,834) (4,834) 0 0 0 $0.58Torrey Pines 67 5,032,857 13.8% 1.9% 15.7% 16.3% 28,659 28,659 0 0 238,930 N/ATOTAL 3,877 116,212,213 10.4% 0.9% 11.3% 11.5% 291,497 291,497 0 123,400 3,984,684 $0.79North CountyCarlsbad 485 15,025,194 14.0% 0.4% 14.4% 14.1% 14,650 14,650 0 0 1,357,132 $0.97Escondido 637 7,184,335 6.4% 0.1% 6.5% 6.2% (26,464) (26,464) 0 0 39,500 $0.72Oceanside 396 8,038,265 15.5% 0.0% 15.5% 17.1% 115,069 115,069 0 0 1,227,361 $0.63San Marcos 489 8,710,664 6.9% 0.0% 6.9% 7.1% 36,664 36,664 0 0 53,000 $0.82Vista 530 13,374,822 8.0% 0.1% 8.1% 8.6% 32,427 32,427 0 0 97,432 $0.68TOTAL 2,537 52,333,280 10.5% 0.2% 10.6% 10.9% 172,346 172,346 0 0 2,774,425 $0.79I-15 CorridorPoway 215 8,196,473 4.5% 0.5% 5.1% 4.3% (31,857) (31,857) 0 129,845 447,900 $0.78Rancho Bernardo 146 9,559,699 16.3% 0.1% 16.4% 18.1% 147,296 147,296 0 0 0 $1.01Scripps Ranch 75 2,144,619 20.6% 3.8% 24.4% 27.7% (20,049) (20,049) 0 0 540,000 $0.96TOTAL 436 19,900,791 11.9% 0.7% 12.6% 13.5% 95,390 95,390 0 129,845 987,900 $0.95SAN DIEGO COUNTY COMBINED INDUSTRIAL / R&DTOTAL 6,850 188,446,284 10.6% 0.7% 11.3% 11.5% 559,233 559,233 0 253,245 7,747,009 $0.82QUARTERLY COMPARISONQ1 2012 6,850 188,446,284 10.6% 0.7% 11.3% 11.5% 559,233 559,233 0 253,245 7,747,009 $0.82Q4 2011 6,849 188,338,032 10.8% 0.8% 11.5% 11.6% 180,204 236,197 0 253,245 7,515,118 $0.83Q3 2011 * 6,849 188,338,032 10.9% 0.7% 11.6% 11.7% 280,420 55,993 202,340 253,245 7,515,118 $0.82Q2 2011 * 6,846 188,135,692 10.9% 0.8% 11.7% 11.5% (297,544) (224,427) 0 202,340 7,160,249 $0.81Q1 2011 * 6,846 188,135,692 10.7% 0.9% 11.5% 11.3% 73,117 73,117 0 202,340 6,264,113 $0.80

* Revised in Q4 2011.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

Q1 2012

P. 2 | cOllIErS INtErNAtIONAl


SAN DIEGO cOUNtY

The San Diego County industrial/R&D market is comprised of 188.4 million square feet of industrial and R&D space. The county is divided into three major market areas with 21 submarkets within them. nearly 62% 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 70% of total inventory while R&D buildings (including flex, wet lab and corporate headquarters) make up the remaining 30% of the total inventory.

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

13550 Stowe Drive Poway Industrial 112,000 $11,800,000 $105

4039 Avenida De La Plata Oceanside R&D 35,856 $4,586,000 $128

1081 Poinsettia Avenue Vista Industrial 65,000 $3,770,000 $58

2390 Oak Ridge Way Vista Industrial 39,672 $2,760,000 $70

9355 Chesapeake Drive Kearny Mesa R&D 14,586 $2,375,000 $163

PROPERTY NAME/ADDRESS SUBMARKET TYPE SIZE SF

2858 Loker Avenue E. Carlsbad Industrial 64,541 PODS Enterprises (renewal)

7130 Miramar Road Miramar Industrial 58,368 Ashley Furniture

7590 Carroll Road Miramar Industrial 52,103

10445 Pacific Center Court Sorrento Mesa R&D 48,709

5950 Nancy Ridge Drive Miramar Industrial 46,800 InCharacter Costumes LLC


SALES ACTIVITY

LEASING ACTIVITY

Qualcomm

TENANT NAME

R.R. Donnelley & Sons (renewal)

initial claims for unemployment insurance and increased local stock prices. January initial claims for unemployment insurance hit their lowest level – on a seasonally-adjusted basis – since august 2008, while help wanted advertising increased for the 13th straight month.

NEt ABSOrPtION Q1 combined industrial/R&D net absorption totaled a positive 559,233 SF. if this rate of absorption continues throughout the rest of the year, demand in 2012 will be close to pre-recession levels. Countywide net absorption for industrial space (manufacturing, warehouse, distribution, and multi-tenant/incubator building uses) totaled a positive 320,241 SF and R&D space (flex, wet lab and corporate headquarters building uses) totaled a positive 238,992 SF.

absorption over the last two years has been primarily bolstered by large tenants and users who have expanded or leased additional space throughout the county. However, the majority of Q1 absorption activity was attributed to smaller tenants below 10,000 SF. This was especially true in the north County and South County areas. This included not only expansions and relocations, but new tenants and users as well. as the local and national economy continues to improve, we

can expect this trend to endure over the next couple of years, providing a stable level of demand that is less prone to extreme levels of negative absorption.

The countywide overall industrial/R&D average asking rental rate reached its market bottom of $0.80/SF/mo. in Q1 2011. For the last five quarters, the rent has settled in the low-$0.80 range and stood at $0.82/SF/mo. in Q1 2012. in Q1, rental rates began to appreciate in all submarkets of the i-15 Corridor and most submarkets of the Central County with an overall increase in the total Central County. However, the north County submarkets yielded either no change or minor decreases in their rental rates.

VAcANcY The Q1 overall vacancy rate decreased by 26 basis points to stand at 11.3%. The industrial and R&D vacancy components measured 9.7% and 14.9%, respectively. Compared to one year ago, R&D vacancy has increased by 71 basis points (14.2% in Q1 2011) while industrial vacancy has decreased by 9 basis points (9.8% in Q1 2011).

The Q1 combined industrial/R&D direct vacancy rate was 10.6% compared to 10.8% at the end of 2011. Sublease vacancy inched down by

NORTH COUNTYI-15 CORRIDORCENTRAL COUNTYDOWNTOWNSOUTH BAY/EAST COUNTY

NORTh cOUNTy

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McAS MIRAMAR

cENTRALcOUNTy

cOllIErS INtErNAtIONAl | P. 3


continued on page 4

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 3,054 81,812,573 9.5% 0.4% 9.9% 10.0% 194,335 194,335 0 0 2,361,960 $0.62North County 2,190 40,302,817 10.0% 0.0% 10.1% 10.4% 108,584 108,584 0 0 1,315,951 $0.70I-15 Corridor 302 10,569,503 7.0% 0.4% 7.4% 7.3% 17,322 17,322 0 129,845 382,900 $0.87TOTAL 5,546 132,684,893 9.4% 0.3% 9.7% 9.9% 320,241 320,241 0 129,845 4,060,811 $0.68R&D TOTALS BY MARKET Flex, wet lab and corporate headquartersCentral County 823 34,399,640 12.6% 2.2% 14.8% 15.1% 97,162 97,162 0 123,400 1,622,724 $1.13North County 347 12,030,463 12.0% 0.5% 12.6% 12.6% 63,762 63,762 0 0 1,458,474 $1.05I-15 Corridor 134 9,331,288 17.5% 1.0% 18.5% 20.5% 78,068 78,068 0 0 605,000 $1.01TOTAL 1,304 55,761,391 13.3% 1.6% 14.9% 15.4% 238,992 238,992 0 123,400 3,686,198 $1.08COMBINED INDUSTRIAL / R&D BY MARKET AND SUBMARKETCentral CountyAirport / SA 76 1,878,846 3.8% 0.0% 3.8% 1.3% (39,970) (39,970) 0 0 0 $0.89Campus Pt / Egate 42 4,065,514 16.0% 11.4% 27.4% 26.1% (46,693) (46,693) 0 123,400 601,967 $2.25Central San Diego 397 8,377,286 4.9% 0.6% 5.5% 5.6% 12,569 12,569 0 0 0 $0.65East County 604 14,148,926 8.1% 0.0% 8.1% 7.8% (13,792) (13,792) 0 0 1,229,000 $0.67Kearny Mesa 650 17,391,882 5.7% 0.3% 6.0% 6.5% 75,697 75,697 0 0 65,691 $0.97Miramar 586 13,792,527 10.5% 0.4% 10.8% 11.4% 76,662 76,662 0 0 0 $0.88Mission Gorge / Vly 95 2,273,798 10.2% 2.9% 13.1% 13.2% 1,319 1,319 0 0 0 $0.82Otay Mesa 294 14,645,809 21.2% 1.3% 22.5% 23.0% 104,622 104,622 0 0 1,619,960 $0.47Rose Cyn / Morena 189 4,140,283 5.8% 0.0% 5.8% 3.9% (3,427) (3,427) 0 0 0 $0.75Sorrento Mesa 273 13,495,753 13.3% 0.2% 13.5% 14.2% 93,159 93,159 0 0 229,136 $1.08Sorrento Valley 106 3,411,905 9.4% 2.0% 11.4% 11.6% 7,526 7,526 0 0 0 $1.38South Bay 498 13,556,827 7.4% 0.0% 7.4% 7.5% (4,834) (4,834) 0 0 0 $0.58Torrey Pines 67 5,032,857 13.8% 1.9% 15.7% 16.3% 28,659 28,659 0 0 238,930 N/ATOTAL 3,877 116,212,213 10.4% 0.9% 11.3% 11.5% 291,497 291,497 0 123,400 3,984,684 $0.79North CountyCarlsbad 485 15,025,194 14.0% 0.4% 14.4% 14.1% 14,650 14,650 0 0 1,357,132 $0.97Escondido 637 7,184,335 6.4% 0.1% 6.5% 6.2% (26,464) (26,464) 0 0 39,500 $0.72Oceanside 396 8,038,265 15.5% 0.0% 15.5% 17.1% 115,069 115,069 0 0 1,227,361 $0.63San Marcos 489 8,710,664 6.9% 0.0% 6.9% 7.1% 36,664 36,664 0 0 53,000 $0.82Vista 530 13,374,822 8.0% 0.1% 8.1% 8.6% 32,427 32,427 0 0 97,432 $0.68TOTAL 2,537 52,333,280 10.5% 0.2% 10.6% 10.9% 172,346 172,346 0 0 2,774,425 $0.79I-15 CorridorPoway 215 8,196,473 4.5% 0.5% 5.1% 4.3% (31,857) (31,857) 0 129,845 447,900 $0.78Rancho Bernardo 146 9,559,699 16.3% 0.1% 16.4% 18.1% 147,296 147,296 0 0 0 $1.01Scripps Ranch 75 2,144,619 20.6% 3.8% 24.4% 27.7% (20,049) (20,049) 0 0 540,000 $0.96TOTAL 436 19,900,791 11.9% 0.7% 12.6% 13.5% 95,390 95,390 0 129,845 987,900 $0.95SAN DIEGO COUNTY COMBINED INDUSTRIAL / R&DTOTAL 6,850 188,446,284 10.6% 0.7% 11.3% 11.5% 559,233 559,233 0 253,245 7,747,009 $0.82QUARTERLY COMPARISONQ1 2012 6,850 188,446,284 10.6% 0.7% 11.3% 11.5% 559,233 559,233 0 253,245 7,747,009 $0.82Q4 2011 6,849 188,338,032 10.8% 0.8% 11.5% 11.6% 180,204 236,197 0 253,245 7,515,118 $0.83Q3 2011 * 6,849 188,338,032 10.9% 0.7% 11.6% 11.7% 280,420 55,993 202,340 253,245 7,515,118 $0.82Q2 2011 * 6,846 188,135,692 10.9% 0.8% 11.7% 11.5% (297,544) (224,427) 0 202,340 7,160,249 $0.81Q1 2011 * 6,846 188,135,692 10.7% 0.9% 11.5% 11.3% 73,117 73,117 0 202,340 6,264,113 $0.80

* Revised in Q4 2011.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

Q1 2012

P. 2 | cOllIErS INtErNAtIONAl


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 2012Q1

Vaca

ncy

Rate

SF (M

illio

ns)



7.4%

10.1%

9.9%

9.7%

18.5%

12.6%

14.8%

14.9%

0% 5% 10% 15% 20%

I-15 Corridor

North County

Central County

S.D. County

R&D Industrial


$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

$ /

SF /

Mon

th (N

NN

)



49.0%

29.0%

13.1%5.1%

3.8%<= 2,000 SF [232]

2,001 - 5,000 SF [137]

5,001 - 10,000 SF [62]

10,001 - 20,000 SF [24]

>= 20,001 SF [18]


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 2012Q1

Vaca

ncy

Rate

SF (M

illio

ns)



7.4%

10.1%

9.9%

9.7%

18.5%

12.6%

14.8%

14.9%

0% 5% 10% 15% 20%

I-15 Corridor

North County

Central County

S.D. County

R&D Industrial


$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

$ /

SF /

Mon

th (N

NN

)



49.0%

29.0%

13.1%5.1%

3.8%<= 2,000 SF [232]

2,001 - 5,000 SF [137]

5,001 - 10,000 SF [62]

10,001 - 20,000 SF [24]

>= 20,001 SF [18]


rENtAl rAtES

Since a historical high point in Q3 2008, the countywide average asking rental rate for combined industrial and R&D space has been steadily decreasing. Since Q1 2011, rents have stabilized in the low-$0.80/SF/mo. range. The Q1 2012 average rate of $0.82/SF/mo. is still 17% less than the historical high..

lEASING ActIVItY

Over 470 leases were completed in Q1 2012, totaling nearly 2.2 million square feet. 91% of all leases were 10,000 SF or less, while only 9% of all leases were over 10,000 SF in size. Smaller tenants made up a larger proportion of all leases signed in Q1.


maRKET REpORTSAN DIEGO cOUNtY


Industrial Demand Starts Strong During Q1 Net absorption soars to over half-a-million square feet

MArKEt OVErVIEW San Diego County’s industrial/R&D market experienced a large surge in demand in Q1 as nearly 560,000 SF of net absorption was recorded. This was the strongest quarter of net absorption since Q4 2010 and may be the strongest quarter this year. Robust leasing activity in Q3 and Q4 last year led to increased occupancies in Q1 this year. The leasing activity in late 2011 will carry into mid-2012 absorption activity which will likely translate into positive net absorption, but not at this recent surge level. While not as remarkable as Q3 and Q4 leasing, Q1 leasing activity was robust nevertheless and the next few quarters should post steady activity. This is an indicator of reasonably strong absorption for remainder of the year. net absorption for 2012 will likely be between 1.0 and 1.5 million SF with vacancy standing at 10.8% to 11.0%.

The February 2012 San Diego County unemployment rate measured 9.3%, exhibiting no change from January. The California unemployment rate increased (+0.1%) in February and stood at 11.4% while the national rate decreased (-0.1%) to 8.7%. as of February 2012, San Diego County experienced a year-over-year increase in non-farm employment totaling 9,000 jobs. The combined industry sectors of “Trade, Transportation, and Utilities” and “manufacturing” – the two predominant industrial-utilizing employment sectors – posted a net increase of 2,900 jobs over the same period.

in January, the USD Burnham-moores Center for Real Estate’s index of Leading Economic indicators for San Diego posted a 0.9% increase. This was the third consecutive month of increases that was driven primarily by significant gains in local consumer confidence, decreased

MArKEt trENDS

Strong positive demand drove countywide net absorption to over 559,000 square feet in Q1. in 2012, net absorption will stand at around 1.0 to 1.5 million SF, making it potentially the best year for demand since 2006. no new construction was completed in Q1 but nearly 130,000 SF will be completed for the year. Vacancy stood at 11.3% and will settle at or near 11.0% by year-end.

MArKEt INDIcAtOrS

INDUStrIAl VAcANcY rAtESQ1 2012

Q1 2012 Q2 2012 (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 2012Q1

Vaca

ncy

Rate

SF (M

illio

ns)



7.4%

10.1%

9.9%

9.7%

18.5%

12.6%

14.8%

14.9%

0% 5% 10% 15% 20%

I-15 Corridor

North County

Central County

S.D. County

R&D Industrial


$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

$ /

SF /

Mon

th (N

NN

)



49.0%

29.0%

13.1%5.1%

3.8%<= 2,000 SF [232]

2,001 - 5,000 SF [137]

5,001 - 10,000 SF [62]

10,001 - 20,000 SF [24]

>= 20,001 SF [18]


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 2012Q1

Vaca

ncy

Rate

SF (M

illio

ns)



7.4%

10.1%

9.9%

9.7%

18.5%

12.6%

14.8%

14.9%

0% 5% 10% 15% 20%

I-15 Corridor

North County

Central County

S.D. County

R&D Industrial


$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

$ /

SF /

Mon

th (N

NN

)



49.0%

29.0%

13.1%5.1%

3.8%<= 2,000 SF [232]

2,001 - 5,000 SF [137]

5,001 - 10,000 SF [62]

10,001 - 20,000 SF [24]

>= 20,001 SF [18]


9 basis points to 0.7% in Q1. Vacant sublease space comprises 1.3 million SF countywide. nearly 43% of all this space is concentrated in wet lab and R&D space in the Golden Triangle submarkets of Campus point/Eastgate and Torrey pines. Otay mesa – with over 182,000 square feet – has the most vacant warehouse sublease space in the county.

Vacancy has tended to remain stable in the 11%-12% range for the last two years, in part due to comparable levels of new construction (supply) and net absorption (demand). minimal demand in 2011 coupled with a virtually equal level of new construction has done very little to affect vacancy to a significant degree. Demand is forecasted to pick up in 2012 causing absorption to drive vacancy down to or near 11%.

NEW SUPPlY no new construction was completed in Q1; there is 253,245 square feet under construction. This includes a 129,845-square-foot build-to-suit for HOiST Fitness in poway to be completed in Q4 2012 and a 123,400-square-foot additional building in the illumina campus in the Campus point/Eastgate submarket which will be completed in mid-2013.

proposed new development totals about 7.75 million SF with over 70% of this space concentrated in just four submarkets: Otay mesa, Carlsbad, East County and Oceanside. most proposed future development is concentrated in build-to-suits with speculative development trailing for several years to come.

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
