Q4 2011 Industrial Report

Industrial ReportNorth San Diego County

4th Quarter 2011PREPARED BY:

Adam Molnar

Greg Lewis

Tucker Hohenstein

Mike Erwin

Mike Bench

COLLIERS INTERNATIONAL

5901 Priestly Drive, Suite 100

Carlsbad, CA 92008

Fax 760 438 8925

www.colliers.com/carlsbad

NORTH COUNTYAT A GLANCE


OVERVIEW

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

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. Year-end 2011 North County vacancy was 10.9%. The vacancy rate

is improving as 566,762 SF of positive net absorption occurred. The following table

summarizes the inventory and vacancy in the market:

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

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

Government presence, desirable vacation destination and abundant employee housing.

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

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

sports, life science and technology rms. Corporate neighbors include:

MARKET INDICATORS

INDUSTRIAL/R&D VACANCY RATESQ4 2011

Q4 2011 | INDUSTRIAL

CARLSBAD HISTORICAL MARKET TRENDS

10.9%

8.6%

7.1%

17.1%

6.2%

14.1%

0% 5% 10% 15% 20%

North County

Vista

San Marcos

Oceanside

Escondido

Carlsbad

INDUSTRIAL/R&D VACANCY RATES Q4 2011

VISTA HISTORICAL MARKET TRENDS

OCEANSIDE HISTORICAL MARKET TRENDS SAN MARCOS HISTORICAL MARKET TRENDS

Q42011

Q12012 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

LEASE CONCESSIONS

Ocean

Escondid

Oceanside

Vista

San

MarcosCarlsbad

Coca-Cola

Medtronic

Titleist Golf

ViaSat

Covidien

Abbott Labs

Genentech

Callaway Golf

L-3 Communications

SAIC

Isis Pharmaceuticals

Life Technologies

Puma Golf

TaylorMade Golf

Denso Wireless

U.S. Foodservice

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

Submarket Buildings Total Inventory Vacant SF Vacancy Rate

Carlsbad 485 15,011,955 2,116,686 14.10%

Escondido 637 7,183,097 445,352 6.20%

Oceanside 396 8,038,044 1,374,506 17.10%

San Marcos 489 8,703,364 617,939 7.10%

Vista 530 13,373,882 1,150,154 8.60%

Total 2,537 52,310,342 5,701,827 10.90%

ESCONDIDO HISTORICAL MARKET TRENDS NORTH COUNTY NET ABSORPTION TRENDS

5-Yr. Avg. = 104,234 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

Vacancy R

ate

SF (

00

0s)

Net Absorption New Supply Vacancy

NORTH COUNTY HISTORICAL MARKET TRENDS

ACTIVITY

Big tenants made a positive impact in 2011.

The bulk of the year’s absorption can be

traced to tenants such as: BREG (88K), Zodiac

(104K), John Deere (76K) SKLZ (150K),

DJO (53K), PrAna (64K), Allied Swiss (63K)

and Teamwork (40K). This demand from

corporate tenants helped 2011 post 566,000

square feet of net absorption, which is well

above the 5-year moving average of 104,000

square feet. Vacancy declined slightly to

10.9% at the end of 2011 versus 11.22% at the

end of 2010.

Owner-users and investors cautiously

entered the market during 2011, which led

to inconsistent sales activity. First quarter

showed promising signs in terms of activity, however the balance of the year was sparse and Q4 nished with

only one sale above 15,000 square feet. The most active size segment for owner-users was 15,000-35,000

square feet. These owner-users were able to take advantage of low interest rates (4.0-5.0% during 2011) and

sale prices between $75-100/SF. Investors were also buying in the same price range with following notable

transactions: LBA purchased 237,000 square feet in the Carlsbad Research Center as part of a sale leaseback

to Callaway Golf, Peregrine bought 127,000 square feet of multi-tenant space in Carlsbad, Alliance Partners

purchased 200,000 square feet in Oceanside and Bixby Land Company bought the 170,000 square foot Palomar

Oaks Technology Park.

FORECAST

We anticipate the North County industrial market to perform similarly to how it did in 2011. This means lease

rates will remain stable across product types and sizes, while North County vacancy could shed another 100-

125 basis points. Consequently, we should continue to see a reduction in supply throughout 2012, as there is

no additional industrial product under construction. As demand improves, the result will be an increase in lease

rates and fewer tenant concessions.

The improving economy and limited product in North County should result in a slight increase in real estate

prices in 2012, and a modest increase in property sales. Further supporting this trend is the Lenders willingness

to modify and extend problem loans, which has signi cantly limited the amount of distressed properties in the

market. We will continue to see investment dollars waiting for lender controlled properties, as well as Sellers

that are in a relatively healthy position, continuing to wait for the eventual Buyer.

AT A GLANCE | Q4 2011 | INDUSTRIAL | NORTH COUNTY

prepared by ADAM MOLNAR, GREG LEWIS, TUCKER HOHENSTEIN

MIKE ERWIN, MIKE BENCH 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.


OVERVIEW

Carlsbad rebounded from a negative 3Q 2011 and nished the year on a positive note

by posting 93,000 square feet of absorption in 4Q 2011. However, the overall statistics

for 2011 reveal a fairly at year with a modest 18,615 square feet of positive absorption.

Compared to one year ago the overall vacancy rate for Industrial/R&D increased by one

percentage point to 14.14%. Despite having a higher overall vacancy rate (15.37% versus

12.81%), R&D product vastly outperformed Industrial in 2011 by posting a positive gain

of 214,000 square feet versus 195,717 square feet of negative absorption. The only

new construction delivered in 2011 was the 176,000 SF BTS for Isis Pharmaceuticals at

Carlsbad Oaks North.

ACTIVITY

For the second straight quarter the 15,000 to 25,000 square foot segment of the R&D

market led the charge in terms of leasing activity with ve transactions during 4Q 2011.

The largest lease deal of the quarter, and the year for that matter, was the 150,000 SF

sublease to SKLZ at 2081 Faraday Avenue. The sublessor was Callaway Golf and the

sublease expires in November 2017. SKLZ will be relocating and expanding from their

current facility in Carlsbad and will use the building primarily for distribution. The only

sale transaction in 4Q was an investment sale between Bixby Land Company and Arden

Realty. Bixby purchased the 170,915 square foot Palomar Oaks Technology Park for a

blended rate of $92.44/SF. The project was approximately 50% leased at the time of the

sale and consists of ve R&D properties valued at $75.00/SF and one o ce property at

$133.00/SF.

FORECAST

With no new product proposed

or planned during 2012 the

market should begin to correct

itself and vacancy rates are

expected to decrease. Rental

rates for the most part have

leveled o after a prolonged

decline. Sale prices for the

limited amount of investment

product are still well below

replacement cost and the

occasional bank owned

properties have provided

opportunistic owner users a rare chance to buy at a signi cant discount. These low

prices for lender controlled properties have created a large disparity between distressed

and traditional pricing expectations. Sellers that are in a relatively healthy position have

been somewhat frustrated by this disconnect which has engendered stagnation in the

market.

MARKET INDICATORS




10.9%

8.6%

7.1%

17.1%

6.2%

14.1%

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

Vacancy R

ate

SF (

00

0s)


CARLSBAD HISTORICAL MARKET TRENDS INDUSTRIAL/R&D VACANCY RATES Q4 2011



Ocean

Oceanside

Vista

SanMarcosCarlsbad

Q42011

Q12012 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

LEASE CONCESSIONS

CARLSBADAT A GLANCE

Carlsbad

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

1 Palomar Oaks Technology Park Investor 170,915 $15,800,000 $92.44

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

2 2081 Faraday Avenue SKLZ 150,159 69 months $0.60 NNN

3 2721 Loker Avenue Blue Earth, Inc. 20,329 72 months $1.03 NNN

4 1890 Rutherford Road Genoptix, Inc. 20,108 38 months $1.81 NNN

5 1905 Aston Avenue Ryderz Compound, LLC 19,794 52 months $0.87 NNN

6 1815 Aston Avenue JetHead Development, Inc. 17,776 36 months $1.29 MG

7 6197 El Camino Real ViaSat, Inc. 15,303 62 months $0.97 NNN

SALES ACTIVITY

LEASING ACTIVITY

TRANSACTION ACTIVITY - Q4 2011

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

7









AT A GLANCE | Q4 2011 | INDUSTRIAL | CARLSBAD


OVERVIEW

Escondido closed 2011 with the lowest vacancy rate of any city in North San Diego

County. Year end direct vacancy was 6.0%. The good news continued with positive net

absorption for both the fourth quarter and the year. The fourth quarter ended with 25,184

SF of positive net absorption which delivered a year -end total of 128,536 SF. There is

no new industrial building or ex construction underway at this time. 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 summer 2102.

ACTIVITY

Transaction activity in Escondido the past quarter was limited to one mid-size lease for

the market, two sales and several smaller lease deals. VIT Products leased 26,664 SF at

2344 Auto Park Way taking down a building that had been empty for over 2 years. There

was an REO sale of an 11,264SF building at 1250 Industrial Avenue for $84 SF. The other

sale was for a 10,120 SF building at 1200 Simpson Way for $130 SF. A handful of smaller

multi-tenant leases from 1,000 to 3,000 SF were completed to end 2011 on a good note.

FORECAST

The road ahead is bright for Escondido. With a healthy vacancy rate of just 6% there will

be upward pressure on rental rates and sale prices in 2012. The economy is showing

signs of recovery and increases in employment 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




10.9%

8.6%

7.1%

17.1%

6.2%

14.1%

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

Vacancy R

ate

SF (

00

0s)


ESCONDIDO HISTORICAL MARKET TRENDS NORTH COUNTY NET ABSORPTION TRENDS

5-Yr. Avg. = 104,234 SF

NORTH COUNTY HISTORICAL MARKET TRENDS

Ocean

SanMarcos

Oceanside

Vista

Escondido

Carlsbad

Q42011

Q12012 (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

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

1 1250 Industrial Avenue User 11,264 $950,000 $84.34

2 1200 Simpson Way User 10,120 $1,316,500 $130.09


3 2344 Auto Park Way VIT Products 26,664 48 months $0.47 Gross

SALES ACTIVITY

LEASING ACTIVITY










AT A GLANCE | Q4 2011 | INDUSTRIAL | ESCONDIDO


OVERVIEW

While Oceanside still maintains the highest vacancy rate in North County at 17.1%,

175,000 square feet of positive net absorption during 2011 demonstrates that large

corporations continue to relocate to Oceanside. They are taking advantage of attractive

rental rates and the high corporate image that Oceanside o ers.

With 25 buildings in excess of 15,000 SF currently available, landlords are aggressively

pursuing users in the market and looking for ways to di erentiate their real estate from

the competition.

ACTIVITY

There were no building sales

larger than 15,000 SF during

the fourth quarter. There

were 5 buildings sold in the

quarter less than 15,000 SF.

Land activity is bolstered by

U.S. Food Service, which is

planning to close escrow on

29 acres in Ocean Ranch in

February 2012. They plan on

holding the land for the next

3-5 years before constructing

a 400,000 – 500,000 SF

build-to-suit.

Lease transaction activity was relatively slow. A signi cant surge came late in the

quarter from Solar Gard, proving to be Oceanside’s most signi cant new lease

transaction completed. Solar Gard which is a subsidiary of Saint Gobain leased 35,463

SF for ve years at 1865 Ord Way in the Prescott Industrial Park. They plan to utilize

the manufacturing facility as an expansion for their automotive window lm business.

Occupancy is contingent upon a conditional use permit through the city that is expected to

occur early rst quarter of 2012.

FORECAST

Oceanside has started the year strongly with two notable rst quarter 2012 transactions.

La Cantina Doors recently leased 66,780 SF for 5 years at 2817 Ocean Ranch Blvd in the

La Paci ca Business Park. Brixton, Ltd has leased 22,666 SF for 3 years at 1340 Rocky

Point Drive in the Paci c Coast Business Park. This has created a positive buzz within

the business community. We expect leasing to double in the rst quarter of 2012 with 3

signi cant companies exploring Oceanside’s opportunities at this time.

MARKET INDICATORS




10.9%

8.6%

7.1%

17.1%

6.2%

14.1%

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

Vacancy R

ate

SF (

00

0s)



Ocean

Oceanside

Vista

SanMarcosCarlsbad

Q42011

Q12012 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

LEASE CONCESSIONS

OCEANSIDEAT A GLANCE

Oceanside


There were no buildings sales larger than 15,000SF during Q4

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

1 2817 Ocean Ranch Boulevard La Cantina Doors 66,780 60 months $0.55/NNN

2 1865 Ord Way Solar Gard - Saint Gobain 35,463 60 months $0.54/NNN

3 1340 Rocky Point Drive Brixton 22,666 36 months $0.59/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

AT A GLANCE | Q4 2011 | INDUSTRIAL | OCEANSIDE










OVERVIEW

The San Marcos industrial market continues to improve as Q4 followed the positive trends

of Q3, which included more companies leasing space, resulting in additional positive

absorption and an overall reduction in vacancy. Vacancy decreased from 8.9% to 7.10%

between Q3 and Q4, and year-end absorption was a positive 103,417 square feet.

ACTIVITY

Leasing activity mainly consisted of small tenants in multi-tenant parks and a few notable

transactions such as Crescent Electric’s 30,000 square foot lease at 295 Distribution

Street. Crescent Electric Supply Company is one of the largest independent distributors

of electrical hardware and supplies in the U.S. Based in East Dubuque, Illinois, Crescent

Electric has 120 distribution facilities in 27 states. Another notable lease transaction was

the approximately 16,000 square foot lease by Piercan USA, Inc., which is a latex glove

company with headquarters in Paris, France and San Marcos, California.

There were limited sales during the Q4, mainly smaller buildings under 10,000 square feet.

Prices maintained its recent levels at approximately $90 - $120/SF.

FORECAST

We should continue to see a reduction in supply throughout 2012 as there is no additional

industrial product under construction, combined with the City’s elimination of some

industrial zoned real estate. We also expect an uptick in demand as overall improvement in

local consumer con dence continues to absorb available product.

MARKET INDICATORS




10.9%

8.6%

7.1%

17.1%

6.2%

14.1%

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

Vacancy R

ate

SF (

00

0s)


SAN MARCOS HISTORICAL MARKET TRENDS

Ocean

Oceanside

Vista

SanMarcos

Escondido

Carlsbad

Q42011

Q12012 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

LEASE CONCESSIONS

SAN MARCOSAT A GLANCE

San Marcos


There were no buildings sales larger than 15,000 SF during Q4


1 1740 La Costa Meadows San Diego Rock Church 15,400 36 months $0.80 GRS

2 295 Distribution Street Crescent Electric 30,140 60 months $0.58 GRS

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

Valley R

d

S T

win

Oaks V

alley R

d

San E

lijo

Rd

San E

lijo

Rd

San Elijo RdSan Elijo Rd

Armorlite Dr

Armorlite Dr

Ranc

ho S

anta

Fe 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 | Q4 2011 | INDUSTRIAL | SAN MARCOS


OVERVIEW

Vista’s 23,000 square feet of net absorption during Q4 helped continue the positive

trend that began in Q3. The Vista industrial market nished 2011 with a total of 141,000

square feet of positive net absorption as compared with 68,000 square feet during

2010. Vacancy decreased by 1.2% to end the year at 8.64%, which equates to 1.15 million

square feet vacant space with a total market size of 13.37 million square feet.

ACTIVITY

During Q4 there were two leases and zero sales that occurred in buildings/spaces larger

than 15,000 square feet. This limited activity made up the majority of this quarter’s

absorption. Progressive Molding leased 36,000 square feet at 991 Park Center and

Electro-graph leased 26,000 square feet at 1491 Poinsettia.

2011 saw a slight uptick in transaction volume* with 12 leases and 5 sales completed

compared to the 5-year moving average of 11 lease transactions and 4 sale transactions.

This increase – in conjunction with positive net absorption – tells us the market is

improving, albeit slowly.

FORECAST

Unless meaningful job growth

occurs during 2012, we anticipate

the market to perform similar

to how it did in 2011. This

means lease rates will remain

stable across product types and

sizes, while vacancy could shed

another 100-125 basis points (the

equivalent of 130-160k of positive

net absorption). Building sale

values could get interesting as we

enter 2012 with many of the same

buildings that were on the market

in 2011. Some of the sellers have

become impatient and dropped prices in hopes of generating demand. Examples of this

include: 2390 Oak Ridge (39,000 square feet), which Bank of America is selling to an

investor in the low $70’s/SF and 1081 Poinsettia (65,000 square feet), which the seller

has now dropped the asking price to $79/SF. These prices are reminiscent of values 9+

years ago (2000-2003). It’s a good time to be a buyer, but presently there are only a few

willing sellers at these numbers. There is a market price gap with the majority of good

quality product still being o ered in the $90-$100/SF range.

* measured using only buildings and spaces larger than 15,000 square feet.

MARKET INDICATORS




10.9%

8.6%

7.1%

17.1%

6.2%

14.1%

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 2011V

acancy R

ate

SF (

00

0s)




Q42011

Q12012 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

LEASE CONCESSIONS

Ocean

Oceanside

Vista

SanMarcosCarlsbad

VISTAAT A GLANCE

Vista


There were no buildings sales larger than 15,000SF during Q4


1 991 Park Center Drive Progressive Moldings 36,000 60 months $0.53 GRS

2 1491 Poinsettia Avenue Electro-graph 26,978 96 months $0.68 NNN

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 AveLionshead Ave

Palomar Airport R

d

Poin

settia

Ave

Poin

settia

Ave

Shadowridge

Golf Course

Shadowridge

Residential

Business Park D

r

Business Park D

r

Faraday AveFaraday Ave

AT A GLANCE | Q4 2011 | 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

Vaca

ncy

Rate

SF (M

illio

ns)


NEW SUPPLY, ABSORPTION AND VACANCY RATES

7.3%

10.4%

10.0%

9.9%

20.5%

12.6%

15.1%

15.4%

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

I-15 Corridor

North County

Central County

S.D. County

R&D Industrial

INDUSTRIAL VACANCY RATES Q4 2011

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

$ /

SF /

Mon

th (N

NN

)

Industrial R&D Combined

HISTORICAL RENTAL RATE TRENDS Industrial, R&D and Combined Rates Quarterly Average Asking Rate Per SF Per Month (NNN)

41.8%

35.6%

11.7% 6.7%

4.2% <= 2,000 SF [168]

2,001 - 5,000 SF [143]

5,001 - 10,000 SF [47]

10,001 - 20,000 SF [27]

>= 20,001 SF [17]

INDUSTRIAL LEASING ACTIVITY BY TENANT SIZE Percentage of Total Leases Completed in Q4 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

Vaca

ncy

Rate

SF (M

illio

ns)



7.3%

10.4%

10.0%

9.9%

20.5%

12.6%

15.1%

15.4%

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

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

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

$ /

SF /

Mon

th (N

NN

)



41.8%

35.6%

11.7% 6.7%

4.2% <= 2,000 SF [168]

2,001 - 5,000 SF [143]

5,001 - 10,000 SF [47]

10,001 - 20,000 SF [27]

>= 20,001 SF [17]


rENtAl rAtES

Since a historical high point in Q3 2008, the countywide average asking rental rate for combined industrial and R&D space had been steadily decreasing for one-and-a-half years. a reversal in this trend commenced in Q2 2011 with the average rate gaining nearly 4% over three quarters. The Q4 average rate of $0.83 is still 16% less than the historical high.

lEASING ActIVItY

Over 400 leases were completed in Q4 totaling nearly 2.3 million square feet. Over three-quarters all leases were 5,000 SF or less. While only 11% of all leases were over 10,000 SF in size, this category has the largest influence on overall net absorption.

www.colliers.com/sandiego

maRKET REpORTSAN DIEGO cOUNtY


Q4 absorption drives most of 2011’s meager demandMArKEt OVErVIEW

Demand continued to improve in Q4 as positive net absorption was recorded totaling over 180,000 square feet in San Diego County. This continued the trend of countywide industrial improvement that was disrupted in Q2 when approximately 298,000 square feet of negative net absorption was recorded. prior to Q2, the four previous quarters each posted positive demand. The relatively low magnitude of net absorption over the last couple of quarters indicates the industrial market will continue to progress in the direction of slow and steady recovery for the foreseeable future. The overall countywide average asking rent increased slightly the last three quarters suggesting that for the most part, rents have bottomed out and are generally trending upward. not all submarkets and/or industrial and R&D building uses are following this trend though.

The november 2011 San Diego County unemployment rate measured 9.2% – a 0.5% decrease from the previous month. The California unemployment rate decreased in november and stood at 10.9% while the national rate decreased to 8.2%. as of november 2011, San Diego County experienced a year-over-year increase in non-farm employment totaling 26,600 jobs. The combined industry sectors of “Trade, Transportation, and Utilities” and “manufacturing” – the two predominant industrial-utilizing employment sectors – posted a net increase of 5,000 jobs over the same period.

in October, the USD index of Leading Economic indicators for San Diego posted a 0.2% decrease. For the first ten months of 2011, the index increased by 4.7% 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. October’s decrease was driven by significant decreases in local consumer confidence and authorized residential building permits.

MArKEt trENDS

positive demand drove countywide net absorption to over 180,000 square feet in Q4 for a total of 236,000 square feet in 2011. Only 202,000 square feet of new construction was finished in 2011 with nothing completed in Q4.

MArKEt INDIcAtOrS

INDUStrIAl VAcANcY rAtESQ4 2011

Q4 2011 Q1 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

Vaca

ncy

Rate

SF (M

illio

ns)



7.3%

10.4%

10.0%

9.9%

20.5%

12.6%

15.1%

15.4%

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

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

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

$ /

SF /

Mon

th (N

NN

)



41.8%

35.6%

11.7% 6.7%

4.2% <= 2,000 SF [168]

2,001 - 5,000 SF [143]

5,001 - 10,000 SF [47]

10,001 - 20,000 SF [27]

>= 20,001 SF [17]


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

Vaca

ncy

Rate

SF (M

illio

ns)



7.3%

10.4%

10.0%

9.9%

20.5%

12.6%

15.1%

15.4%

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

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

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

$ /

SF /

Mon

th (N

NN

)



41.8%

35.6%

11.7% 6.7%

4.2% <= 2,000 SF [168]

2,001 - 5,000 SF [143]

5,001 - 10,000 SF [47]

10,001 - 20,000 SF [27]

>= 20,001 SF [17]


of Campus point/Eastgate and Torrey pines. Otay mesa – with over 197,000 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 due in part 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 very little to affect vacancy to a significant degree. Conditions are not likely to be much better in 2012 so vacancy should settle at or near 11% by year-end.

NEW SUPPlY no new construction was completed in Q4. Only 202,340 square feet was completed countywide during all of 2011. This included

a 176,000-square-foot build-to-suit for isis pharmaceuticals in Carlsbad and a 26,340-square-foot build-to-suit for Hidden Valley Transfer in Escondido.

There is 253,245 square feet under construction that is all expected to be completed in 2012. This includes a 129,845-square-foot build-to-suit for HOiST Fitness in poway and a 123,400-square-foot additional building in the illumina campus in the Campus point/Eastgate submarket.

proposed new development totals about 7.52 million square feet 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 | Q4 2011 | INDUSTRIAL | SAN DIEGO COUNTY

SAN DIEGO cOUNtY

The San Diego County industrial/R&D market is comprised of 188.3 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

4000 Ruffin Road Kearny Mesa Industrial 424,766 $50,000,000 $118

Wateridge Summit Sorrento Mesa Wet Lab 106,490 $46,500,000 $437

16550 Via Esprillo Rancho Bernardo R&D 165,600 $26,500,000 $160

Kearny Villa Center Kearny Mesa Industrial 103,108 $23,000,000 $223

Palomar Oaks Tech Park Carlsbad R&D 172,553 $15,800,000 $92

PROPERTY NAME/ADDRESS SUBMARKET TYPE SIZE SF

10300 Campus Point Drive Campus Point Wet Lab 192,832 Celgene

2081 Faraday Avenue Carlsbad R&D 150,159 SKLZ

4605-4649 Morena Boulevard Morena Industrial 88,619

5823 Newton Drive Carlsbad Industrial 47,548

10864 Thornmint Road Rancho Bernardo R&D 38,613 General Atomics


SALES ACTIVITY

LEASING ACTIVITY

Callaway Golf

TENANT NAME

Floor & Décor Outlets of America

NEt ABSOrPtION Q4 combined industrial/R&D net absorption totaled a positive 180,204 square feet. This brought the total to 236,197 square feet of positive absorption for the year. This equaled a nearly 82% decrease in demand compared to 2010. Countywide net absorption for industrial space (manufacturing, warehouse, distribution, and multi-tenant/incubator building uses) totaled a positive 471,078 square feet and R&D space (flex, wet lab and corporate headquarters building uses) totaled a negative 290,874 square feet.

Significant positive net absorption occurred in the north County market where San marcos (103,838 SF) and Carlsbad (93,652 SF) were two strongest submarkets countywide in Q4. Conversely, Campus point/Eastgate (-139,813 SF) and Scripps Ranch (-117,557 SF) put the most space back onto the market.

Leasing activity totaled approximately 2.26 million square feet in Q4. Quarterly leasing activity has averaged 2.61 million square feet for the last four quarters, but most of this activity has been centered on lease renewals. Q4 leasing activity was 21% less than the previous quarter and at its lowest level in nearly three years. Because of this, it can be expected that net absorption will

remain generally low – but still positive – during at least the first half of 2012.

after ten consecutive quarters of decreasing average asking rental rates, $0.01 per-square-foot increases were recorded in Q2, Q3 and Q4. The countywide average monthly asking rent for combined industrial/R&D space reached $0.83 per square foot in Q4 with no net change in the rate for 2011.

VAcANcY The Q4 overall vacancy rate decreased by 9 basis points to stand at 11.5%. The industrial and R&D vacancy components measured 9.9% and 15.4%, respectively. Compared to one year ago, R&D vacancy has increased by 102 basis points (14.4% in Q4 2010) while industrial vacancy has decreased by 18 basis points (10.1% in Q4 2010).

The Q4 combined industrial/R&D direct vacancy rate was 10.8% compared to 10.9% at the end of Q3. Sublease vacancy ticked up by 5 basis points to 0.8% in Q4. Vacant sublease space made up 1.5 million square feet countywide. Over one-third of all this space is concentrated in wet lab and R&D space in the Golden Triangle submarkets

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 3,053 81,745,519 9.5% 0.5% 10.0% 10.2% 176,251 (25,701) 0 0 2,361,960 $0.63North County 2,190 40,293,196 10.4% 0.0% 10.4% 11.0% 234,073 321,416 0 0 1,315,951 $0.72I-15 Corridor 302 10,569,503 6.9% 0.4% 7.3% 7.9% 60,754 167,557 0 129,845 382,900 $0.87TOTAL 5,545 132,608,218 9.6% 0.3% 9.9% 10.2% 471,078 463,272 0 129,845 4,060,811 $0.68R&D TOTALS BY MARKET Flex, wet lab and corporate headquartersCentral County 823 34,381,380 12.9% 2.2% 15.1% 14.4% (236,891) (329,367) 0 123,400 1,517,633 $1.12North County 347 12,017,146 12.3% 0.3% 12.6% 12.7% 8,908 245,346 0 0 1,331,674 $1.06I-15 Corridor 134 9,331,288 18.1% 2.4% 20.5% 19.8% (62,891) (143,054) 0 0 605,000 $1.01TOTAL 1,304 55,729,814 13.6% 1.8% 15.4% 14.9% (290,874) (227,075) 0 123,400 3,454,307 $1.08COMBINED INDUSTRIAL / R&D BY MARKET AND SUBMARKETCentral CountyAirport / SA 76 1,878,846 1.3% 0.0% 1.3% 1.5% 4,252 13,432 0 0 0 $0.68Campus Pt / Egate 42 4,065,259 16.1% 10.1% 26.1% 22.7% (139,813) (219,712) 0 123,400 601,967 $2.80Central San Diego 397 8,377,286 5.0% 0.6% 5.6% 6.1% 45,036 15,019 0 0 0 $0.60East County 604 14,145,674 7.7% 0.1% 7.8% 7.9% 6,774 (189,516) 0 0 1,229,000 $0.67Kearny Mesa 650 17,391,588 5.9% 0.6% 6.5% 6.3% (38,169) (80,017) 0 0 65,691 $0.94Miramar 586 13,792,057 10.9% 0.4% 11.4% 11.7% 40,342 59,754 0 0 0 $0.86Mission Gorge / Vly 95 2,273,798 9.7% 3.5% 13.2% 12.6% (12,142) (94,241) 0 0 0 $0.85Otay Mesa 293 14,581,198 21.6% 1.4% 23.0% 23.1% 25,897 105,615 0 0 1,619,960 $0.48Rose Cyn / Morena 189 4,140,283 3.9% 0.0% 3.9% 3.7% (7,184) 102,247 0 0 0 $0.71Sorrento Mesa 273 13,495,940 13.8% 0.4% 14.2% 14.3% 15,773 26,544 0 0 229,136 $1.07Sorrento Valley 106 3,411,705 9.6% 2.0% 11.6% 14.4% (6,901) (21,048) 0 0 0 $1.43South Bay 498 13,557,006 7.5% 0.0% 7.5% 7.7% 23,722 (61,684) 0 0 0 $0.59Torrey Pines 67 5,016,259 14.4% 2.0% 16.3% 16.0% (18,227) (11,461) 0 0 133,839 N/ATOTAL 3,876 116,126,899 10.5% 1.0% 11.5% 11.4% (60,640) (355,068) 0 123,400 3,879,593 $0.79North CountyCarlsbad 485 15,011,955 14.0% 0.2% 14.1% 14.8% 93,652 18,615 0 0 1,239,832 $1.02Escondido 637 7,183,097 6.0% 0.1% 6.2% 6.5% 25,184 128,536 0 0 30,000 $0.75Oceanside 396 8,038,044 17.0% 0.1% 17.1% 17.1% (2,840) 175,138 0 0 1,227,361 $0.63San Marcos 489 8,703,364 7.1% 0.0% 7.1% 8.3% 103,838 103,417 0 0 53,000 $0.86Vista 530 13,373,882 8.6% 0.0% 8.6% 8.8% 23,147 141,056 0 0 97,432 $0.69TOTAL 2,537 52,310,342 10.8% 0.1% 10.9% 11.4% 242,981 566,762 0 0 2,647,625 $0.82I-15 CorridorPoway 215 8,196,473 3.8% 0.6% 4.3% 4.9% 49,623 104,733 0 129,845 447,900 $0.78Rancho Bernardo 146 9,559,699 17.6% 0.5% 18.1% 18.8% 65,797 114,218 0 0 0 $1.01Scripps Ranch 75 2,144,619 19.6% 8.1% 27.7% 22.2% (117,557) (194,448) 0 0 540,000 $0.97TOTAL 436 19,900,791 12.1% 1.4% 13.5% 13.5% (2,137) 24,503 0 129,845 987,900 $0.95SAN DIEGO COUNTY COMBINED INDUSTRIAL / R&DTOTAL 6,849 188,338,032 10.8% 0.8% 11.5% 11.6% 180,204 236,197 0 253,245 7,515,118 $0.83QUARTERLY COMPARISONQ4 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 $0.80Q4 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 $0.83

* 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

Q4 2011

P. 2 | cOllIErS INtErNAtIONAl


SAN DIEGO cOUNtY

The San Diego County industrial/R&D market is comprised of 188.3 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

4000 Ruffin Road Kearny Mesa Industrial 424,766 $50,000,000 $118

Wateridge Summit Sorrento Mesa Wet Lab 106,490 $46,500,000 $437

16550 Via Esprillo Rancho Bernardo R&D 165,600 $26,500,000 $160

Kearny Villa Center Kearny Mesa Industrial 103,108 $23,000,000 $223

Palomar Oaks Tech Park Carlsbad R&D 172,553 $15,800,000 $92

PROPERTY NAME/ADDRESS SUBMARKET TYPE SIZE SF

10300 Campus Point Drive Campus Point Wet Lab 192,832 Celgene

2081 Faraday Avenue Carlsbad R&D 150,159 SKLZ

4605-4649 Morena Boulevard Morena Industrial 88,619

5823 Newton Drive Carlsbad Industrial 47,548

10864 Thornmint Road Rancho Bernardo R&D 38,613 General Atomics


SALES ACTIVITY

LEASING ACTIVITY

Callaway Golf

TENANT NAME

Floor & Décor Outlets of America

NEt ABSOrPtION Q4 combined industrial/R&D net absorption totaled a positive 180,204 square feet. This brought the total to 236,197 square feet of positive absorption for the year. This equaled a nearly 82% decrease in demand compared to 2010. Countywide net absorption for industrial space (manufacturing, warehouse, distribution, and multi-tenant/incubator building uses) totaled a positive 471,078 square feet and R&D space (flex, wet lab and corporate headquarters building uses) totaled a negative 290,874 square feet.

Significant positive net absorption occurred in the north County market where San marcos (103,838 SF) and Carlsbad (93,652 SF) were two strongest submarkets countywide in Q4. Conversely, Campus point/Eastgate (-139,813 SF) and Scripps Ranch (-117,557 SF) put the most space back onto the market.

Leasing activity totaled approximately 2.26 million square feet in Q4. Quarterly leasing activity has averaged 2.61 million square feet for the last four quarters, but most of this activity has been centered on lease renewals. Q4 leasing activity was 21% less than the previous quarter and at its lowest level in nearly three years. Because of this, it can be expected that net absorption will

remain generally low – but still positive – during at least the first half of 2012.

after ten consecutive quarters of decreasing average asking rental rates, $0.01 per-square-foot increases were recorded in Q2, Q3 and Q4. The countywide average monthly asking rent for combined industrial/R&D space reached $0.83 per square foot in Q4 with no net change in the rate for 2011.

VAcANcY The Q4 overall vacancy rate decreased by 9 basis points to stand at 11.5%. The industrial and R&D vacancy components measured 9.9% and 15.4%, respectively. Compared to one year ago, R&D vacancy has increased by 102 basis points (14.4% in Q4 2010) while industrial vacancy has decreased by 18 basis points (10.1% in Q4 2010).

The Q4 combined industrial/R&D direct vacancy rate was 10.8% compared to 10.9% at the end of Q3. Sublease vacancy ticked up by 5 basis points to 0.8% in Q4. Vacant sublease space made up 1.5 million square feet countywide. Over one-third of all this space is concentrated in wet lab and R&D space in the Golden Triangle submarkets

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 3,053 81,745,519 9.5% 0.5% 10.0% 10.2% 176,251 (25,701) 0 0 2,361,960 $0.63North County 2,190 40,293,196 10.4% 0.0% 10.4% 11.0% 234,073 321,416 0 0 1,315,951 $0.72I-15 Corridor 302 10,569,503 6.9% 0.4% 7.3% 7.9% 60,754 167,557 0 129,845 382,900 $0.87TOTAL 5,545 132,608,218 9.6% 0.3% 9.9% 10.2% 471,078 463,272 0 129,845 4,060,811 $0.68R&D TOTALS BY MARKET Flex, wet lab and corporate headquartersCentral County 823 34,381,380 12.9% 2.2% 15.1% 14.4% (236,891) (329,367) 0 123,400 1,517,633 $1.12North County 347 12,017,146 12.3% 0.3% 12.6% 12.7% 8,908 245,346 0 0 1,331,674 $1.06I-15 Corridor 134 9,331,288 18.1% 2.4% 20.5% 19.8% (62,891) (143,054) 0 0 605,000 $1.01TOTAL 1,304 55,729,814 13.6% 1.8% 15.4% 14.9% (290,874) (227,075) 0 123,400 3,454,307 $1.08COMBINED INDUSTRIAL / R&D BY MARKET AND SUBMARKETCentral CountyAirport / SA 76 1,878,846 1.3% 0.0% 1.3% 1.5% 4,252 13,432 0 0 0 $0.68Campus Pt / Egate 42 4,065,259 16.1% 10.1% 26.1% 22.7% (139,813) (219,712) 0 123,400 601,967 $2.80Central San Diego 397 8,377,286 5.0% 0.6% 5.6% 6.1% 45,036 15,019 0 0 0 $0.60East County 604 14,145,674 7.7% 0.1% 7.8% 7.9% 6,774 (189,516) 0 0 1,229,000 $0.67Kearny Mesa 650 17,391,588 5.9% 0.6% 6.5% 6.3% (38,169) (80,017) 0 0 65,691 $0.94Miramar 586 13,792,057 10.9% 0.4% 11.4% 11.7% 40,342 59,754 0 0 0 $0.86Mission Gorge / Vly 95 2,273,798 9.7% 3.5% 13.2% 12.6% (12,142) (94,241) 0 0 0 $0.85Otay Mesa 293 14,581,198 21.6% 1.4% 23.0% 23.1% 25,897 105,615 0 0 1,619,960 $0.48Rose Cyn / Morena 189 4,140,283 3.9% 0.0% 3.9% 3.7% (7,184) 102,247 0 0 0 $0.71Sorrento Mesa 273 13,495,940 13.8% 0.4% 14.2% 14.3% 15,773 26,544 0 0 229,136 $1.07Sorrento Valley 106 3,411,705 9.6% 2.0% 11.6% 14.4% (6,901) (21,048) 0 0 0 $1.43South Bay 498 13,557,006 7.5% 0.0% 7.5% 7.7% 23,722 (61,684) 0 0 0 $0.59Torrey Pines 67 5,016,259 14.4% 2.0% 16.3% 16.0% (18,227) (11,461) 0 0 133,839 N/ATOTAL 3,876 116,126,899 10.5% 1.0% 11.5% 11.4% (60,640) (355,068) 0 123,400 3,879,593 $0.79North CountyCarlsbad 485 15,011,955 14.0% 0.2% 14.1% 14.8% 93,652 18,615 0 0 1,239,832 $1.02Escondido 637 7,183,097 6.0% 0.1% 6.2% 6.5% 25,184 128,536 0 0 30,000 $0.75Oceanside 396 8,038,044 17.0% 0.1% 17.1% 17.1% (2,840) 175,138 0 0 1,227,361 $0.63San Marcos 489 8,703,364 7.1% 0.0% 7.1% 8.3% 103,838 103,417 0 0 53,000 $0.86Vista 530 13,373,882 8.6% 0.0% 8.6% 8.8% 23,147 141,056 0 0 97,432 $0.69TOTAL 2,537 52,310,342 10.8% 0.1% 10.9% 11.4% 242,981 566,762 0 0 2,647,625 $0.82I-15 CorridorPoway 215 8,196,473 3.8% 0.6% 4.3% 4.9% 49,623 104,733 0 129,845 447,900 $0.78Rancho Bernardo 146 9,559,699 17.6% 0.5% 18.1% 18.8% 65,797 114,218 0 0 0 $1.01Scripps Ranch 75 2,144,619 19.6% 8.1% 27.7% 22.2% (117,557) (194,448) 0 0 540,000 $0.97TOTAL 436 19,900,791 12.1% 1.4% 13.5% 13.5% (2,137) 24,503 0 129,845 987,900 $0.95SAN DIEGO COUNTY COMBINED INDUSTRIAL / R&DTOTAL 6,849 188,338,032 10.8% 0.8% 11.5% 11.6% 180,204 236,197 0 253,245 7,515,118 $0.83QUARTERLY COMPARISONQ4 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 $0.80Q4 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 $0.83

* 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

Q4 2011

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

Vaca

ncy

Rate

SF (M

illio

ns)



7.3%

10.4%

10.0%

9.9%

20.5%

12.6%

15.1%

15.4%

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

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

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

$ /

SF /

Mon

th (N

NN

)



41.8%

35.6%

11.7% 6.7%

4.2% <= 2,000 SF [168]

2,001 - 5,000 SF [143]

5,001 - 10,000 SF [47]

10,001 - 20,000 SF [27]

>= 20,001 SF [17]


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

Vaca

ncy

Rate

SF (M

illio

ns)



7.3%

10.4%

10.0%

9.9%

20.5%

12.6%

15.1%

15.4%

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

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

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

$ /

SF /

Mon

th (N

NN

)



41.8%

35.6%

11.7% 6.7%

4.2% <= 2,000 SF [168]

2,001 - 5,000 SF [143]

5,001 - 10,000 SF [47]

10,001 - 20,000 SF [27]

>= 20,001 SF [17]


rENtAl rAtES

Since a historical high point in Q3 2008, the countywide average asking rental rate for combined industrial and R&D space had been steadily decreasing for one-and-a-half years. a reversal in this trend commenced in Q2 2011 with the average rate gaining nearly 4% over three quarters. The Q4 average rate of $0.83 is still 16% less than the historical high.

lEASING ActIVItY

Over 400 leases were completed in Q4 totaling nearly 2.3 million square feet. Over three-quarters all leases were 5,000 SF or less. While only 11% of all leases were over 10,000 SF in size, this category has the largest influence on overall net absorption.


maRKET REpORTSAN DIEGO cOUNtY


Q4 absorption drives most of 2011’s meager demandMArKEt OVErVIEW

Demand continued to improve in Q4 as positive net absorption was recorded totaling over 180,000 square feet in San Diego County. This continued the trend of countywide industrial improvement that was disrupted in Q2 when approximately 298,000 square feet of negative net absorption was recorded. prior to Q2, the four previous quarters each posted positive demand. The relatively low magnitude of net absorption over the last couple of quarters indicates the industrial market will continue to progress in the direction of slow and steady recovery for the foreseeable future. The overall countywide average asking rent increased slightly the last three quarters suggesting that for the most part, rents have bottomed out and are generally trending upward. not all submarkets and/or industrial and R&D building uses are following this trend though.

The november 2011 San Diego County unemployment rate measured 9.2% – a 0.5% decrease from the previous month. The California unemployment rate decreased in november and stood at 10.9% while the national rate decreased to 8.2%. as of november 2011, San Diego County experienced a year-over-year increase in non-farm employment totaling 26,600 jobs. The combined industry sectors of “Trade, Transportation, and Utilities” and “manufacturing” – the two predominant industrial-utilizing employment sectors – posted a net increase of 5,000 jobs over the same period.

in October, the USD index of Leading Economic indicators for San Diego posted a 0.2% decrease. For the first ten months of 2011, the index increased by 4.7% 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. October’s decrease was driven by significant decreases in local consumer confidence and authorized residential building permits.

MArKEt trENDS

positive demand drove countywide net absorption to over 180,000 square feet in Q4 for a total of 236,000 square feet in 2011. Only 202,000 square feet of new construction was finished in 2011 with nothing completed in Q4.

MArKEt INDIcAtOrS

INDUStrIAl VAcANcY rAtESQ4 2011

Q4 2011 Q1 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

Vaca

ncy

Rate

SF (M

illio

ns)



7.3%

10.4%

10.0%

9.9%

20.5%

12.6%

15.1%

15.4%

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

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

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

$ /

SF /

Mon

th (N

NN

)



41.8%

35.6%

11.7% 6.7%

4.2% <= 2,000 SF [168]

2,001 - 5,000 SF [143]

5,001 - 10,000 SF [47]

10,001 - 20,000 SF [27]

>= 20,001 SF [17]


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

Vaca

ncy

Rate

SF (M

illio

ns)



7.3%

10.4%

10.0%

9.9%

20.5%

12.6%

15.1%

15.4%

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

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

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

$ /

SF /

Mon

th (N

NN

)



41.8%

35.6%

11.7% 6.7%

4.2% <= 2,000 SF [168]

2,001 - 5,000 SF [143]

5,001 - 10,000 SF [47]

10,001 - 20,000 SF [27]

>= 20,001 SF [17]


of Campus point/Eastgate and Torrey pines. Otay mesa – with over 197,000 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 due in part 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 very little to affect vacancy to a significant degree. Conditions are not likely to be much better in 2012 so vacancy should settle at or near 11% by year-end.

NEW SUPPlY no new construction was completed in Q4. Only 202,340 square feet was completed countywide during all of 2011. This included

a 176,000-square-foot build-to-suit for isis pharmaceuticals in Carlsbad and a 26,340-square-foot build-to-suit for Hidden Valley Transfer in Escondido.

There is 253,245 square feet under construction that is all expected to be completed in 2012. This includes a 129,845-square-foot build-to-suit for HOiST Fitness in poway and a 123,400-square-foot additional building in the illumina campus in the Campus point/Eastgate submarket.

proposed new development totals about 7.52 million square feet 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


Real Estate

Q4 2011 Industrial Report