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Slide 1: First Quarter 2010 • East Bay Office and Flex Space EMERYVILLE & OAKLAND OFFICES 5980 Horton Street, Suite 100 • Emeryville, CA 94608 • Tel: 510.923.6200 • Fax: 510.923.6260 10 Clay Street, Suite 250 • Oakland, CA 94607 • Tel: 510.995.3560 • 510.995.3561 www.ccarey.com
Slide 2: EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 TABLE OF CONTENTS Coverage Map East Bay Market Overview Office Market: Market Summary Market Highlights Historical Statistics East Bay Tenant Activity Tenants in the Market 1 2 5 6 7 9 10 Cornish & Carey Commercial East Bay Office and Flex Space Quarterly Report is based on a quarterly survey of competitive Office, and R&D buildings. The data included in this report incorporates not only space presently available on the market, but also space that we have been led to believe will come onto the market in the foreseeable future. Information contained herein has been given to us by the owner of the property or other sources we deem reliable. We have no reason to doubt its accuracy, but make no guarantee, warranty or representation about it. All information should be verified prior to lease or purchase.
Slide 3: EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 COVERAGE MAP 1
Slide 4: EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 EAST BAY MARKET OVERVIEW First Quarter, 2010 Office Summary The East Bay Office Market for the first quarter of 2010 can best be described as “flat”. For every square foot of space leased another became vacant as absorption across the entire 25 million square foot market was negative 25,991 square feet. Two of the largest leases signed were government tenants with the US Bankruptcy Courts’ renewal of their 38,000 square foot lease in Shorenstein’s City Center, while the Social Security Administration leased 35,000 square feet at 2100 Franklin, CIM’s newest building. The Social Security Administration will relocate from its current location in Downtown Richmond. Kaiser Permanente renewed a 65,000 square foot lease at Harbor Bay in Alameda. The vacancy rate for the East Bay remains steady at 20.27% and effective rates stayed about the same throughout most of the markets – it is still a great time to be a tenant as there are some great deals out there to be had. The market is experiencing a “flight to quality” where tenants can upgrade their spaces or move to a better building for the same rate or a lower rate than they had previously been paying. Market activity is good; we are presently tracking 68 tenants active in the market looking for a total of over one million square feet of space. On a bright note, toward the end of the first quarter we are beginning to see indicators that there may be some real growth in the economy, although in the East Bay much of this growth appears to be in the manufacturing sector. Alternative energy companies and solar power companies continue to be active in the market as venture capital and government stimulus monies are flowing to these industries. Emeryville’s Amyris, an alternative fuels company, has filed papers to begin their IPO process. The healthcare sector also is active as aging Baby Boomers drive growth in this sector. No new large blocks of sublease space were put on the market during the quarter. Sublease space only takes up 2.22% of the total vacancy of 20.27%, accounting for only about ten percent of the total vacant space in the market. Some observers question whether rents have much further distance to fall, we believe the answer is “not much if any”. Rents have fallen to the point of the “zero return transaction,” where the cost of the lease transaction and putting in tenant improvements and fees are equal to or close to the total net return that the Landlord will realize from the rental income stream. Most property owners will not go below this “zero return” threshold. On the investment side, no buildings of any significance traded except for 80 Swan Way in the Oakland Airport area. This 52,544 square foot 3-story office building was foreclosed upon and auctioned on the courthouse steps; the prevailing bidder paid $1,580,000 ($28.75 PSF). This building was originally put on the market by the owner at $4 million dollars, the CMBS loan balance was $3.2 million dollars. Downtown Oakland Downtown Oakland was the most active of the submarkets during the first quarter. The US Bankruptcy Court renewed their lease for 38,077 square feet at Shorenstein’s 1300 Clay Street. The University of California Office of the President renewed their 23,000 square foot lease on the 14th floor of 1111 Broadway, also a Shorenstein building. Offices of Ben Gerwick, Inc. took 14,996 square feet at 1300 Clay Street and DeVry University opened a new branch leasing 15,768 square feet at Shorenstein’s 505 14th Street. The Social Security Administration leased a floor and a half at CIM’s 2100 Franklin Street taking 35,000 square feet. This group will be relocating from their present location in Downtown Richmond. At the Swig Company’s 300 Lakeside building, law firm Foley & Mansfield leased a 23,000 square foot floor, relocating from 1111 Broadway at City Center. The Downtown Oakland Class A market commands the highest rents in the East Bay with most leases in the $2.65-$2.85 PSF range, fully serviced. Between Oakland’s two largest landlords, Shorenstein at City Center and CIM in the Lake Merritt area, they control over 60% of the inventory in the submarket. The only other building which changed hands in Oakland this quarter was the Pacific Building at 600-610 16th Street. AB Chestnut LC bought the building in a foreclosure sale for $4,436,106 or $67.24 PSF. This 4-story Class C structure was built in 1912. The Oakland Class A submarket absorbed a total of 77,162 square feet of space in the first quarter, perhaps indicating that the “flight to quality” phenomenon is actually occurring. Emeryville Software company Gracenote renewed and expanded its lease at US Bank’s 2000 Powell Street in Tower III of the Watergate Project. The tenant took a total of 48,000 square feet consisting of the entire 12th and 15th floors of 2
Slide 5: EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 the building. The Class A market had negative absorption of 34,141 square feet and the Class B market in Emeryville had a negative absorption of 46,826 square feet indicating a shrinkage of total space occupied across all product types. Class A rents in Emeryville currently are in the $2.00-$2.35 PSF range, fully serviced, which represents a discount to the Oakland markets of approximately $0.50 PSF. As mentioned previously, alternative energy innovator Amyris has filed papers to begin an IPO which is believed could occur in the second half of this year, indicating the health and strength of the capital flows for alternative energy. Random House leased 9,162 square feet in TMG Partners’ 6001 Shellmound. Class A vacancy in Emeryville is 20.12%, almost a third of which is sublease space. Jack London Square Ellis Partners’ new Jack London Market Building consisting of 110,000 square feet of Class A space and 65,000 square feet of public market and restaurants is shell complete and is scheduled to be opened in late 2010. The building is a creative mixed use project with a public market style gourmet market and sustainable cuisine on the first two levels of the building. Ellis Partners also completed a lease with solar installer Sungevity for 20,000 square feet on the 3rd (top) floor of their 66 Franklin Street building. Alameda Software maker Wind River Corporation was acquired by Intel. This tenant had been trying to sublease 125,000 square feet of space but has taken this space off of the market resulting in a positive absorption for the Marina Village submarket of 109,876 square feet. Biotech innovator Arriva Pharmaceuticals closed the doors on its business, putting 22,000 square feet of office/lab back on the market in Marina Village. Yang Ming Lines signed a lease at Legacy’s Marina Village in Alameda and will relocate to the business park from its previous location in Oakland’s City Center. Wind River’s activity dropped the vacancy in Marina Village from 33.72% to 27.8%. In Harbor Bay, Kaiser Permanente renewed their lease for 65,000 square feet in 1451 Harbor Bay Parkway. It was rumored that this requirement was going to be moved to Kaiser’s new Pleasanton campus so it was a vote of confidence for this submarket that Kaiser decided to renew. Absorption in Harbor Bay was negative 19,500 square feet. Berkeley There was 13,231 square feet of negative absorption in Berkeley through the quarter. MSCI Barra downsized from 59,000 square feet to 34,000 square feet and renewed their lease at 1st Milvia LLC’s 2100 Milvia Street. SKM will be marketing the remaining 30,000 square feet in the building, which MSCI Barra previously occupied. Cobalt Law signed a 6,066 square foot lease at Eat/Work Development LP’s 918 Parker Street. The law firm relocated from Bancroft Plaza. Hydro Science Engineers relocated from Napa to a 4,909 square foot suite on the 2nd floor of 739 Allston Way. After subleasing within the building for a number of years Northern California Cancer Center signed a direct lease for 3,328 square feet with Disability Rights Advocates at 2001 Center Street. A notice of default has been filed for the 2120 University Avenue building. This 44,000 square foot building has remained almost totally vacant since Lawrence Berkeley National Labs moved out of the building mid-2009. Richmond Voxis expanded and relocated to take a total of 6,500 square feet at Burt Clausen’s 1160 Brickyard Cove. The company was formerly located at 1150 Brickyard Cove. There was a 32,000 square foot lease signed at 1401 Marina Way South, the Lessee is rumored to be a Bingo parlor. In the hilltop area of Richmond, Landlords have indicated that Tenant tour activity is up substantially in the Blume Drive and Lakeside Drive areas. The Richmond market absorbed 2,080 square feet in the first quarter. Oakland Airport The Regional Center of the East Bay vacated approximately 60,000 square feet of space at Cranbrook’s 7677 Oakport Street moving to their new building near the San Leandro BART station. This vacancy coupled with other tenant shrinkage led to a negative absorption of 94,812 square feet for the quarter. In a trustee sale, 80 Swan Way, a 3-story 52,544 square foot building sold. The sales price was $1,580,000 or $28.75 PSF. At a point several years ago, raw land was selling in the Airport area for $25.00 PSF to give an indication in the drop in office values in this submarket. This was a CMBS Loan. 8393 Capwell Drive also sold, a 21,064 square foot 2-story office building. The buyer was Hume Jung and the seller 3
Slide 6: EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 was the John E. Pessin Living Trust, the sales price was $2,150,000 or $102.07 PSF. The Oakland Airport has always been one of the most economical markets in the East Bay. Some Landlords are marketing space quoting asking rates of $1.10-$1.20 PSF, fully serviced. Conclusion We’ve been hoping there was light at the end of the tunnel for quite some time for owners of office buildings in the East Bay. Based on some of the current economic trends and other favorable happenings, it looks as though relief may be on the way. It may take several years for a full recovery to manifest itself but in the meantime, tenants can take advantage of historical low rents in the market, upgrade their spaces, and receive flexible terms allowing for growth. We are hopeful that the rest of 2010 will bring continued good news and revive the job creation engine that we have historically been fortunate enough to experience in the East Bay. Best Regards, Daniel Pivnick (510) 923-9150 dpivnick@ccarey.com 4
Slide 7: EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 OFFICE - AVAILABLE SPACE Inventory Total SF Total Direct Vacancy Sublet Vacancy Total Available Total Vacancy 3Q09 Rental Rates ** Area Direct Sublet Richmond * Berkeley Emeryville - Class A Emeryville - Class B Oakland - Class A Oakland - Class B Oakland Airport Jack London Square - Oakland 2,153,517 2,558,666 2,557,268 1,331,081 6,227,704 2,972,483 1,975,828 1,435,330 1,840,329 1,659,874 24,712,080 605,724 324,364 335,534 183,504 740,444 726,268 544,646 276,202 282,528 441,902 4,461,116 28.13% 12.68% 13.12% 13.79% 11.89% 24.43% 27.57% 19.24% 15.35% 26.62% 18.05% 12,257 75,709 179,060 8,093 136,506 37,925 24,520 13,944 40,712 20,254 548,980 0.57% 2.96% 7.00% 0.61% 2.19% 1.28% 1.24% 0.97% 2.21% 1.22% 2.22% 617,981 400,073 514,594 191,597 876,950 764,193 569,166 290,146 323,240 462,156 5,010,096 28.70% 15.64% 20.12% 14.39% 14.08% 25.71% 28.81% 20.21% 17.56% 27.84% 20.27% Alameda - Harbor Bay Alameda - Marina Village TOTAL: * ** $1.50$1.85 $1.75$2.45 $2.00$2.35 $1.50$1.75 $2.35$2.95 $1.50$2.25 $1.55$1.95 $1.50$3.00 $1.65$1.85 $1.60$2.00 (Includes R&D Space) (Rental Rates are Class “A” Fully Serviced, except Class “B” Emeryville and Oakland) OFFICE ABSORPTION Area Richmond * Berkeley Emeryville Class A Emeryville Class B Oakland - Class A Oakland - Class B Oakland Airport Jack London Square - Oakland 1st Quarter 2010 2,080 (13,231) (46,856) (46,826) 77,162 (907) (94,812) 19,326 (19,500) 97,573 (25,991`) YTD 2009 (85,675) (4,841) 42,537 32,503 (201,667) (9,238) 74,718 (48,993) 47,940 (100,800) (253,516) Year 2008 (85,099) (70,908) (48,752) (33,859) (43,524) (36,539) (176,031) 7,077 (55,280) (133,081) (675,996) Year 2007 78,183 41,689 23,552 49,232 275,349 46,380 (51,405) 26,797 122,545 117,391 729,713 Alameda - Harbor Bay Alameda - Marina Village METROPOLITAN TOTAL: THE INFORMATION CONTAINED HEREIN WHILE NOT GUARANTEED HAS BEEN SECURED BY SOURCES WE DEEM RELIABLE. ALL INFORMATION SHOULD BE VERIFIED PRIOR TO LEASE OR SALE SOURCE: CORNISH & CAREY COMMERCIAL – 5980 HORTON STREET, SUITE 100, EMERYVILLE, CA 94608 510.923.6200 FAX 510.923.6260 5
Slide 8: EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 OFFICE MARKET HIGHLIGHTS Building 1451 Harbor Bay Parkway 2000 Powell Street 1300 Clay Street 2100 Franklin 2100 Milvia 1111 Broadway 300 Lakeside Drive 66 Franklin Street 505 14th Street 1300 Clay Street 6001 Shellmound Street Tenant Kaiser Permanente Gracenote US Bankruptcy Court Social Security Administration MSCI Barra UC Office of the President Foley & Mansfield Sungevity DeVry University Offices of Ben Berwick, Inc. Random House Landlord Limar Realty Corporation US Bank Shorenstein CIM Group SRM Shorenstein SWIG Ellis Parnters Shorenstein Shorenstein TMG Partners City Alameda Emeryville Oakland Oakland Berkeley Oakland Oakland Oakland Oakland Oakland Emeryville Size 65,000 (Renewal) 48,000 38,877 (Renewal) 35,000 34,000 (Renewal) 23,000 23,000 (Renewal) 20,000 15,768 14,996 9,162 LARGEST FISRT QUARTER 2010 OFFICE SALE TRANSACTIONS Building 600-610 16th Street 80 Swan Way Seller Affinity Bank Credit Swiss Buyer AB Chestnut LC Hamilton Zanz City Oakland Oakland Size (SF) 65,974 52,544 SIGNIFICANT FIRST QUARTER 2010 OFFICE AVAILABILITIES Building 1945 Broadway 2600 Hilltop Drive 2100 Franklin 55 Harrison 4655-4677 Meade St 2100 Powell Street 1201 Harbor Bay Parkway 1999 Harrison Street 880 Harbour Way South 1111 Broadway 1608 Fourth Street City Oakland Richmond Oakland Oakland Richmond Emeryville Alameda Oakland Richmond Oakland Berkeley Size (SF) 200,000 150,000 (labs) 142,000 100,000 82,000 (labs) 75,000 61,000 (labs) 61,000 60,000 60,000 58,281 Availability Now Now Now Now Now Now Now Now Now Now Now Direct/Sublease Direct Direct Direct Direct Direct Sublease Direct Sublease Direct Sublease Sublease 6
Slide 9: EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 OFFICE HISTORICAL STATISTICS Year 2001 Quarter 2001/Q1 2001/Q2 2001/Q3 2001/Q4 2002/Q1 2002/Q2 2002/Q3 2002/Q4 2003/Q1 2003/Q2 2003/Q3 2003/Q4 2004/Q1 2004/Q2 2004/Q3 2004/Q4 2005/Q1 2005/Q2 2005/Q3 2005/Q4 2006/Q1 2006/Q2 2006/Q3 2006/Q4 2007/Q1 2007/Q2 2007/Q3 2007/Q4 2008/Q1 2008/Q2 2008/Q3 2008/Q4 2009/Q1 2009/Q2 2009/Q3 2009/Q4 2010/Q1 Inventory 21,960,741 21,861,666 22,099,492 22,337,318 22,697,258 22,793,133 22,793,133 22,804,596 22,810,966 22,810,966 23,071,869 23,076,486 22,988,486 23,088,553 25,944,650 25,756,180 26,100,228 25,498,654 25,496,633 25,429,849 25,429,849 25,566,765 25,532,623 25,536,582 25,552,224 25,552,224 25,792,224 26,089,061 26,030,198 25,982,846 25,924,053 25,937,721 25,799,610 25,628,459 25,798,455 24,711,629 24,712,080 Direct Available 2,182,095 2,107,121 2,121,551 2,943,630 3,288,485 3,644,727 3,688,676 3,692,737 3,587,822 3,603,370 3,865,721 3,805,828 3,602,772 3,901,125 4,213,810 4,364,608 4,254,204 3,947,467 3,730,235 3,656,601 3,568,831 3,659,578 3,609,841 3,562,062 3,482,140 3,497,873 3,662,587 3,746,922 3,841,106 4,046,533 4,251,529 4,292,569 4,485,101 4,355,712 4,346,253 4,478,717 4,461,116 Sublease Available 518,157 842,519 1,513,815 1,468,472 1,391,274 1,479,172 1,514,435 1,441,720 1,734,957 1,851,034 1,438,000 1,378,922 1,421,122 1,194,400 1,047,373 851,531 825,622 882,868 821,619 779,369 765,385 692,945 507,798 399,933 519,873 500,096 557,460 544,061 593,005 485,143 384,686 450,818 430,793 520,272 589,036 529,518 548,980 Vacancy 12.30% 13.49% 16.45% 19.75% 20.62% 22.48% 22.83% 22.52% 24.47% 23.91% 22.99% 22.47% 21.85% 21.57% 20.28% 20.25% 16.30% 18.94% 17.85% 17.44% 17.04% 17.02% 16.13% 15.51% 15.66% 15.65% 16.36% 16.45% 17.03% 15.57% 17.88% 18.29% 19.05% 19.03% 19.13% 20.27% 20.27% Rental Rates* Absorption (601,056) $3.15 (49,448) $3.00 (654,145) $2.65 (956,094) $2.55 (138,794) $2.10 (348,175) $2.00 (79,302) $1.85 48,768 $1.95 (189,578) $1.90 (131,622) $1.85 356,372 $1.75 118,961 $1.75 161,323 $1.65 73,363 $1.65 163,192 $1.70 122,881 $1.75 271,398 $1.85 197,291 $1.95 278,490 $2.20 115,884 $2.35 101,754 $2.45 (18,299) $2.50 254,890 $2.60 328,290 $2.70 111,982 $2.80 6,185 $2.85 23,010 $2.85 227,215 $2.85 (237,306) $2.85 (132,438) $2.80 (104,910) $2.70 (117,172) $2.60 (172,499) $2.50 (72,663) $2.40 (34,694) $2.35 (117,625) $2.35 (25,991) $2.35 *Class A, Fully Serviced $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 2002 2003 2004 2005 2006 2007 2008 2009 2010 CLASS A HISTORICAL VACANCY RATES (%) VS. AVERAGE RENTAL RATES ($/SF/MONTH) 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Vacancy Rate Vacancy Rates Rental Rates Rental Rate 7
Slide 10: EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 OFFICE HISTORICAL STATISTICS Historical Direct Availability (SF) vs. Sublease Availablity (SF) 5,000,000 4,500,000 4,000,000 3,500,000 3,000,000 Direct Sublease Available Space (SF) 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 Historical Net Absorption (SF) vs. Vacancy Rates (%) 600,000 400,000 25.00% 200,000 0 20.00% 30.00% (200,000) 15.00% (400,000) (600,000) (800,000) 5.00% (1,000,000) (1,200,000) Absorption Vacancy Rate 10.00% 0.00% Vacancy Rate Absorption 8
Slide 11: EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 EAST BAY TENANT ACTIVITY – YTD 1Q10 BUILDING 1 2000 Powell Street 2 1300 Clay Street 3 2100 Milvia Street 4 2100 Franklin Street 5 1111 Broadway 6 7901 Oakport 7 66 Franklin Street 8 505 14th Street 9 1300 Clay Street 10 427 13th Street CITY Emeryville Oakland Berkeley Oakland Oakland Oakland Oakland Oakland Oakland Oakland PREVIOUS LOCATION Expansion Renewal Downsize Richmond Renewal Concord Berkeley New Location Expansion Jack London Square TENANT Sony Corporation (Gracenote) US Bankruptcy Courts MSCI Barra GSA - Social Security US Treasurers Office ITT Educational Services Sungevity DeVry University Ben Gerwick Rumsey Engineers LANDLORD US Bank Shorenstein SRM CIM Shorenstein Ardenbrook Ellis Partners Shorenstein Shorenstein Leslie Bldg. Assoc. SIZE (SF) 48,000 38,077 34,148 30,000 22,980 20,000 19,326 15,768 14,996 13,522 50% of Tenants Renewed or 5 out of 10 10 Tenants Compiling 256,817 Total Square Feet 9
Slide 12: EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 TENANTS IN THE MARKET – 1Q10 Tenant Demand by Submarket Desired Tenant Demand by Desired Size (Richmond to Oakland) 10
Slide 13: EAST BAY OFFICE & FLEX SPACE• FIRST QUARTER 2010 TENANTS IN THE MARKET – 1Q10 Tenant Demand by Business Type (Number of requirements out of a total of 70) 11