New Supply and a Tight Labor Market

Research & Forecast Report OAKLAND METROPOLITAN AREA OFFICE Q1 New Supply and a Tight Labor Market > > Leasing activity is 227,237 square feet year to date > > Vacancy this quarter was 8.6 percent compared to 6.9 percent last quarter > > Net absorption (current quarter) is negative 609,324 square feet With the latest real GDP growth rate of 1.9 percent, slowly rising interest rates, and 4.5 percent unemployment against a backdrop of the nascent Trump Administration and a new economic course, economists description of the US economy as being in a state of moderate, uneven expansion seems accurate enough. The Dow surpassed 20,000 for the first time, declining sharply in March, then climbed back to surpass 21,000 in a fitting example of market expectations. Short term flux notwithstanding, economists believe we are much closer to the end of the expansion than to the beginning. Some believe the current cycle will continue for another one to two years, while others believe that Trump s policies may extend the expansionary cycle, causing a larger correction when an inflection point does arrive. Oakland Metropolitan Area All Classes Vacancy Rate Average Asking Rent Overall vacancy increased by 1.7% in the first quarter of ; rental rates increased from $2.91 to $3.09. Following the increase from the fourth quarter to the first quarter, we expect rents to stabilize with the potential for a moderate increase. Overall vacancy should remain stable with a potential for a decrease after a relatively large jump from the previous quarter. $3.30 $3.13 $2.96 $2.79 $2.61 $2.44 $2.27 $2.10 Market Indicators United States Unemployment Rate 4.5% Summary Statistics Q1 Oakland Metropolitan Area Office Market 2.40 Previous Quarter 125.6 Market Trends Relative to prior period Q1 Q2 * Vacancy Rental Rate Net Absorption Construction *Projected 10-Year Nominal Interest Rate Current Quarter Overall Vacancy 6.9% 8. Net Absorption 270,196-609,324 Construction Completed - - Under Construction 270,227 890,027 Overall Asking Rents $2.91 $3.09 Class A Asking Rents $3.93 $4.19 Class B/C Flex Asking Rents $2.66 $2.74 U.S. National Economic Indicators Consumer Confidence U.S. Unemployment Rate 4.7% 4.5% California Unemployment Rate 5. 5. Alameda County Unemployment Rate 4. 3.9% Contra Costa Unemployment Rate 4.1% 4.1% U.S. Labor Force Participation Rate 62.7% 63. U.S. Consumer Price Index 2.41% 2.4 U.S. Interest Rate - 10 Yr Treasury 2.45% 2.4 U.S. Business Confidence Index 99.90 101.00 U.S. Consumer Confidence Index 113.70 125.60

Oakland Metropolitan Area A region that has normally outperformed the nation in at least the past five years has some market observers worrying about a similar slowdown. Economist Ken Rosen offers that companies like Twitter and GoPro are cutting back growth. The most applicable example of a tech company going through a rough patch is Uber, which made the decision in March to pull back from the Uptown Station Building while simultaneously dampening much of the original buzz surrounding the implications of the ride-sharing company s entrance to Oakland. With potentially hundreds of thousands of square feet of renovated office space, the Uptown Station Building could potentially be a great opportunity for a big name tech company to do what Uber has decided not to: test the waters in a new market with a short term lease commitment. Overall full service ( FS ) rents have been rising steadily for the past several years and have lately neared an all-time high in the first quarter of at $3.09 per square foot per month. Rents seem to have found a balance between accommodating much needed development in Oakland while still attracting tenants from outside the market. Blue Shield of California is one of the latest organizations to take advantage of this rent differential, announcing in March its decision to move its headquarters and 1,200 workers from San Francisco to Oakland in one of the biggest office leases in the city s history. The health plan provider will occupy a third of the 600,000 square foot office building at 601 City Center starting in 2019. Around the same time this quarter, it was reported that the University of California s Office of the President will be expanding its footprint in Oakland in 2019 with a 130,000 square foot long term lease in what will be a newly developed 320,000 square foot office tower at the long-stalled 1100 Broadway site. So while Uber might not be making the plunge, other large companies are. In a more immediate outlook, activity from emerging companies has been relatively quiet. Large blocks of space are not being taken up quite quickly enough: the year to date ( YTD ) net absorption numbers are a staggering negative 609,324 square feet, compared with numbers from the same period a year ago of positive 87,415 square feet. Downtown Oakland and Emeryville submarkets are responsible for the bulk of new space coming on the market, with Berkeley making up a smaller but not insignificant piece of the pie. Vacancy numbers paint a similar story: overall vacancy increased from 6.9 percent to 8.6 percent from the fourth quarter of, with Downtown Oakland, Emeryville, and Berkeley submarkets logging the biggest increases. Expect YTD net absorption to remain in the red next quarter due a tight labor market (3.9 percent unemployment in Alameda County) and the sheer amount of supply that came available this quarter. In the event that tenant activity picks up, new housing will be there to welcome new employees and residents. Construction began in February on MacArthur Commons, which will be a 385-unit multifamily development directly adjacent to the MacArthur BART station in the Temescal district. Webster Street is also seeing a major transformation with several projects in the pipeline, including Gerdling Eden s 206-unit residential development at 1700 Webster Street, Holland Partner Group s planned 25-story mixed-use project at 1721 Webster Street, and a seven story mixed-use project at 1750 Webster Street. The challenge for the market now is finding tenants. Oakland Metropolitan Area Class A Oakland Metropolitan Area Class B $4.30 2 $3.00 $4.11 1 1 $2.88 $2.76 $3.93 $2.64 $3.74 $3.56 $2.52 $2.40 $2.28 $3.37 $3.19 $2.16 $2.04 $1.92 $3.00 $1.80 Vacancy Rate Average Asking Rent 2 Oakland Research & Forecast Report Q1 Office Colliers International

Significant Lease Activity RICHMOND Blue Shield 601 12th Street, Oakland Mar- BERKELEY 230,000 - Direct INTERSTATE CALIFORNIA 880 Kaiser Foundation Health Plan, Inc. 2101 Webster Street, Suite 1400, Oakland Feb- EMERYVILLE 80 OAKLAND 24,210 - Renewal Comfy 1504 Franklin Street, Oakland Feb- 27,336 - Direct Kaiser Foundation Health Plan, Inc. ALAMEDA 2417 Central Avenue, Alameda Jan- 24,904 - Renewal 580 FRANCISCO BAY LEANDRO LORENZO INTERSTATE CALIFORNIA 880 Significant Sale Activity PROPERTY ADDRESS SALE DATE SIZE BUYER TYPE 2001 Addison Street, Berkeley Feb- 28,805 MAIA Holdings Investment 3 Oakland Research & Forecast Report Q1 Office Colliers International

Market Comparisons Oakland OFFICE MARKET CLASS BLDGS TOTAL INVENTORY DIRECT DIRECT SUBLEASE SUBLEASE TOTAL CURRENT QUARTER PRIOR QUARTER NET ABSORPTION CURRENT QTR NET ABSORPTION YTD AVG ASKING FULL SERVICE CBD SECTION OAKLAND - DOWNTOWN A 30 10,206,445 245,943 2. 135,590 1.3% 381,533 3.7% 2. (173,827) (173,827) $4.55 B/C & Flex 114 5,407,729 432,046 8. 12,497 0. 444,543 8. 6.9% (72,752) (72,752) $4.02 Total 144 15,614,174 677,989 4.3% 148,087 0.9% 826,076 5.3% 3.7% (246,579) (246,579) $4.27 OAKLAND - JACK LONDON SQUARE A 4 355,600 49,030 13. - 0. 49,030 13. 14. 771 771 $4.31 B/C & Flex 41 1,285,539 87,170 6. 13,070 1. 100,240 7. 6.1% (21,443) (21,443) $3.51 Total 45 1,641,139 136,200 8.3% 13,070 0. 149,270 9.1% 7. (20,672) (20,672) $3.77 CBD TOTAL A 34 10,562,045 294,973 2. 135,590 1.3% 430,563 4.1% 2. (173,056) (173,056) $4.52 B/C & Flex 155 6,693,268 519,216 7. 25,567 0. 544,783 8.1% 6.7% (94,195) (94,195) $3.93 Total 189 17,255,313 814,189 4.7% 161,157 0.9% 975,346 5.7% 4.1% (267,251) (267,251) $4.19 SUBURBAN SECTION RICHMOND B/C & Flex 98 3,480,353 96,621 2. 47,844 1. 144,465 4. 4.1% (2,001) (2,001) $1.51 Total 98 3,480,353 96,621 2. 47,844 1. 144,465 4. 4.1% (2,001) (2,001) $1.51 BERKELEY - DOWNTOWN A 9 558,882 10,018 1. - 0. 10,018 1. 1.5% (1,785) (1,785) $3.50 B/C & Flex 28 974,473 26,849 2. - 0. 26,849 2. 1. (13,162) (13,162) $2.84 Total 37 1,533,355 36,867 2. - 0. 36,867 2. 1. (14,947) (14,947) $3.02 BERKELEY - WEST B/C & Flex 41 1,517,619 308,666 20.3% 52,240 3. 360,906 23. 20.5% (49,423) (49,423) $2.74 Total 41 1,517,619 308,666 20.3% 52,240 3. 360,906 23. 20.5% (49,423) (49,423) $2.74 EMERYVILLE A 15 2,668,348 191,671 7. 40,266 1.5% 231,937 8.7% 6. (66,009) (66,009) $3.74 B/C & Flex 44 1,683,088 247,570 14.7% 68,088 4. 315,658 18. 11.9% (115,694) (115,694) $2.83 Total 59 4,351,436 439,241 10.1% 108,354 2.5% 547,595 12. 8. (181,703) (181,703) $3.22 ALAMEDA - MARINA VILLAGE B/C & Flex 51 1,600,673 180,924 11.3% 55,602 3.5% 236,526 14. 12.1% (43,176) (43,176) $2.45 Total 51 1,600,673 180,924 11.3% 55,602 3.5% 236,526 14. 12.1% (43,176) (43,176) $2.45 ALAMEDA - HARBOR BAY B/C & Flex 28 1,684,784 315,439 18.7% - 0. 315,439 18.7% 21. - - $2.29 Total 28 1,684,784 315,439 18.7% - 0. 315,439 18.7% 21. - - $2.29 OAKLAND - AIRPORT A 2 455,697 17,844 3.9% - 0. 17,844 3.9% 4.3% 1,634 1,634 $2.35 B/C & Flex 34 1,576,808 244,549 15.5% 4,200 0.3% 248,749 15. 12. (52,457) (52,457) $1.59 Total 36 2,032,505 262,393 12.9% 4,200 0. 266,593 13.1% 10. (50,823) (50,823) $1.64 SUBURBAN TOTAL A 26 3,682,927 219,533 6. 40,266 1.1% 259,799 7.1% 5.3% (66,160) (66,160) $3.64 B/C & Flex 324 12,517,798 1,420,618 11.3% 227,974 1. 1,648,592 13. 11. (275,913) (275,913) $2.35 Total 350 16,200,725 1,640,151 10.1% 268,240 1.7% 1,908,391 11. 10. (342,073) (342,073) $2.52 MARKET TOTAL A 60 14,244,972 514,506 3. 175,856 1. 690,362 4. 3. (239,216) (239,216) $4.19 B/C & Flex 479 19,211,066 1,939,834 10.1% 253,541 1.3% 2,193,375 11. 9.7% (370,108) (370,108) $2.74 TOTAL 539 33,456,038 2,454,340 7.3% 429,397 1.3% 2,883,737 8. 6.9% (609,324) (609,324) $3.09 QUARTERLY COMPARISON AND TOTALS Q1-17 539 33,456,038 2,454,340 7.3% 429,397 1.3% 2,883,737 8. 6.9% (609,324) (609,324) $3.09 Q4-16 539 33,456,038 2,002,622 6. 320,077 1. 2,322,699 6.9% 8.1% - 299,177 $2.91 Q3-16 539 33,456,038 2,483,226 7. 223,830 0.7% 2,707,056 8.1% 7.5% - (133,024) $3.07 Q2-16 539 33,456,038 2,299,544 6.9% 222,485 0.7% 2,522,029 7.5% 7.5% - 45,984 $2.98 Q1-16 539 33,456,038 2,432,423 7.3% 73,057 0. 2,505,480 7.5% 7. - 87,415 $2.61 Q4-15 539 33,456,038 2,484,207 7. 82,120 0. 2,592,895 7. 8.5% - 1,587,681 $2.33 Q3-15 539 33,456,038 2,729,609 8. 126,614 0. 2,856,223 8.5% 10. - 1,297,785 $2.31 Q2-15 539 33,456,038 3,268,246 9. 142,564 0. 3,410,810 10. 12.1% - 743,198 $2.30 Q1-15 539 33,456,038 3,863,047 11.5% 193,081 0. 4,056,128 12.1% 12. - 97,880 $2.23 4 Oakland Research & Forecast Report Q1 Office Colliers International

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