Soma Ofc Q3'09

PREPARED BY DONNETTE CLARENS AND ELIZABETH HART

SOMA Office Market

415-513-2170

Submarket Update --- 3rd Quarter, 2009

[email protected] --- Lic #01234877 [email protected] --- Lic #01499002

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Market Statistics Total Inventory (sf)

Availability (%)

Net Absorption (sf)

SOMA

10,679,148

31.23%

(417,035)

SAN FRANCISCO

83,604,019

18.75%

(511,631)

Total Available (sf)

Class A Asking Rents

Class B Asking Rents

SOMA

3,335,143

$30.30

$27.00

SAN FRANCISCO

15,675,924

$34.64

$27.26

SOMA Office Market Historical Vacancy vs Asking Rates

Availability

Leasing Activity Trends While the above quarterly indicators show continued market softening due to increased availability and lowered asking rents, tenant tour activity and transactions increased greatly in Q3 as a result of pent up demand and increased confidence in business growth going forward. The largest factor in SOMA’s negative absorption was Wells Fargo vacating 349k sf at 155 5th Street. Nektar Therapeutics completed the largest lease transaction of the quarter in San Francisco by leasing over 100k of space in Mission Bay in never occupied sublease from Pfizer. The remaining top 5 transactions in Soma were existing tenants renewing and/or expanding. This is largely contributed to companies’ desire to take advantage of low rents, while minimizing any out of pocket expenses and business disruption that can occur as a result of a change in location. To the extent that a renewal or direct expansion is available to tenants and landlords are realistic, this remains a positive way to take advantage of the soft market. Deal flow in the 10k plus range increased substantially and several prime SOMA assets, like 410 Townsend, saw a strong uptick in leasing activity. This quarter alone 410 Townsend welcomed Yammer/Eventbrite, Playdom and Zendesk as new tenants and renewed Sony. All deals were in the high teens/low 20s on a full service equivalent basis. However, even with the combined nearly 40k of leasing recently completed, there is still an additional 20k of plug & play space available for lease within the asset.

Tech Transactions across the Bay Area All eyes are on SOMA at the beginning of Q4 to see if Zynga (pending for 137k at 500 Terry Francois) and Twitter (pending for 30k at 795 Folsom on an off market AOL/Bebo sublease) will complete their respective transactions. Other companies that have been shopping the market like Stumble Upon (20k) and JustinTV (10k) are settling in on locations, leaving many to believe Q4 could result in transaction activity not seen since before the economic crash in late 2008. Across the Bay Area, San Mateo saw the completion of two large tech transactions. Demandtec completed an 82k sublease from Franklin Templeton, while Genentech appeased fears of further layoffs as a result of the Roche acquisition by completing a 75k transaction in South San Francisco. Further down the 101, Ning backfilled 20k of Facebook sublease space in downtown Palo Alto. Tesla completed the largest Bay Area transaction of the quarter by taking 350,000 sf at Stanford Research Park, fulfilling Stanford’s desire to bring more green tenants to the area.

SUBMARKET UPDATE

PREPARED BY DONNETTE CLARENS AND ELIZABETH HART 415-513-2170

SOMA Office Market

[email protected] [email protected]

Submarket Update --- 3rd Quarter, 2009

______________________________________________________________________ Significant SOMA Lease Transactions Tenant Nektar Therapeutics Brown & Toland Cisco Zynga Mark Monitor

Square Feet 102,283 51,871 37,000 20,021 19,313

Type Sublease Renewal Expansion Expansion Renewal

Location 455 Mission Bay Blvd 160 King Street 185 Berry Street 444 DeHaro Street 303 Second Street

Forecast Continued rebound in tenant demand and completion of large transactions. Slowdown in sublease space hitting the market. However, no rental increases throughout the rest of the year and a continuance of deals being down in high teens/low $20s for commodity space and high 20s/low $30s for higher end creative space. Tenants take advantage of the soft market to renew early.

Office Vacancy By Subm arket

14.35% 31.23% 10.39% 160 King, San Francisco, Brown & Toland Brown & Toland, a medical multi-disciplinary independent practice, was the largest SOMA transaction of the quarter by renewing at 160 King for 7 years in the mid/high $20s Full Service.

10.56% 11.45%

9.53%

North Financial District

South Financial District

North Waterfront/Jackson Sq.

Van Ness/Civic Center

Union Square

SoMa

185 Berry, San Francisco, Cisco Cisco expanded their footprint at 185 Berry in the low/mid $30s, as a result of Cisco’s Pure Digital acquisition. Pure Digital was previously a tenant in Union Square.

SUBMARKET UPDATE