CBRE Global Research and Consulting

Puget Sound Area, OfficeMarketView Q3 2012

The Puget Sound office market continued to strengthen during the third quarter of 2012, largely in part to employment growth at high-tech tenants, most notably Amazon.com. The online retailer’s footprint has grown by 1.3 million square feet in the last two years, fueling the drop in office vacancy. Other large technology tenants signing leases this quarter include drugstore.com and Tyler Technologies. The quarter-ending figure of 15.6% is the ninth consecutive quarter of declining vacancy.

The third quarter saw several high value investment deals—the largest being Amazon.com’s intent to purchase its 1.8 million-square-foot headquarters buildings in the Lake Union submarket. This transaction is expected to fetch $1.16 billion; one of the nation’s highest-priced real estate transactions this year, and will likely set a Puget Sound area record at $644 per square foot. The Eastside market saw Beacon Capital Partners sell two properties this quarter; City Center Bellevue for $229 million to American Assets Trust, and Skyline Tower

to Kilroy Realty Corporation for nearly $187 million. In the Southend market, AEW Capital Management sold the Cascade East and West and Atrium Buildings at Centerpoint Corporate Park to Fountainhead Development Inc. for $46 million.

The Puget Sound office market realized 342,411 SF of net absorption this quarter, bringing the year-to-date total to 2.18 million square feet. As a result of increased leasing activity, total vacancy dropped to 15.6%, nearly 40 basis-points lower than last quarter. Direct Class A rents increased to a weighted average of $28.63/SF, per year, full service. Eight office projects are currently under construction totaling 820,896 SF with 60% of the space preleased. Another 20 million square feet of announced projects is in the pipeline. The forecast is for a continued decline in vacancy and an increase in rental rates, especially quality Class A space in downtown Seattle and the Bellevue CBD.

UNEMPLOYMENT8.0% YoY August

OFFICE–USING EMPLOYMENT*1.5% YoY August

POSITIVE ECONOMIC GROWTH MAKES SEATTLE MARKET ATTRACTIVE TO INVESTORS

YTD OFFICE SALES VOLUME$2.18 Billion

GROSS METRO PRODUCT3.5%

© 2012, CBRE, Inc.

Chart 1: Total Vacancy vs. Average Direct Asking Lease Rate

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Total Vacancy Rate 15.63%Total Class A Avg. Asking Rental Rate $28.14

*Office using employment consists of the Information, Financial Activities and Professional & Business Services sectors in King, Snohomish and Pierce Counties, not seasonally adjusted.

Hot Topics

• The Seattle-Bellevue-Everett-Tacoma combined unemployment rate at the end of August finished at 8.0%, much stronger than the state-wide unemployment rate of 8.5%.

• Investor interest in Class A Seattle office properties has resulted in sale transactions totaling over $2.18 billion to date in 2012.

• Availability of premium Class A space continues to decline in the Seattle and Bellevue Central Business Districts.

Quick Stats

Change from Last

Q3 2012 Yr. Qtr.

Total Vacancy 15.6% i i

Direct Lease Rate $28.63 h h

Net Absorption 342,411 SF i i

Completions — i i

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Table 1: Market Statistics

Chart 2: Unemployment Rate

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May11 Jun11 Jul11 Aug11 Sep 11 Oct 11 Nov11 Dec11 Jan12 Feb12 Mar12 Apr12 May12 Jun12 Jul 12 Aug12

King Co. 6.9% WA State 8.4%Snohomish Co. 7.9% U.S. Avg. 7.9%

Pierce Co. 9.5% (Not seasonally adjusted)

King Co. 7.4% Pierce Co. 9.4% U.S. Avg. 8.2%Snohomish Co. 8.3% WA State 8.5% (Not seasonally adjusted)

ECONOMY/UNEMPLOYMENT RATEIn September 2012, Businessweek.com placed Seattle second of the 100 largest metropolises in its annual ranking of “America’s Best Cities.” This honor is due to the abundance of leisure activities, high education level of current residents and strong job prospects from several major employers, especially in the software, aerospace and retail industries. Employment in the Business Services sector, which encompasses software development, grew by 8,700 workers or 3.75% in 12 months. This is nearly matched by the gain in aerospace manufacturing, 7,600 new jobs or a 7.5% increase over the same time period. In total, employment grew by 43,500 workers in King and Snohomish Counties and another 4,500 in Pierce County in the last 12 months—pushing vacancy rates down and fueling demand for new buildings.

SubmarketBuilding

SFTotal

Vacancy %

Class A Avg.Asking DirectLease Rate

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Class A Avg.Asking TotalLease Rate

(Full Service PSF/Yr)

Q3 NetAbsorption

Last 4 Qtrs Net

Absorption Under

ConstructionSeattle CBD 20,267,129 14.4% $32.36 $31.89 20,015 341,819 — Waterfront 2,232,173 10.1% $28.66 $25.94 (24,727) 17,694 — Pioneer Square 4,032,141 19.9% $30.19 $29.17 21,633 175,874 — Denny Triangle/Regrade 6,935,851 17.9% $30.84 $30.12 241,375 596,384 — Lower Queen Anne 3,070,626 17.9% $34.16 $34.16 (51,098) 7,030 51,555 Lake Union 5,145,033 5.8% $28.92 $29.08 (6,247) 196,125 502,896 Canal 1,323,832 6.1% $26.67 $26.67 13,286 54,330 47,445

Downtown Seattle 43,006,785 14.2% $31.57 $31.25 214,237 1,389,256 601,896 North Seattle/Interbay 2,382,438 13.4% $24.03 $24.13 15,433 64,544 — Capitol Hill/E Seattle/Rainier 1,103,325 20.2% $23.10 $23.10 1,887 207,313 — South Seattle 1,582,508 27.2% $24.35 $24.35 33,356 44,726 200,000

Seattle Close-In 5,068,271 19.2% $24.20 $24.23 50,676 316,583 200,000 Sea-Tac 951,574 42.9% $23.46 $23.46 6,416 (7,132) — Tukwila 2,101,105 14.1% $20.13 $20.13 12,353 2,624 — Renton 3,122,922 9.8% $22.80 $22.72 (688) (28,790) — Kent 1,223,908 32.3% $22.05 $21.76 26,778 (26,453) — Auburn 289,025 12.9% $20.35 $20.35 — (14,888) — Federal Way 2,102,953 30.6% $20.63 $19.44 (2,395) 6,244 —

Southend 9,791,487 21.3% $22.01 $21.42 42,464 (68,395) — Bellevue CBD 7,925,601 12.0% $33.69 $32.70 110,676 198,011 — I-405 2,910,799 17.0% $28.45 $28.38 (40,359) 18,512 — SR-520 2,579,812 15.5% $28.21 $28.09 (17,282) 81,005 — I-90 6,726,625 11.5% $30.18 $30.15 (32,383) 156,015 — Bel-Red Road 1,440,326 9.0% $28.08 $28.08 18,719 22,632 19,000 Kirkland 1,465,805 7.4% $30.73 $30.70 (4,052) 56,988 — Redmond 4,247,895 19.0% $26.25 $26.20 (17,855) 107,296 — Bothell 3,195,293 17.4% $23.40 $22.82 (16,085) (12,487) —

Eastside 30,492,156 13.8% $29.04 $28.64 1,379 627,972 19,000 Lynn/Edm/Mtlk Terr 2,502,650 25.4% $24.69 $24.74 4,037 (26,065) — Everett 1,747,331 14.2% $21.68 $21.68 255 15,066 —

Northend 4,249,981 20.8% $23.80 $23.94 4,292 (10,999) — Tacoma CBD 2,856,552 21.7% $24.92 $27.67 27,964 23,462 — Tacoma Suburban 1,235,161 11.6% $22.38 $22.38 (6,656) (16,218) — Fife 213,994 17.5% $24.00 $24.74 (4,200) (4,642) — Puyallup 456,997 30.4% $20.28 $20.28 12,255 17,018 —

Tacoma/Fife 4,762,704 19.7% $23.78 $26.74 29,363 19,620 — Market Total 97,371,384 15.6% $28.63 $28.14 342,411 2,274,037 820,896

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Chart 3: Vacancy

Chart 4: Total Asking Rental Rates

Chart 5: Under Construction, Absorption and Construction Completions

Direct Vacant 14,046,672Sublease Vacant 1,175,023

Total Vacant 15,221,695

Total Absorption 342,411 Construction Completions —

Under Construction 820,896

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Downtown $31.25 Southend $21.42 Northend $23.94 Regional Avg. $28.14Seattle Close-In $24.23 Eastside $28.64 Tacoma/Fife $26.74

VACANCY Vacancy in the Puget Sound continued to decrease due to strong demand. The total vacancy rate (direct and sublease space) dropped to 15.6% from 16.0% last quarter and 18.0% this time last year. The Seattle Close-In market experienced the largest swing, dropping an entire percentage point to 19.2%. Lager deals in that market for the quarter include Bartell Drugs moving into West Seattle Corporate Center and growth in the University District neighborhood. The northern submarkets of Downtown Seattle still maintain the lowest rates in the region with 5.8% in Lake Union, and 6.1% in the Canal. Recently announced leases in Downtown Seattle include 72,800 SF leased to Attachmate at 705 Union Station and a 29,600-SF expansion for Double Down Interactive. The Eastside market maintained a total vacancy rate of 13.8%. In this market the shift from suburban office to CBD is pronounced. Vacancy in the Bellevue CBD submarket dropped 140 basis points over the quarter to 12%.

TOTAL ASKING RENTAL RATESAs business confidence rises, central business district asking rates are showing stronger growth than the market as a whole. Class A total (direct and sublease) asking rates for Downtown Seattle rose to $31.14/SF, and Eastside rates jumped to $28.64/SF, 4.3% and 3.7%, respectively over the last 12 months. The average asking Class A rate in the Seattle CBD reached $31.89/SF, and the Bellevue CBD leads with an asking rate of $32.70/SF, 6.3% and 7.5% growth rates, respectively, over this time last year. This trend is also displayed in the vacancy rate gap. The Bellevue CBD Class A vacancy rate is 11.8% while Class B is 17.3%. These results coincide with absorption trends showing tenants are moving from suburban space into central business districts across Puget Sound.

UNDER CONSTRUCTIONHammers are being swung in several parts of the region due to strong tenant demand. Construction is underway for a 173,899 SF research building for UW Medicine, and the finishing touches are being put on Phase V for Amazon.com, a 340,563 SF building on Boren Ave North. Another large construction project in the area is Homeplate Center, 168,000 SF of Class A office space being built by American Life, a local developer. Spear Street Capital is building 202 Westlake and announced this quarter it had leased all 129,000 SF to Amazon.com.

ABSORPTION & CONSTRUCTION COMPLETIONS The third quarter of 2012 saw a flurry of absorption in Downtown Seattle and the Bellevue CBD and no construction deliveries. The Denny Triangle/Regrade submarket witnessed the most absorption, 214,237 SF this quarter. Amazon.com can be credited with a good deal of the expansion, filling 320,000 SF in West 8th, while KPMG moved into 45,000 SF in 1918 Eighth. The Eastside was the only market to experience negative absorption (1,132 SF), though the Bellevue CBD took in 111,880 SF of net growth. Expanding tenants include New York Life, who moved into 30,000 SF at The Summit. Global Scholar relocated into 31,000 SF and Caradigm opened a 68,900-SF office, both at City Center Bellevue.

© 2012, CBRE, Inc.

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MARKET AREA DESCRIPTIONS

Downtown SeattleDowntown Seattle consists of 43,006,785 SF (44%) of the office market gross leasable area (GLA). It includes office buildings west of I-5 from the Ship Canal in Fremont to Royal Brougham near the stadiums.

Seattle Close-InThe Seattle Close-In market consists of 5,068,271 SF (5%) of the office market GLA. It includes office buildings within the city limits of Seattle, Shoreline and Lake Forest Park, not included in the downtown submarket.

SouthendThe Southend consists of 9,791,487 SF (10%) of the office market GLA. It comprises all of King County south of Lake Washington.

Tacoma/FifeTacoma/Fife consists of 4,762,704 SF (5%) of the office market GLA. It comprises Pierce County.

EastsideThe Eastside consists of 30,492,156 SF (31%) of the office market GLA. It comprises all King County markets directly east of Lake Washington, plus that portion of Bothell extending into Snohomish County.

NorthendThe Northend consists of 4,249,981 SF (4%) of the office market GLA. It consists of Snohomish County except that portion of Bothell extending into Snohomish County.

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U.S. RESEARCH

Carolyn DavisResearch Manager Puget Sound Area CBRE 1420 Fifth AvenueSuite 1700Seattle, WA 98101t: +1 206 292 6098 e: carolyn.davis@cbre.com

Jim BowlesSenior Managing DirectorPuget Sound Area CBRE 1420 Fifth AvenueSuite 1700Seattle, WA 98101t: +1 206 292 6101 e: jim.bowles@cbre.com

John R. MillerManaging DirectorBrokerage Services CBRE 1420 Fifth AvenueSuite 1700Seattle, WA 98101t: +1 206 292 6102 e: johnmiller@cbre.com

Steve PennManaging DirectorAsset Services CBRE 1420 Fifth AvenueSuite 1700Seattle, WA 98101t: +1 206 292 6065 e: steve.penn@cbre.com

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GLOBAL RESEARCH AND CONSULTING This report was prepared by the CBRE U.S. Research Team which forms part of CBRE Global Research and Consulting—a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe.

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Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we

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completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be

reproduced without prior written permission of the CBRE Global Chief Economist. cjm 10-26-12

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