Q2 2012 Industrial Report

Industrial ReportNorth San Diego County

2nd Quarter 2012

PREPARED BY:

Adam Molnar

Greg Lewis

Tucker Hohenstein

Mike Erwin

COLLIERS INTERNATIONAL

5901 Priestly Drive, Suite 100

Carlsbad, CA 92008

Fax 760 438 8925

www.colliers.com/carlsbad

NORTH COUNTYAT A GLANCE


MARKET INDICATORS

INDUSTRIAL/R&D VACANCY RATESQ2 2012

Q2 2012 | INDUSTRIAL

CARLSBAD HISTORICAL MARKET TRENDS

9.8%

7.4%

6.2%

14.1%

5.6%

13.5%

0% 5% 10% 15%

North County

Vista

San Marcos

Oceanside

Escondido

Carlsbad

INDUSTRIAL/R&D VACANCY RATES Q2 2012

VISTA HISTORICAL MARKET TRENDS

OCEANSIDE HISTORICAL MARKET TRENDS SAN MARCOS HISTORICAL MARKET TRENDS

Q22012

Q32012 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

LEASE CONCESSIONS

Ocean

Escondido

Oceanside

Vista

San

MarcosCarlsbad

Submarket Buildings Total Inventory Vacant SF Vacancy Rate

Carlsbad 484 14,999,770 2,028,144 13.5%

Escondido 636 7,175,725 402,564 5.6%

Oceanside 394 8,014,725 1,128,279 14.1%

San Marcos 491 8,634,579 534,993 6.2%

Vista 530 13,374,822 987,737 7.4%

Total 2,535 52,199,621 5,081,717 9.8%

OVERVIEWThe North San Diego County industrial market is largely decentralized and comprised of fi 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. The following table summarizes the inventory and vacancy by submarket:

North San Diego County is well known for its highly skilled labor force, excellent transportation network, pro-growth business environment, signifi cant Federal Government presence, desirable vacation destination including world class beaches, resorts, golf venues, and abundant employee housing.

The North San Diego County industrial market is home to a diversifi ed mix of users including defense, telecommunications, software, medical manufacturing, golf and leisure sports, life science and technology fi rms. Corporate neighbors include:

Coca-Cola

Medtronic

Titleist Golf

ViaSat

Covidien

Abbott Labs

Genentech

Callaway Golf

L-3 Communications

SAIC

Isis Pharmaceuticals

Life Technologies

Cobra / Puma Golf

TaylorMade Golf

Denso Wireless

US Foods

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

ESCONDIDO HISTORICAL MARKET TRENDS NORTH COUNTY NET ABSORPTION TRENDS

5-Yr. Avg. = 91,368 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 2012

Q2

Vacancy R

ate

SF (

00

0s)

Net Absorption New Supply Vacancy

NORTH COUNTY HISTORICAL MARKET TRENDS

OVERVIEW

The total vacancy rate for Industrial/R&D product in North

County has dropped below 10% for the fi rst time since

2008, led by Carlsbad with 116k s.f. and Oceanside with

105k s.f. of positive absorption in 2Q 2012. Half way

through the year all fi ve North County submarkets are in

the black and the net absorption has already surpassed the

total for all of 2011. R&D product, which only accounts for

one fi fth of the overall inventory, has recorded more positive

absorption than Industrial in 2012. This is an encouraging

sign for the market considering that R&D has traditionally

lagged behind Industrial.

ACTIVITY

Vista led the charge in another impressive quarter for

leasing activity with 5 transactions totaling 227,000 SF that

included CTDI, Brown Safe, Select Supplements, Electra

Bicycle, and March Plasma. The largest lease deal in 2Q 2012 was Skin Medica’s 81,000 SF expansion and

relocation in Carlsbad. Other signifi cant lease transactions included Crescent Electric in San Marcos and Pillow

Pets in Carlsbad.

Investment sale activity was concentraed in Carlsbad and featured a little bit of everything including a fully

leased property with a partial sale leaseback (2777 Loker Avenue), a 90% vacant REO property (3115 Melrose

Drive), and a tenant in tow transaction (5770 Armada Drive). Owner user sales included Carlsbad Technology,

Inc. at 5928 Farnsworth Court in Carlsbad, Falmat at 1810 Diamond Street in San Marcos, and Buffi ni at 6349

Palomar Oaks Court in Carlsbad.

The only signifi cant land sale in 2Q 2012 was at Bressi Ranch in Carlsbad where Ryan Companies sold 8.0 acres

to a hotel developer for $13.50/SF.

FORECAST

The majority of distressed assets and land have been purged from the system and values are beginning to

reset. Expect vacancy to continue to trend downward in the second half of 2012 as a result of robust demand,

a dwindling inventory, and no new construction underway or in the planned stages. In particular, there were

very few large Industrial/R&D buildings (above 50,000 SF) developed during the last cycle because of high

land prices and construction costs. The result of this and recent absorption is a severe shortage of functional

buildings in this size range. Users with larger requirements or needs for newer, more functional product will

be forced to look towards Build to Suit options at higher rates or multiple locations. For the handful of functional

spaces that remain, look for upward pressure on lease rates and sale prices to move closer to replacement costs.

AT A GLANCE | Q2 2012 | INDUSTRIAL | NORTH COUNTY

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.

prepared by ADAM MOLNAR, GREG LEWIS

TUCKER HOHENSTEIN & MIKE ERWIN, 760 438 8950


OVERVIEW

Half way through 2012 the absorption numbers for Industrial/R&D in Carlsbad are on

pace to surpass those of 2011. R&D product outperformed Industrial for the second

quarter in a row with 161,324 SF of positive absorption, lowering the R&D vacancy

rate by more than two percentage points to 13.87%. The 116,164 SF of overall positive

absorption for Industrial/R&D in Q2 2012 was nearly 10 times that of Q1 and resulted in a

combined vacancy rate of 13.52%, down from 14.41% in Q1 2012.

ACTIVITY

Leasing activity was led by Skin

Medica’s choice to relocate and

expand into 81,712 SF within

the Carlsbad submarket. Other

signifi cant transactions included

Black Box Distribution who

signed a 65,000 SF lease with

BLT Enterprises as part of a sale

leaseback and Pillow Pets who

relocated from Oceanside. Others

including Linear Corporation and

Select Supplements decided to

renew at their current locations.

After a fi rst quarter that saw no sales activity, the market for both Investor and Owner

User sales rebounded aggressively in 2Q 2012. There were three signifi cant investment

sales including a fully leased property with a partial sale leaseback (2777 Loker Avenue),

a 90% vacant bank owned property (3115 Melrose Drive), and a tenant in tow transaction

(5770 Armada Drive). On the owner user side there were four transactions, the largest

of which took place at 5928 Farnsworth Court where Carlsbad Technology, Inc. was

able to buy a 52,000 SF building within walking distance of their current facility in the

Carlsbad Research Center.

FORECAST

With no new construction underway or in the planned stages and a signifi cant amount of

user activity in the market, expect vacancy rates to drop in the second half of 2012. In

particular, larger users above 75,000 SF face an acute shortage of options. As a result

of this lack of supply there has been an increase in Build to Suit inquiries. However,

lease rates and sale prices for new product based on land and construction costs are

still considerably higher than existing product. Expect a slight uptick in rents for existing

inventory due to these constraints.

MARKET INDICATORS




9.8%

7.4%

6.2%

14.1%

5.6%

13.5%

0% 5% 10% 15%

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 2012

Q2

Vacancy R

ate

SF (

00

0s)


CARLSBAD HISTORICAL MARKET TRENDS INDUSTRIAL/R&D VACANCY RATES Q2 2012



Ocean

Oceanside

Vista

SanMarcosCarlsbad

Q22012

Q32012 (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 2777 Loker Avenue Investor 123,454 $11,500,000 $93.15

2 3115 Melrose Drive Investor 103,547 $8,725,000 $84.26

3 5770 Armada Drive Investor 81,712 $15,600,000 $190.91

4 5928 Farnsworth Court Owner User 52,853 $4,670,453 $88.36

5 6349 Palomar Oaks Court Owner User 27,262 $2,990,000 $109.68

6 1911 Palomar Oaks Way Owner User 23,325 $2,654,000 $113.78

7 5816 Dryden Place Owner User 22,156 $1,713,168 $77.32

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

8 5770 Armada Drive Skin Medica 81,712 180 months Confidential

9 2777 Loker Avenue BlackBox Distribution 65,412 36 months $0.69 NNN

10 1950 Camino Vida Roble Linear Corp. (renewal) 50,000 72 months $0.95 NNN

11 2045 Corte del Nogal Pillow Pets 36,404 36 months Confidential

12 5800 Newton Drive Select Supplements (renewal) 28,857 60 months $0.79 NNN

13 5817 Dryden Place Weston Solutions 18,760 60 months $0.98 NNN

SALES ACTIVITY

LEASING ACTIVITY

TRANSACTION ACTIVITY - Q2 2012

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

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

Sy

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

8









AT A GLANCE | Q2 2012 | INDUSTRIAL | CARLSBAD


OVERVIEW

The Escondido Industrial market continues to rebound strongly from the turbulent last

few years. The industrial market boasts the lowest vacancy in all North County Cities and

it will continue its streak of three consecutive years of positive absorption. The vacancy

rate peaked in 2009 at 9%, and now is at a healthy 5.6% vacancy rate. Sales prices

have begun to climb for smaller buildings (less than 10k sf), and prices have stabilized

for larger buildings. Lease rates remain low but should begin to climb as the low supply

begins to eff ect the increased demand.

Regarding signifi cant developments

in Escondido: The Palomar

Pomerado Hospital is near

completion and we should begin to

see the Escondido Research and

Technology Center attract medical

tenants and supporting distribution

and manufacturing companies.

The Nordahl off -ramp and bridge

are being widened, as the hospital

infrastructure money is allocated

for infrastructure expense around

Escondido, which will improve

access for industrial tenants and truck routes. Also, Haman construction will begin

construction on the ~100,000 sf building for Cor-O-van, and Stone Brewery is working

on hotel drawings for submittal to the City.

ACTIVITY

There was more than 30 Escondido Industrial lease transactions in 2Q, with the majority of

activity occurring in the multi-tenant parks in sizes ranging from 1,000 sf to 4,000sf. There

were only four lease transactions over 10,000 sf, two of these were more than 20,000 sf.

These two larger tenants consisted of GP Strategies leasing the Decratek building on Progress

Place and VIT Products leasing 2344 Auto Parkway. Coincidently, the larger and smaller

tenants average lease rates have stabilized at approximately $.65 modifi ed gross.

The Sale transactions were also in the smaller range with three sales less than 6,000 sf, with

an average price of approximately $103 psf. There was a 10,000 sf short sale at $89 psf on

Engle as well as a 7,100 sf building on 2.44 acres of land that closed for $1.7M

FORECAST

The Escondido industrial market, which has historically been catagorized as a “mom and pop”

small building market is now beginning to get recognized as a potential destination for quality

tenants along the I-15 corridor. Moreover, it also surrounds a state-of-the-art and the newest

hospital in the nation, which will bring national attention to the city.

MARKET INDICATORS




9.8%

7.4%

6.2%

14.1%

5.6%

13.5%

0% 5% 10% 15%

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 2012

Q2

Vacancy R

ate

SF (

00

0s)


ESCONDIDO HISTORICAL MARKET TRENDS NORTH COUNTY NET ABSORPTION TRENDS

5-Yr. Avg. = 91,368 SF

NORTH COUNTY HISTORICAL MARKET TRENDS

Ocean

SanMarcos

Oceanside

Vista

Escondido

Carlsbad

Q22012

Q32012 (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 Ave

Washington Avenue

Washington Avenue

Tulip

St

Mission Avenue

Mission Avenue

Esco

ndid

o A

ve

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

No building sales above 10,000 square feet

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

1 2835 Progres Place GP Strategies 23,827 65 Months $0.68 NNN

SALES ACTIVITY

LEASING ACTIVITY










AT A GLANCE | Q2 2012 | INDUSTRIAL | ESCONDIDO


OVERVIEW

Oceanside continues to maintain the highest vacancy in North County at 14.08%.

However, the 105,017 SF of positive net absorption during Q2 2012 added to the 115,069

SF in Q1 brings the brings the midyear total of space sold and leased 220,086 SF. This

activity has reduced the vacancy from 17.10% to its current level which is a reduction of

3.02% in 6 months. There is now approximately 1.1m SF of vacant industrial space in the

market.

ACTIVITY

Industrial The activity in the

market is picking up. More

tenants and buyers are touring

the market than in previous

quarters. Some properties

have been receiving multiple

off ers to buy and lease which

has allowed owners to be

more selective in negotiating

transactions. In addition,

there are several large users

in the market looking at

existing spaces and comparing

those with Build To Suit

opportunities.

There was only one Industrial building sale that closed escrow in Q2. It was a 14,177 SF

bank owned property located at 417 Via Del Monte in the Oceanside Airport area.

Lease activity was excellent in the smaller multi-tenant projects with both new

transactions and lease renewals. The smaller tenants returning to the market is a good

sign that a broader based recovery is underway despite the challenges with the overall

unemployment rate in San Diego and the State. DiMaggio Maintenance signed a 5 year

lease for 10,000 SF at 3310 Via de la Valle.

FORECAST

Oceanside occupancy will be hurt in second half of the year as Genica recently

announced it would be relocating out of 145,000 SF in two buildings in the Prescott

Industrial park and relocating to a 160,000 SF facility they purchased in Temecula. The

property owners and the City of Oceanside worked hard to keep them but Genica was

able to acquire a larger building at a very attractive price and consolidate under one

roof. This increased their effi ciency and lowered operating costs. There are a handful of

buildings in escrow now in Oceanside. We are optimistic this activity will help shore up

occupancy to off set the Genica loss.

MARKET INDICATORS




9.8%

7.4%

6.2%

14.1%

5.6%

13.5%

0% 5% 10% 15%

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 2012

Q2

Vacancy R

ate

SF (

00

0s)


OCEANSIDE HISTORICAL MARKET TRENDS SAN MARCOS HISTORICAL MARKET TRENDS Ocean

Oceanside

Vista

SanMarcosCarlsbad

Q22012

Q32012 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

LEASE CONCESSIONS

OCEANSIDEAT A GLANCE

Oceanside

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

1 417 Via Del Monte Lola Gouge 14,177 $1,116,000 $78.72

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

2 3310 Via de la Valle DiMaggio Maintenance 10,000 60 months $0.58/G

SALES ACTIVITY

LEASING ACTIVITY


AT A GLANCE | Q2 2012 | INDUSTRIAL | OCEANSIDE










OVERVIEW

San Marcos posted its fourth consecutive quarter of positive net absorption bringing

industrial vacancy to 6.2%, which is down from 6.9% at the end of Q1 and near the lowest

in North County. Low vacancy and positive absorption has helped stabilize lease and sale

prices and positioned San Marcos for rent and price growth. The San Marcos industrial

market is comprised on 491 buildings totaling 8.6 Million square feet with an average

building size of 17,000 square feet.

ACTIVITY

The majority of activity during Q2

occurred in the smaller spaces with

the average transaction size of 6,000

square feet and average lease rate of

$.68/SF Gross. Crescent Electric’s

lease of 30,000 square feet at 295

Distribution Street was the only lease

transaction completed above 10,000

square feet. With the completion of

this transaction there are only six

available spaces larger than 20,000

square feet in the entire San Marcos

submarket. Falmat purchased a

48,000 square foot building they had been leasing at 1810 Diamond for $88/SF. Action

Auto Collision purchased 9,216 square feet on Rancheros for $102/SF.

The City has drafted an updated industrial zoning ordinance to coincide with the General

Plan that was adopted in February 2012. The new zoning designations are now consistent

with the General Plan and the code better defi nes allowable uses. The draft code can be

viewed at http://www.ourcityourfuture.com/working-documents. Additionally, construction

is near complete on the fi rst phase of student housing located in the University District. The

University District is entitled to provide the following uses:

1 Million square feet of street level and big box retail

950,000 SF of professional/medical offi ce

2,600 residential housing units

800 student housing units

FORECAST

San Marcos is a supply constrained market that will see rate and price appreciation as a

result of continued demand. Owner-users and developers alike will have to look to vacant

land to satisfy the need for larger blocks of space in San Marcos.

MARKET INDICATORS




10.6%

8.1%

6.9%

15.5%

6.5%

14.4%

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 2012

Q2

Vacancy R

ate

SF (

00

0s)


SAN MARCOS HISTORICAL MARKET TRENDS

Ocean

Oceanside

Vista

SanMarcos

Escondido

Carlsbad

Q22012

Q32012 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

LEASE CONCESSIONS

SAN MARCOSAT A GLANCE

San Marcos


1 1810 Diamond Street Owner User 48,298 $4,250,000 $88.00

2 923 Rancheros Owner User 9,216 $945,000 $102.54


3 295 Distribution Street Crescent Electric Supply 30,140 72 months $0.50 NNN

4 1020 Linda Vista Drive Ste B John Hargrove 7,040 60 months $0.60 GRS

5 1365 Grand Ave #100-104 Rampage Brewing Company 6,770 60 months $0.93 GRS

6 220 Bingham Drive #101 World Mission Society Church 6,329 24 months $0.63 GRS

SALES ACTIVITY

LEASING ACTIVITY










AT A GLANCE | Q2 2012 | INDUSTRIAL | SAN MARCOS


OVERVIEW

A surge in Q2 tenant activity helps Vista cut its vacancy rate from to 8.1% to 7.39%. Five

leases totaling 227,000 square feet of gross absorption accounted for the majority of Q2

activity and resulted in 75,000 square feet of net absorption. The Vista industrial market

is comprised of 530 buildings totaling 13 million square feet with an average building size

of 25,000 square feet.

ACTIVITY

Vista’s leasing activity surpassed all other North County submarkets. Brown Safe led the

way by leasing 65,000 square feet from real estate investment fi rm Pacifi ca Enterprises,

Inc., who purchased the building vacant for $58/SF only three months earlier.

Communications Test Design, Inc. (59K), Select Supplements (39K) and March Plasma

(24K) all expanded or relocated from Carlsbad, while Electra Bicycle, an existing Vista

tenant, expanded into 39,000 square feet. Lease rates during Q2 averaged $.55/SF NNN.

Vista is benefi ted from limited supply in San Marcos and higher prices in Carlsbad. Even

though Q2 saw an increase in activity there is still a surplus of space available, 11 spaces

to be exact, between 30-50,000 square feet.

FORECAST

Lease rates in the 30-50,000 square foot range will remain fl at until occupancy

increases, while spaces outside this size range could see more immediate rate increases.

The recent trend of tenant migration from neighboring cities will likely continue as it

becomes increasingly diffi cult to fi nd space and/or match the value Vista off ers. There

has been an increase in build-to-suit inquires from tenants seeking space greater than

50,000 square feet due to lack of available options in North County. We expect pricing on

good quality larger buildings to move closer to replacement cost.

MARKET INDICATORS




9.8%

7.4%

6.2%

14.1%

5.6%

13.5%

0% 5% 10% 15%

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 2011 2012

Q2

Vacancy R

ate

SF (

00

0s)




Q22012

Q32012 (forecast)

VACANCY

NET ABSORPTION

CONSTRUCTION

RENTAL RATE

LEASE CONCESSIONS

Ocean

Oceanside

Vista

SanMarcosCarlsbad

VISTAAT A GLANCE

Vista


1 2510 Pioneer Avenue Owner User 13,140 $1,025,000 $78.01

Only one sale above 10,000 SF occurred during Q2


2 1081 Poinsettia Avenue Brown Safe Mfg 65,002 92 months $0.62 NNN

3 995 Joshua Way Ste A CTDI 59,144 36 months $0.51 NNN

4 2390 Oak Ridge Way Select Supplements 39,672 72 months undisclosed

5 3275 Corporate View Drive Electra Bicycle 38,808 60 months $0.61 NNN

6 2370 Oak Ridge Way Ste B March Plasma Systems, Inc. 24,592 60 months $0.54 NNN


SALES ACTIVITY

LEASING ACTIVITY

Sycamore Ave

Sycamore Ave

Syc

amor

e Ave

Oleander Ave

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

Busin

ess

Park D

rB

usin

ess

Park D

r

Faraday AveFaraday Ave

AT A GLANCE | Q2 2012 | 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%

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12%

-4.0

-3.0

-2.0

-1.0

0.0

1.0

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4.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Q2

Vaca

ncy

Rate

SF (M

illio

ns)


NEW SUPPLY, ABSORPTION AND VACANCY RATES

8.0%

9.5%

9.0%

9.1%

18.5%

11.0%

13.8%

14.0%

0% 5% 10% 15% 20%

I-15 Corridor

North County

Central County

S.D. County

R&D Industrial

INDUSTRIAL VACANCY RATES Q2 2012

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

$1.40

$1.50

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

$ /

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)

45.0%

29.8%

14.3% 5.9%

5.0% <= 2,000 SF [243]

2,001 - 5,000 SF [161]

5,001 - 10,000 SF [77]

10,001 - 20,000 SF [32]

>= 20,001 SF [27]

INDUSTRIAL LEASING ACTIVITY BY TENANT SIZE Percentage of Total Leases Completed in Q2 2012

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 2012Q2

Vaca

ncy

Rate

SF (M

illio

ns)



8.0%

9.5%

9.0%

9.1%

18.5%

11.0%

13.8%

14.0%

0% 5% 10% 15% 20%

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

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

$ /

SF /

Mon

th (N

NN

)



45.0%

29.8%

14.3% 5.9%

5.0% <= 2,000 SF [243]

2,001 - 5,000 SF [161]

5,001 - 10,000 SF [77]

10,001 - 20,000 SF [32]

>= 20,001 SF [27]


rENtAl rAtES

Since a historical high point in Q3 2008, the countywide average asking rental rate for combined industrial and R&D space has been steadily decreasing. Since Q1 2011, rents have stabilized in the low-$0.80/SF/month range. The Q2 2012 average rate of $0.83/SF/month is still 16% less than the historical high.

lEASING ActIVItY

around 540 leases were completed in Q2 2012, totaling approximately 3.2 million SF. 89% of all leases were 10,000 SF or less, while only 11% of all leases were over 10,000 SF in size. Smaller tenants made up a larger proportion of all leases signed in Q2 and had a 13% increase in deal volume over Q1.

www.colliers.com/sandiego

maRKET REpORTSAN DIEGO cOUNtY


Industrial market posts stellar absorption in Q2 Positive demand seen in almost every submarket

MArKEt OVErVIEW San Diego County’s industrial/R&D continued its fourth straight quarter of positive demand with an outstanding 1.16 million SF of net absorption. The first of this year posted over 1.83 million

SF of net absorption which beat out the last half of 2010 which posted nearly 1.7 million SF. Robust leasing activity in Q3 and Q4 last year led to increased occupancies in Q1 and Q2 this year. Leasing activity continued to be strong in the first half of the year which should equate to

continued substantial net absorption for the last six months of the year. net absorption for 2012 will likely be between 2.2 and 2.6 million SF with vacancy standing between 10.1% and 10.3%.

The may 2012 San Diego County unemployment rate measured 8.8%, exhibiting no change from april. The California unemployment rate decreased (-0.1%) in may and stood at 10.4% while the national rate increased (+0.2%) to 7.9%. as of may 2012, San Diego County experienced a year-over-year increase in non-farm employment totaling 13,400 jobs. The combined industry sectors of “Trade, Transportation, and Utilities” and “manufacturing” – the two predominant industrial-utilizing employment sectors – posted a net increase of 1,600 jobs over the same period.

in march, the USD Burnham-moores Center for Real Estate’s index of Leading Economic Indicators for San Diego posted a 0.9% increase. This was the fifth consecutive month of

increases that was driven primarily by significant gains in local consumer confidence and

decreased initial claims for unemployment insurance. initial claims for unemployment insurance have decreased for seven consecutive months. Help wanted advertising has had 16 months of consistent growth.

MArKEt trENDS

massive positive demand drove countywide net absorption to nearly 1.2 million SF in Q2 and 1.8 million SF year-to-date. in 2012, net absorption is trending toward exceeding 2 million SF, making it potentially the best year for demand since 2006. no new construction was completed in Q2 but nearly 130,000 SF will be completed for the year. Vacancy stood at 10.5% and will settle near 10% by year-end.

MArKEt INDIcAtOrS

INDUStrIAl VAcANcY rAtESQ2 2012

Q2 2012 Q3 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 2012Q2

Vaca

ncy

Rate

SF (M

illio

ns)



8.0%

9.5%

9.0%

9.1%

18.5%

11.0%

13.8%

14.0%

0% 5% 10% 15% 20%

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

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

$ /

SF /

Mon

th (N

NN

)



45.0%

29.8%

14.3% 5.9%

5.0% <= 2,000 SF [243]

2,001 - 5,000 SF [161]

5,001 - 10,000 SF [77]

10,001 - 20,000 SF [32]

>= 20,001 SF [27]


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 2012Q2

Vaca

ncy

Rate

SF (M

illio

ns)



8.0%

9.5%

9.0%

9.1%

18.5%

11.0%

13.8%

14.0%

0% 5% 10% 15% 20%

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

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

$ /

SF /

Mon

th (N

NN

)



45.0%

29.8%

14.3% 5.9%

5.0% <= 2,000 SF [243]

2,001 - 5,000 SF [161]

5,001 - 10,000 SF [77]

10,001 - 20,000 SF [32]

>= 20,001 SF [27]


inched down by 17 basis points to 0.5% in Q2 making it the lowest rate recorded by Colliers since tracking started twelve years ago. This sublease vacancy rate equated to space of nearly 956,000 SF countywide.

Vacancy has tended to remain stable in the 11%-12% range for almost three years, in part due to comparable levels of new construction (supply) and net absorption (demand). However, the Q2 drop to 10.5% is the first time vacancy has been

below 11% since Q2 2009. Even conservative estimates of demand should place vacancy in the low-10% range by year-end and in the mid-9% range a year from now.

NEW SUPPlY no new construction has been completed year-to-date although there is 253,245 square

feet under construction. This includes a 129,845-square-foot build-to-suit for HOiST Fitness in poway to be completed in Q4 2012 and a 123,400-square-foot additional building in the illumina campus in the Campus point/Eastgate submarket which will be completed in mid-2013.

proposed new development totals about 7.88 million SF with 69% of this space concentrated in just four submarkets: Otay mesa, Carlsbad, East County and Oceanside. Even with increasing demand, the majority of immediate to mid-term future development will be concentrated in build-to-suits.

512 offices in 61 countries on 6 continentsUnited States: 125Canada: 38Latin america: 18Asia Pacific: 214

EmEa: 117

• $59.6 billion in annual transactions

• 1.0 billion square feet under management

• Over 12,500 professionals

MARKET REPORT | Q2 2012 | INDUSTRIAL | SAN DIEGO COUNTY

SAN DIEGO cOUNtY

The San Diego County industrial/R&D market is comprised of 188.3 million SF 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 submar-kets of the Central County market. industrial buildings (including manufac-turing, 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

6122-6126 Nancy Ridge Drive Sorrento Mesa R&D 68,000 $20,000,000 $294

2777 Loker Avenue W. Carlsbad Industrial 123,454 $11,500,000 $93

Centerpointe Tech Center Miramar R&D 152,745 $10,150,000 $66

11011 Torreyana Road Torrey Pines R&D 76,694 $10,000,000 $130

8851-8877 Kerns Street Otay Mesa Industrial 115,290 $5,722,500 $50

PROPERTY NAME/ADDRESS SUBMARKET TYPE SIZE SF

9043 Siempre Viva Road Otay Mesa Industrial 257,972 Imperial Toy

8409 Kerns Street Otay Mesa Industrial 124,068 Pacific World Corporation

1081 Poinsettia Avenue Carlsbad Industrial 65,002

1601 Precision Park Lane South Bay Industrial 61,502

10275 Science Center Drive Torrey Pines R&D 43,159 Takeda San Diego


SALES ACTIVITY

LEASING ACTIVITY

Palletas Y Mas

TENANT NAME

Brown Safe Manufacturing

NEt ABSOrPtION Q2 combined industrial/R&D net absorption totaled a positive 1.16 million SF. nearly every single submarket recorded positive net absorption with Otay mesa leading the pack with nearly 40% of all of the square footage. Countywide net absorption for industrial space (manufacturing, warehouse, distribution, and multi-tenant/incubator building uses) totaled a positive 718,012 SF and R&D space (flex, wet lab and corporate headquarters building uses) totaled a positive 440,927 SF.

increased absorption activity for smaller tenants less than 10,000 SF continued into Q2. new leasing activity during the quarter was up 12% which should bode well for absorption in the latter half of the year. additionally, many large leases pending occupancy in the next two quarters will add to significant absorption for the year. This could

likely put absorption in 2012 to over 2 million SF – a level of demand not seen since 2006.

positive net absorption was recorded in 17 of the 21 San Diego County submarkets. Such demand spread out throughout the county is what drove positive net absorption to such a high level in Q2. However, there were some notable submarkets such as Otay mesa which led the pack with 442,549 SF

– or 38% of the net absorption countywide. Other strong markets included Campus point/Eastgate (+106,369 SF) and Oceanside (+105,017 SF).

The countywide overall industrial/R&D average asking rental rate reached its market bottom of $0.80/SF/mo. in Q1 2011. For the last six quarters, the rent has settled in the low-$0.80 range and stood at $0.83/SF/month in Q2 2012. During Q2, nearly all submarkets either had minimal increases in the asking rent or they remained unchanged. The north County and i-15 Corridor markets had no change in asking rents while the Central County average increased by $0.02 to end the quarter at $0.81/SF/month.

VAcANcY The overall vacancy rate decreased by 75 basis points in Q2, settling in at 10.5%. The industrial and R&D vacancy components measured 9.1% and 14.0%, respectively. Compared to one year ago, R&D vacancy has increased by 81 basis points (14.8% in Q2 2011) while industrial vacancy has decreased by 99 basis points (10.0% in Q2 2011).

The Q2 2012 combined industrial/R&D direct vacancy rate decreased to 10.0% compared to 10.6% at the end of Q1. The sublease vacancy

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 3,052 81,865,813 8.7% 0.2% 9.0% 9.9% 568,806 856,122 0 0 2,361,960 $0.64North County 2,189 40,194,582 9.3% 0.2% 9.5% 10.1% 208,034 302,554 0 0 1,449,951 $0.69I-15 Corridor 302 10,570,385 7.5% 0.4% 8.0% 7.4% (58,828) (41,506) 0 129,845 382,900 $0.87TOTAL 5,543 132,630,780 8.8% 0.2% 9.1% 9.7% 718,012 1,117,170 0 129,845 4,194,811 $0.68R&D TOTALS BY MARKET Flex, wet lab and corporate headquartersCentral County 822 34,338,583 12.2% 1.6% 13.8% 14.8% 280,387 380,617 0 123,400 1,622,724 $1.16North County 346 12,005,039 10.8% 0.2% 11.0% 12.6% 167,940 261,395 0 0 1,458,474 $1.08I-15 Corridor 134 9,331,288 17.7% 0.9% 18.5% 18.5% (7,400) 70,668 0 0 605,000 $1.01TOTAL 1,302 55,674,910 12.8% 1.2% 14.0% 14.9% 440,927 712,680 0 123,400 3,686,198 $1.10COMBINED INDUSTRIAL / R&D BY MARKET AND SUBMARKETCentral CountyAirport / SA 76 1,888,166 5.3% 0.0% 5.3% 3.8% (26,949) (66,919) 0 0 0 $0.91Campus Pt / Egate 42 4,065,514 14.6% 7.8% 22.4% 27.4% 106,369 59,676 0 123,400 601,967 $2.25Central San Diego 397 8,377,286 4.9% 0.0% 4.9% 5.5% (6,857) 5,712 0 0 0 $0.81East County 604 14,165,043 7.4% 0.1% 7.4% 8.1% 74,965 76,848 0 0 1,229,000 $0.66Kearny Mesa 650 17,391,882 5.1% 0.4% 5.5% 6.0% 69,848 148,392 0 0 65,691 $1.01Miramar 583 13,758,699 10.2% 0.3% 10.5% 10.8% (18,860) 115,500 0 0 0 $0.88Mission Gorge / Vly 95 2,273,798 8.6% 2.7% 11.3% 13.1% 40,871 42,190 0 0 0 $0.82Otay Mesa 294 14,645,578 18.1% 0.7% 18.8% 22.5% 442,549 567,864 0 0 1,619,960 $0.48Rose Cyn / Morena 189 4,140,283 6.7% 0.0% 6.7% 5.8% 44,570 48,572 0 0 0 $0.75Sorrento Mesa 273 13,496,370 13.4% 0.3% 13.6% 13.5% 14,113 103,658 0 0 229,136 $1.09Sorrento Valley 106 3,411,905 8.6% 1.8% 10.4% 11.4% 46,699 49,546 0 0 0 $1.39South Bay 498 13,557,015 7.0% 0.1% 7.1% 7.4% 47,691 42,857 0 0 0 $0.58Torrey Pines 67 5,032,857 14.9% 0.5% 15.4% 15.7% 14,184 42,843 0 0 238,930 N/ATOTAL 3,874 116,204,396 9.8% 0.6% 10.4% 11.3% 849,193 1,236,739 0 123,400 3,984,684 $0.81North CountyCarlsbad 484 14,999,770 13.7% 0.1% 13.9% 14.4% 63,687 108,030 0 0 1,357,132 $0.98Escondido 636 7,175,725 5.4% 0.2% 5.6% 6.5% 70,473 30,912 0 0 39,500 $0.72Oceanside 394 8,014,725 13.8% 0.2% 14.1% 15.5% 105,017 220,086 0 0 1,227,361 $0.63San Marcos 491 8,634,579 5.9% 0.3% 6.2% 6.9% 61,468 97,165 0 0 53,000 $0.92Vista 530 13,374,822 7.3% 0.1% 7.4% 8.1% 75,329 107,756 0 0 231,432 $0.68TOTAL 2,535 52,199,621 9.7% 0.2% 9.8% 10.6% 375,974 563,949 0 0 2,908,425 $0.79I-15 CorridorPoway 215 8,196,473 4.5% 0.5% 5.0% 5.1% 7,087 (24,770) 0 129,845 447,900 $0.79Rancho Bernardo 146 9,559,699 17.2% 0.0% 17.2% 16.4% (75,421) 71,875 0 0 0 $1.01Scripps Ranch 75 2,145,501 20.5% 3.8% 24.3% 24.4% 2,106 (17,943) 0 0 540,000 $0.96TOTAL 436 19,901,673 12.3% 0.6% 12.9% 12.6% (66,228) 29,162 0 129,845 987,900 $0.95SAN DIEGO COUNTY COMBINED INDUSTRIAL / R&DTOTAL 6,845 188,305,690 10.0% 0.5% 10.5% 11.3% 1,158,939 1,829,850 0 253,245 7,881,009 $0.83QUARTERLY COMPARISONQ2 2012 6,845 188,305,690 10.0% 0.5% 10.5% 11.3% 1,158,939 1,829,850 0 253,245 7,881,009 $0.83Q1 2012 6,850 188,446,284 10.6% 0.7% 11.3% 11.5% 559,233 559,233 0 253,245 7,747,009 $0.82Q4 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 $0.81

* 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

Q2 2012

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 2012Q2

Vaca

ncy

Rate

SF (M

illio

ns)



8.0%

9.5%

9.0%

9.1%

18.5%

11.0%

13.8%

14.0%

0% 5% 10% 15% 20%

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

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

$ /

SF /

Mon

th (N

NN

)



45.0%

29.8%

14.3% 5.9%

5.0% <= 2,000 SF [243]

2,001 - 5,000 SF [161]

5,001 - 10,000 SF [77]

10,001 - 20,000 SF [32]

>= 20,001 SF [27]


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 2012Q2

Vaca

ncy

Rate

SF (M

illio

ns)



8.0%

9.5%

9.0%

9.1%

18.5%

11.0%

13.8%

14.0%

0% 5% 10% 15% 20%

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

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

$ /

SF /

Mon

th (N

NN

)



45.0%

29.8%

14.3% 5.9%

5.0% <= 2,000 SF [243]

2,001 - 5,000 SF [161]

5,001 - 10,000 SF [77]

10,001 - 20,000 SF [32]

>= 20,001 SF [27]


rENtAl rAtES

Since a historical high point in Q3 2008, the countywide average asking rental rate for combined industrial and R&D space has been steadily decreasing. Since Q1 2011, rents have stabilized in the low-$0.80/SF/month range. The Q2 2012 average rate of $0.83/SF/month is still 16% less than the historical high.

lEASING ActIVItY

around 540 leases were completed in Q2 2012, totaling approximately 3.2 million SF. 89% of all leases were 10,000 SF or less, while only 11% of all leases were over 10,000 SF in size. Smaller tenants made up a larger proportion of all leases signed in Q2 and had a 13% increase in deal volume over Q1.


maRKET REpORTSAN DIEGO cOUNtY


Industrial market posts stellar absorption in Q2 Positive demand seen in almost every submarket

MArKEt OVErVIEW San Diego County’s industrial/R&D continued its fourth straight quarter of positive demand with an outstanding 1.16 million SF of net absorption. The first of this year posted over 1.83 million

SF of net absorption which beat out the last half of 2010 which posted nearly 1.7 million SF. Robust leasing activity in Q3 and Q4 last year led to increased occupancies in Q1 and Q2 this year. Leasing activity continued to be strong in the first half of the year which should equate to

continued substantial net absorption for the last six months of the year. net absorption for 2012 will likely be between 2.2 and 2.6 million SF with vacancy standing between 10.1% and 10.3%.

The may 2012 San Diego County unemployment rate measured 8.8%, exhibiting no change from april. The California unemployment rate decreased (-0.1%) in may and stood at 10.4% while the national rate increased (+0.2%) to 7.9%. as of may 2012, San Diego County experienced a year-over-year increase in non-farm employment totaling 13,400 jobs. The combined industry sectors of “Trade, Transportation, and Utilities” and “manufacturing” – the two predominant industrial-utilizing employment sectors – posted a net increase of 1,600 jobs over the same period.

in march, the USD Burnham-moores Center for Real Estate’s index of Leading Economic Indicators for San Diego posted a 0.9% increase. This was the fifth consecutive month of

increases that was driven primarily by significant gains in local consumer confidence and

decreased initial claims for unemployment insurance. initial claims for unemployment insurance have decreased for seven consecutive months. Help wanted advertising has had 16 months of consistent growth.

MArKEt trENDS

massive positive demand drove countywide net absorption to nearly 1.2 million SF in Q2 and 1.8 million SF year-to-date. in 2012, net absorption is trending toward exceeding 2 million SF, making it potentially the best year for demand since 2006. no new construction was completed in Q2 but nearly 130,000 SF will be completed for the year. Vacancy stood at 10.5% and will settle near 10% by year-end.

MArKEt INDIcAtOrS

INDUStrIAl VAcANcY rAtESQ2 2012

Q2 2012 Q3 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 2012Q2

Vaca

ncy

Rate

SF (M

illio

ns)



8.0%

9.5%

9.0%

9.1%

18.5%

11.0%

13.8%

14.0%

0% 5% 10% 15% 20%

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

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

$ /

SF /

Mon

th (N

NN

)



45.0%

29.8%

14.3% 5.9%

5.0% <= 2,000 SF [243]

2,001 - 5,000 SF [161]

5,001 - 10,000 SF [77]

10,001 - 20,000 SF [32]

>= 20,001 SF [27]


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 2012Q2

Vaca

ncy

Rate

SF (M

illio

ns)



8.0%

9.5%

9.0%

9.1%

18.5%

11.0%

13.8%

14.0%

0% 5% 10% 15% 20%

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

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Q112

Q212

$ /

SF /

Mon

th (N

NN

)



45.0%

29.8%

14.3% 5.9%

5.0% <= 2,000 SF [243]

2,001 - 5,000 SF [161]

5,001 - 10,000 SF [77]

10,001 - 20,000 SF [32]

>= 20,001 SF [27]


inched down by 17 basis points to 0.5% in Q2 making it the lowest rate recorded by Colliers since tracking started twelve years ago. This sublease vacancy rate equated to space of nearly 956,000 SF countywide.

Vacancy has tended to remain stable in the 11%-12% range for almost three years, in part due to comparable levels of new construction (supply) and net absorption (demand). However, the Q2 drop to 10.5% is the first time vacancy has been

below 11% since Q2 2009. Even conservative estimates of demand should place vacancy in the low-10% range by year-end and in the mid-9% range a year from now.

NEW SUPPlY no new construction has been completed year-to-date although there is 253,245 square

feet under construction. This includes a 129,845-square-foot build-to-suit for HOiST Fitness in poway to be completed in Q4 2012 and a 123,400-square-foot additional building in the illumina campus in the Campus point/Eastgate submarket which will be completed in mid-2013.

proposed new development totals about 7.88 million SF with 69% of this space concentrated in just four submarkets: Otay mesa, Carlsbad, East County and Oceanside. Even with increasing demand, the majority of immediate to mid-term future development will be concentrated in build-to-suits.

512 offices in 61 countries on 6 continentsUnited States: 125Canada: 38Latin america: 18Asia Pacific: 214

EmEa: 117

• $59.6 billion in annual transactions

• 1.0 billion square feet under management

• Over 12,500 professionals


Q2 2012 Industrial Report

Real Estate

Transcript of Q2 2012 Industrial Report